Legislature(1995 - 1996)

02/29/1996 04:12 PM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
          JOINT HOUSE JUDICIARY STANDING COMMITTEE AND                         
              HOUSE STANDING COMMITTEE ON FINANCE                              
                       February 29, 1996                                       
                           4:12 p.m.                                           
 HOUSE JUDICIARY MEMBERS PRESENT                                               
 Representative Brian Porter, Chairman                                         
 Representative Joe Green, Vice Chairman                                       
 Representative Al Vezey                                                       
 Representative Cynthia Toohey                                                 
 Representative David Finkelstein                                              
 HOUSE JUDICIARY MEMBERS ABSENT                                                
 Representative Bettye Davis                                                   
 Representative Con Bunde                                                      
 HOUSE FINANCE MEMBERS PRESENT                                                 
 Representative Mark Hanley, Co-Chair                                          
 Representative Eldon Mulder                                                   
 Representative Terry Martin                                                   
 Representative Sean Parnell                                                   
 Representative Gene Therriault                                                
 Representative Mike Navarre                                                   
 Representative Ben Grussendorf                                                
 Representative Vic Kohring                                                    
 HOUSE FINANCE MEMBERS ABSENT                                                  
 Representative Richard Foster, Co-Chair                                       
 Representative Kay Brown                                                      
 Representative Pete Kelly                                                     
 COMMITTEE CALENDAR                                                            
 HOUSE BILL NO. 341                                                            
 "An Act establishing a tax court to consider and determine certain            
 taxes and penalties due and collateral matters, and amending                  
 provisions relating to taxpayer challenges to the assessment, levy,           
 and collection of taxes by the state; and providing for an                    
 effective date."                                                              
      - OVERVIEW PRESENTATION                                                  
 PREVIOUS ACTION                                                               
 BILL:  HB 341                                                              
 SPONSOR(S): REPRESENTATIVE(S) GREEN                                           
 JRN-DATE     JRN-PG            ACTION                                         
 05/09/95      2042    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 05/09/95      2042    (H)   RES, JUD, FINANCE                                 
 10/24/95              (H)   RES AT  9:00 AM ANCHORAGE LIO                     
 10/24/95              (H)   MINUTE(RES)                                       
 01/19/96              (H)   RES AT  9:00 AM CAPITOL 124                       
 01/19/96              (H)   MINUTE(RES)                                       
 01/24/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 01/24/96              (H)   MINUTE(RES)                                       
 01/26/96      2536    (H)   RES RPT  CS(RES) NT 1DP  4NR  3AM                 
 01/26/96      2537    (H)   DP:  GREEN                                        
 01/26/96      2537    (H)   NR:  OGAN, AUSTERMAN, KOTT, WILLIAMS              
 01/26/96      2537    (H)   AM:  NICHOLIA, DAVIES, LONG                       
 01/26/96      2537    (H)   FISCAL NOTE (COURT)                               
 01/26/96      2537    (H)   ZERO FISCAL NOTE (REV)                            
 01/26/96      2537    (H)   REFERRED TO JUDICIARY                             
 01/26/96              (H)   RES AT  8:00 AM CAPITOL 124                       
 01/26/96              (H)   JUD AT  1:00 PM CAPITOL 120                       
 01/26/96              (H)   MINUTE(RES)                                       
 01/26/96              (H)   MINUTE(JUD)                                       
 01/29/96              (H)   JUD AT  1:00 PM CAPITOL 120                       
 01/29/96              (H)   MINUTE(JUD)                                       
 02/28/96              (H)   JUD AT  3:00 PM CAPITOL 124                       
 02/29/96              (H)   JUD AT  4:00 PM HOUSE FINANCE 519                 
 WITNESS REGISTER                                                              
 DEBORAH VOGT, Deputy Commissioner                                             
 Office of the Commissioner                                                    
 Department of Revenue                                                         
 P.O. Box 110400                                                               
 Juneau, Alaska  99811-0400                                                    
 Telephone:  (907) 465-2300                                                    
 POSITION STATEMENT:  Testified on HB 341                                      
 PAUL H. FRANKEL                                                               
 Morrison and Foerster                                                         
 New York, New York                                                            
 Telephone:  Unavailable                                                       
 POSITION STATEMENT:  Provided information on HB 341                           
 ACTION NARRATIVE                                                              
 TAPE 96-27, SIDE A                                                            
 Number 0000                                                                   
 The Joint House Standing Judiciary Committee and House Standing               
 Committee on Finance was called to order by Chairman Porter at 4:12           
 p.m.  House Judiciary Committee members present at the call to                
 order were Representatives Porter, Green, Toohey, and Vezey.  House           
 Finance Committee members present at the call to order were                   
 Representatives Hanley, Kohring, Mulder, Martin, Parnell,                     
 Therriault, Navarre, and Grussendorf.                                         
 CHAIRMAN BRIAN PORTER announced the agenda was a hearing on HB 341,           
 a bill currently being held in the House Judiciary Committee.                 
