May 25 (Reuters) - Georgia State Representative Allen Peake
owns 20 restaurants and this year he took his frustrations with
his tax bills to the state capitol, where he helped push through
legislation creating a new state tax court.
"I've had several sales tax audits done and disputed them,
and never felt I had a fair shake," said Peake, echoing the
views of other business owners.
Before Peake's bill passed, Georgia taxpayers challenging
state tax authorities had to pay disputed taxes before
appealing them. Their appeals would be heard by the same
Department of Revenue that levied the tax in the first place.
And further appeals could be overruled by the revenue
commissioner or heard by a judge without tax expertise.
Under the new system, tax appeals will be heard by a tax
expert who is independent of Georgia's Department of Revenue,
and taxpayers will not have to pay disputed taxes before appeal.
Six U.S. states have established or considered establishing
independent tax tribunals in the last two years, a trend
supported by the business community, but one which also is
stirring debate about the need for these new tribunals.
In addition to Georgia, Illinois approved a law last year to
create a tax court by 2013.
In Alabama, Governor Robert Bentley announced Thursday that
he will pocket veto legislation that would create a new state
tax tribunal, due to flaws in the bill, but will support its
reintroduction in the next legislative session.
Eighteen other states have well-established tax courts, and
another nine states and the District of Columbia offer
independent tax courts or forums that do not have to be staffed
by tax experts.
Twenty-one states, including Alabama, do not have
independent tax courts at all, among them are three of the
largest states - California, Texas and Florida.
CRITICS SEE MORE COMPLEXITY
Some critics say independent tax tribunals layer costs and
complexity onto systems that already are slow and cumbersome,
helping tax lawyers perhaps more than their clients.
States set them up nonetheless, in part because the systems
make them appear friendlier to business at a time of high
unemployment and interstate rivalry for jobs.
"How you're treated as a taxpayer does impact your
perception of the business climate," said Douglas Lindholm,
president of the Council on State Taxation (COST), a group of
large companies that is a driving force for state tax courts.
"In the fiscal downturn, states are becoming more cognizant
of this, as they should," he said.
Of the 18 established state tax courts or tribunals, four
have been created since 2003 - in West Virginia, Alaska, Kansas
and Mississippi. Counterparts in Oregon, Wyoming, New Hampshire,
New York and Indiana date to the 1990s and 1980s. Another nine
have been around for more than 30 years.
Their structures vary from state to state, but generally
these tribunals offer a place where taxpayers can challenge the
decisions of tax authorities, from individual and corporate
income taxes to sales and property taxes.
States without an independent court generally rely on
administrative hearing systems within their revenue departments
to adjudicate tax disputes, like the one Georgia had. Unhappy
taxpayers in these systems often may appeal to state courts, but
these lack specialized tax judges.
Proponents of the new tax courts include lawyers' groups and
corporations. They say the courts handle appeals more quickly
and in ways that are fairer to taxpayers than when the appeals
are under the control of state revenue departments.
COST, Lindholm's group, publishes a scorecard every few
years grading state tax administrations, including whether a
state has an independent forum staffed by tax experts. Georgia's
grade in the latest survey, done before the new court was
created, was a C minus. That should now improve.
But that kind of grading is misguided, say critics, who
argue that the new courts are expensive and unnecessary.
"We are in a terrible budget crunch, and this just creates
another level of bureaucracy and another thing to fund," said
David Stout, a spokesman for the Alabama Education Association,
which represents school employees and has opposed creating a tax
court in that state.
STATE COURTS MORE OPEN
Like the U.S. Tax Court for federal taxes in Washington,
D.C., the state courts allow taxpayers to appeal tax
assessments. Unlike the U.S. Tax Court, state courts often make
their hearings and records public, sometimes including
taxpayers' tax returns.
State income tax collections from corporations have fallen
in recent years, but state taxes have also become more complex,
said Michael Mazerov, a state tax expert at the Center on Budget
and Policy Priorities, a Washington fiscal policy think tank.
Corporate tax departments are spending more time dealing
with state taxes, which makes businesses more interested in
expert appeals reviews, said Bruce Ely, an Alabama tax lawyer
and long-time proponent of forming a tax court in that state.
In Alabama, tax appeal cases rose to 1,135 in 2009 from 387
in 1995, according to state records.
State tax cases are not restricted to small, local firms.
Several Trump casino properties are appealing their Atlantic
City property tax assessments in New Jersey tax court. Online
travel group Expedia has brought a case in the Hawaii Tax Court
that is expected to go to trial in October.
Companies also increasingly push similar litigation
strategies in multiple states at once, raising the complexity of
cases state judges must decide, state tax court experts said.
Individuals as well as businesses can use the tax courts,
and some of the courts, including Georgia's new one, provide for
expedited, less-expensive "small claims" divisions.
That is not enough to satisfy critics, however, who say the
tax courts are not needed and administrative tax reviews serve
taxpayers well. They cite figures showing taxpayers win more
often than they lose these appeals, even when there is no
The Illinois Department of Revenue, which has traditionally
heard tax appeals itself, was one of the opponents of that
state's new court.
Department spokeswoman Susan Hofer said a tax court will
make appeals more time-consuming and costlier since taxpayers
will have to hire lawyers. She said the present administrative
review system collects $30 million in delinquent taxes each year
for the state, something an independent judge may be less
concerned about expediting.
(Reporting by Nanette Byrnes; additional reporting by Patrick
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