 HB 341 - TAX APPEALS/ASSESSMENT/LEVY/COLLECTION                             
 Number 0032                                                                   
 CHAIRMAN PORTER said HB 341 addresses the tax appeal process within           
 the Department of Revenue (DOR).  He said Ms. Vogt would explain              
 the current process and then Mr. Frankel would explain how the                
 current process could be improved.                                            
 DEBORAH VOGT, Deputy Commissioner, Office of the Commissioner,                
 Department of Revenue, was first to testify.  She said DOR has an             
 old-fashioned in-house revenue of tax matters.  She said there are            
 a group of auditors who audit tax returns if they find something              
 that needs to be assessed.  She said, at that time, the taxpayer              
 can ask for an informal conference in front of an informal conferee           
 within DOR or can go straight to the DOR's formal hearing section.            
 She said, depending on the nature of the proceeding, the informal             
 conference can be just a taxpayer and a single representative of              
 the DOR, or it can be a more formal matter with representation by             
 the Attorney General's office and by the counsel for the taxpayer.            
 MS. VOGT said the formal hearing is in the commissioner's office              
 and occurs if the taxpayer is still dissatisfied with the result at           
 the end of the informal conference and has appealed to the                    
 commissioner's office.  She said the commissioner could hold the              
 hearing himself, but usually hearing officers take testimony on               
 behalf of the commissioner.  She said when that determination is              
 made, if the taxpayer is still dissatisfied, the taxpayer can                 
 appeal to superior court.  She added that this appeal is on an                
 appellate record, not a trial at the superior court and it is this            
 issue which the taxpayers have complained about the most.  The                
 taxpayers feel, and Mr. Frankel would probably agree, that there              
 needs to be a stage in the proceeding where a trial-like proceeding           
 can take place outside the department.                                        
 Number 0098                                                                   
 MS. VOGT said Representative Green introduced HB 341 last year                
 which would have provided for a tax court and is currently in a               
 revised form.  The DOR in-house proceedings has been an area that             
 taxpayers have been dissatisfied with for many years.  She said the           
 courts have always upheld this use of in-house proceedings and it             
 is a model used by a fair number of states.  She added that she               
 believes that it is a fair system, but it has been perceived as a             
 "a deck-stacked against the taxpayers."  She said, at the beginning           
 of the Knowles Administration, the DOR agreed to look at this issue           
 anew, partially as a result of HB 341 and new taxpayer complaints.            
 She said DOR spent a substantial amount of time drafting                      
 legislation that address this issue and the DOR feels comfortable             
 with, which the Governor introduced, HB 427 and SB 224.   She said            
 the DOR has received advice from Mr. Frankel regarding this issue             
 and has worked with a number of states in revising their hearings.            
 She said the DOR has also completed a survey and found that Alaska            
 is one of the few remaining states that holds all the tax hearings            
 in-house until an appellate review.                                           
 Number 0145                                                                   
 CHAIRMAN PORTER said Mr. Frankel has extensive background in tax              
 appeal matters.  He summarized Ms. Vogt's testimony for those                 
 Representatives joining the committee meeting including                       
 Representative Finkelstein from the House Judiciary Committee and             
 Representatives Mulder, Martin, Navarre, and Grussendorf from the             
 House Finance Committee.                                                      
 PAUL FRANKEL, Morrison & Foerster, said he does tax litigation                
 within the state of New York and elsewhere in the United States.              
 He said before doing this, he was tax counsel for W.R. Grace & Co.,           
 and before that he was an Internal Revenue Service (IRS) trial                
 lawyer.  He said, when a person has a tax dispute with the IRS,               
 they can go through the entire in-house system consisting of                  
 conferences and appeals.                                                      
 Number 0171                                                                   
 MR. FRANKEL said at the end of this period, if the taxpayer is not            
 satisfied, he/she gets a 90 day letter which gives him/her 90 days            
 to file a petition with the United States Tax Court saying why the            
 taxpayer does not feel he/she owes the tax.  He said this petition            
 begins the tax preceding, nothing is paid out.  He added that the             
 United States Tax Court is a stream-lined, efficient and                      
 independent system where the taxpayers felt they received a fair              
 treatment.  He said as a trial lawyer for the IRS, it was his job             
 to defend the position of the IRS before this court.  He said the             
 IRS often felt that they were not receiving an edge as the judges             
 took into consideration that the IRS trial lawyers knew the                   
 procedures and tried to balance out the other lawyers inexperience            
 with this particular system to make it as fair as the judges could.           
 He said the chief judge, when he was a trial lawyer, was a man                
 named, Howard Dawson who told Mr. Frankel that the United States              
 Tax Court was in the worst possible place, in the IRS building.               
 Mr. Dawson said the public perceived that the U.S. Tax Court was              
 part of the IRS.  He said, as a result of Mr. Dawson's lobbying,              
 the U.S. Tax Court now has their own building in Washington, D.C.             
 MR. FRANKEL then discussed his job as tax counsel for W.R. Grace &            
 Co. where he did federal as well as state tax litigation.  He said,           
 at the state level, there was a perception of real or imagined                
 bias.  He said the typical state revenue tax dispute consisted of             
 a proposed notice of assessment or proposed assessment from an                
 auditor which claimed the taxpayer owed taxes, announced a trial              
 date and a location of the hearing.  He said the hearing auditor              
 would work for the same person that proposed the assessment, which            
 caused the taxpayer to feel that the "cards were stacked against              
 you all over the place."  He said there were no separation of                 
 powers.  He stressed the importance of having someone outside the             
 process looking at, weighing the facts and making an independent              
 judgement whether the taxpayer was right or wrong.                            
 MR. FRANKEL said one of the tax cases he was counsel for was in the           
 state of Alaska, twenty years ago.  He said the corporate treasurer           
 was at the hearing and questioned how the system could be fair with           
 the same people working at different levels within the different              
 hearing process.                                                              
 Number 0244                                                                   
 MR. FRANKEL said he is originally from New Jersey and said he is              
 active in the bar association in that state.  He said, twenty years           
 ago, he began to work in the state of New Jersey to make it a                 
 better tax dispute place as it probably had the worst tax                     
 procedures within the United States.  He said, it wasn't just the             
 lack of an independent, prepayment tax dispute system, but the                
 state of New Jersey gave the state revenue department statutes of             
 limitations to audit which were lengthy, and the taxpayer short               
 periods of time to claim refunds, gave no interest on refunds, gave           
 the state big interest on deficiency, gave the taxpayer short times           
 to protest and if the taxpayer was away he/she lost this                      
 opportunity.  He said New Jersey changed their tax system into the            
 best system in the nation because the bar association, businesses,            
 legislature and, the key factor, the Department of Revenue                    
 supported an independent tax court.   He said taxpayer feel that              
 when they leave the New Jersey tax court they have had a fair                 
 Number 270                                                                    
 MR. FRANKEL said the state of New York had an in-house tax system,            
 but the state was reluctant to give up this process.  He said the             
 New York formed a tax appeals bureau which functioned in a similar            
 manner to the U.S. Tax Court except it was part of the N.Y.                   
 Department of Revenue, the bureau reported to the commissioner and            
 there was still a perception of bias.  He said, after ten years, a            
 new commissioner with advice changed the system.  A tax tribunal              
 was set up in 1987 with three judges at the top level, which is the           
 tribunal for appellate.  He said there are hearing officers at the            
 lower level within the state system.  He said the New York system             
 is fast, efficient, contains no new discovery, is inexpensive and             
 the taxpayers feel they are treated fairly.  He said the chief                
 judge was the general counsel for the Department of Revenue.                  
 Number 292                                                                    
 MR. FRANKEL said New York City has the fourth largest tax                     
 collection agency in the country, behind California, the IRS, and             
 the state of New York.  New York City was long viewed as an                   
 aggressive department with in-house hearing officers who usually              
 ruled for the city, 80 percent to 90 percent of the time, no matter           
 what the case was.  He said a new commissioner was appointed in the           
 late 1980's who drafted a change in the city charter, pushed                  
 through a New York City tax tribunal, took the existing hearing               
 officers with the same budget and informed them that they were to             
 judge the cases as fairly as possible and to not back up city                 
 policy.  He said the same officers who had ruled 80 percent to 90             
 percent, now were ruling 50 percent in favor of the city.                     
 Number 318                                                                    
 MR. FRANKEL said there have been many movements, for changes within           
 the tax system, throughout the country.  He mentioned some of these           
 examples.  In Connecticut, a tax court was formed three years ago             
 by appointing two judges, who liked tax, to head this court.  The             
 state of Indiana picked one judge to run the tax court.  He said              
 state after state have adopted similar systems of many different              
 forms, and added that it does not matter if the change is judicial            
 or administrative as long as it is separate from the Department of            
 Revenue.  He said it is important that taxpayers go into the system           
 feeling that they are going to be listened to and judged on the               
 facts and the law.  He added that this system works before anyone             
 has to pay anything, they should have their day in court before               
 they have to pay or post a bond.  He heard of a case in Tennessee             
 where a company was almost put in bankruptcy because an agent had             
 declared a big deficiency.  He said there was no review system in             
 Tennessee before the state took the money.                                    
 MR. FRANKEL stated that there should a right to a hearing before              
 anyone takes money or posts a bond, someone who is independent and            
 someone who knows and likes tax.  A lot of people are afraid of tax           
 and a judge who likes tax law will do a good job.  Massachusetts              
 has a wonderful system, as well as Maryland, Ohio, Wisconsin,                 
 Minnesota, Delaware, Missouri, Oregon, Montana, Hawaii, and Arizona           
 and once these systems are in place everyone realizes it's the only           
 way to go.  The commission cannot also be the judge and have the              
 power to tell somebody they owe them money.                                   
 Number 352                                                                    
 MR. FRANKEL said he had reviewed the present legislation before the           
 committees for consideration and noted that there are two areas in            
 general which he felt were important to mention.  The first area              
 was discovery, which is where a party has the right to issue a                
 subpena before a trial and put an executive or governmental                   
 official on a witness stand to ask questions in deposition form.              
 This can be a major burden.  He also mentioned interrogatories                
 where someone would be requested to produce all sorts of documents.           
 The U.S. Tax Court had no discovery when he was there and he                  
 thought it was a very efficient system.  New York state does not              
 have discovery either and when discovery bogs people down, it's a             
 bad thing, particularly if one of the parties can't afford to go              
 through this procedure extensively.  It almost never produces                 
 anything worthwhile.  He said he was generally against discovery,             
 but if they chose discovery, it should not be discretionary                   
 discovery.  In the case of discretionary discovery, the judge has             
 the right to establish what type of discovery will be allowed on a            
 case by case basis.  This could also lead to a perception of bias.            
 He suggested a compromise which might allow for no depositions, but           
 just requests for questions, things like this.                                
 MR. FRANKEL noted that one of the things which made the U.S. Tax              
 Court very efficient were mandatory stipulations of fact.  In this            
 situation each side is required to agree in writing to all facts              
 that are not in dispute, or which should not be in dispute and                
 attach all documents which are authentic, even if there is a                  
 challenge to materiality or relevance.  These cases would really              
 move through the system and usually nine out of 10 cases settle.              
 MR. FRANKEL suggested that the committees rather than get bogged              
 down in side issues, just pass the legislation through.  If there             
 is a bill which allows for a system independent from the department           
 and the tax payer can have their day without paying or posting a              
 bond, if the judges are specialized in tax law, and if they could             
 adopt it, the sooner the better.                                              
 Number 394                                                                    
 CHAIRMAN PORTER noted that Alaska has a very small amount of people           
 residing here and a small amount of cases, but with very high value           
 attached to them.  He asked if these characteristics set up a                 
 scenario for a different procedure than what Mr. Frankel outlined.            
 MR. FRANKEL responded that there is a similar situation in the U.S.           
 Tax Court where there are very large cases.  These Section 482                
 cases involve transfer pricing of foreign operations, involving               
 multi-millions of dollars, but there are other smaller cases too.             
 The key ingredient in every case that whomever the tax payer is,              
 they should have the feeling that someone is listening and they               
 will get a fair shake regarding their cases.  In other states,                
 where the cases are complex, they appoint a special trial judge or            
 a special master to work with a particular case.  This seems to               
 work with long and complex cases.  In regards to budget, Mr.                  
 Frankel pointed out that the U.S. Tax Court has a filing fee                  
 system.  He noted that no one seems to mind paying a filing fee.              
 Number 418                                                                    
 REPRESENTATIVE JOE GREEN noted that a sub-committee was presently             
 working through some big and small differences regarding their                
 legislation.  One of the concerns that has come up is that because            
 Alaska is a small state, it's going to be difficult and maybe                 
 unduly expensive to establish this kind of review team to be                  
 available for the big and small cases.  He noted that there may not           
 be enough litigation to warrant a specialize system.  He also added           
 that these tax issues are from one industry.  Alaska is such a                
 large resource state.  He asked if there was any place where Mr.              
 Frankel had worked where there was an establishment of one or more            
 of these administrative law judges by something other than the                
 commissioner.  Is this appointment accomplished by law temporarily,           
 permanently, etc.  He asked what the most expeditious and fair way            
 would be to establish this system.                                            
 MR. FRANKEL noted that establishing a system is proceeded by the              
 enactment of a bill and outlining an appointment process, but                 
 keeping the judges or hearing officers busy is also something to              
 consider.  In Maryland, they do not have a full time tax court.               
 They have these judges who do other things, maybe they're lawyers             
 in private practice, but they're available when needed, although              
 they probably wouldn't be able to practice tax cases.                         
 Number 454                                                                    
 REPRESENTATIVE GENE THERRIAULT asked about the majority of the                
 other states and how their judges are selected.                               
 MR. FRANKEL stated that in New Jersey there are judicial judges               
 and they are appointed like any judge.  The state bar association             
 submits a slate of names to the governor which they believe are               
 qualified.  The governor appoints them.  He noted that every other            
 appointment in New Jersey is Democrat and Republican on a rotation            
 basis.  There is a political balance of the judges in this state.             
 It seems to work.  In New York, the governor appoints the top three           
 of the New York tribunal, but there are hearing officers called               
 administrative law judges at the second level who the governor does           
 not appoint.  These are appointed by the chief judge of the New               
 York state tribunal.  Generally they are appointed by the governor            
 and generally are legislatively confirmed.                                    
 Number 485                                                                    
 REPRESENTATIVE GREEN mentioned the related piece of legislation               
 introduced last year which attempted the establishment of a tax               
 court and with people who are knowledgeable about tax law.                    
 Presently, it allows for appointment of tax specific individuals,             
 but if after a hearing there is still dissatisfaction, their system           
 allows for appeal to a superior court.  He noted Mr. Frankel's                
 mention of those states which don't have this by-pass feature in              
 their system.                                                                 
 MR. FRANKEL said that every state has a system where an individual            
 can appeal up to court, but the crucial level is where is the                 
 record made.  If the record of the trial is made in the department            
 people don't feel right about this.  It seems to be unfair.  If the           
 record is made in front of an independent judge, then things are              
 fine.  He noted that most states provide for a de novo trial level            
 in the tax courts.  Some of these tax courts are administrative and           
 some are judicial, but it's within the tax forum which this de novo           
 case is made and it's made outside of the department.                         
 Number 509                                                                    
 REPRESENTATIVE AL VEZEY asked if Mr. Frankel was advocating a                 
 single judge or adjudicator per case as opposed to an arbitration             
 where there are typically three.                                              
 MR. FRANKEL said he felt that the U.S. Tax Court had a good system            
 for this.  They have 19 judges.  The chief judge assigns a case to            
 one judge.  The trial is before one judge, but an opinion is passed           
 from the court.  This judge is asked to write a proposed opinion,             
 which is circulated among all the other judges.  If the other                 
 judges think the proposed opinion is wrong, they have the power to            
 vote by majority as to what the right answer is.  Mr. Frankel noted           
 that some states do their own opinions, but he did not recommend              
 this because there could be  judges on the same court which seem to           
 go in a different direction.  In the case of California where they            
 have a board of equalization, the tax payers go before five judges            
 at once.  Mr. Frankel felt as though this was not too efficient and           
 not productive.                                                               
 Number 527                                                                    
 REPRESENTATIVE ELDON MULDER referred to an independent agency which           
 would hear tax cases and then if the parties involved were not                
 satisfied with this review they could appeal it to superior court,            
 with a caveat that they could go directly to superior court.  He              
 asked if this option was available in other states and he asked               
 what the justification would be to go to superior court and bypass            
 a judge or a hearing officer.                                                 
 MR. FRANKEL said the only place he sees this system is in                     
 California and even there an individual has to pay to go directly             
 to court.  There is such a perception of bias in California that              
 people do not want to go through the system.  The state board of              
 equalization in California made up of five judges are the same                
 individuals who supervise all the sales tax agents.  They also sit            
 on the franchise tax board which is the group which does the income           
 tax audits.  This is the only place where he sees individuals by-             
 passing the system.  Usually the system is set up that if an                  
 individual goes up the ladder, and the individual looses, they can            
 then appeal on this record to the appellate division.  He                     
 recommended that the first stage must be perceived as independent             
 allowing for a latter process of appeal, rather than a side-jump.             
 Number 604                                                                    
 MR. FRANKEL outlined the following federal procedure in response to           
 a question by Representative Green provide that an informal hearing           
 would be instigated before a more formalized hearing was                      
 undertaken, with a court proceeding built into the system.  In the            
 federal system a taxpayer receives a 90 day letter.  If they decide           
 to opt for a trial without payment, they have to go to the United             
 States Tax Court.  After 90 days go by, they pay their tax, they              
 file a claim for refund and then they can either go to the U.S.               
 Claims Court or the U.S. District Court.  The state of Michigan has           
 a similar system.                                                             
 REPRESENTATIVE MARK HANLEY asked Representative Green where under             
 his provision does he anticipate having the administrative law                
 REPRESENTATIVE GREEN answered that they would be outside of the               
 Department of Revenue, perhaps in the Department of Administration.           
 REPRESENTATIVE HANLEY noted that the perception of creating                   
 independence seemed to be of the utmost importance.  This judge               
 would obviously be appointed by the governor, possibly confirmed by           
 the legislature and Representative Hanley asked if a judge with the           
 Department of Revenue would be separate enough.                               
 MR. FRANKEL noted that the more separate the better.                          
 Number 646                                                                    
 REPRESENTATIVE GREEN added that the original bill in essence tried            
 to set up a separate tribunal.  The problem in Alaska is that they            
 were afraid they wouldn't find enough qualified individuals to hear           
 these cases.  He also noted the infrequency of these tax cases.               
 When they do come up they're so large in terms of money.  He                  
 thought there might be a point where they couldn't go too far                 
 because they wouldn't be able to justify this expenditure.                    
 MR. FRANKEL said they just need to do the best they can.  If the              
 Department of Administration is the best they can do, this is fine.           
 About staffing, he found that ex-government people go out of their            
 way to be fair because they don't want to be thought of as an                 
 extension of the department they used to work for, or as a rubber             
 Number 668                                                                    
 REPRESENTATIVE THERRIAULT asked if this administrative judge just             
 dealt with questions of tax or to the constitutionality of a tax.             
 MR. FRANKEL stated that the judicial New Jersey tax court will make           
 a constitutional finding like any judge, but the New York state tax           
 tribunal which is administrative wrestled with making                         
 constitutional findings.  They do not rule a statute as                       
 unconstitutional, but they can rule that a regulation is invalid.             
 They can rule that the application of the law by the department is            
 unconstitutional, but if there is a case in New York that someone             
 is convinced represents an unconstitutional statute, there is a               
 mechanism to go directly to court in order to address                         
 constitutionality questions.                                                  
 REPRESENTATIVE THERRIAULT asked Representative Green whether an               
 individual would go through an administrative tax system.                     
 REPRESENTATIVE GREEN stated that the system allows for an initial             
 informal review, then a person would go directly to a formal review           
 and from there a superior court if the parties still had not                  
 reached an agreement.  He also mentioned a side-bar, that after an            
 informal review a individual could go directly to superior court.             
 Effectively, he pointed out that there were two avenues emanating             
 after the individual has had an informal review.                              
 REPRESENTATIVE THERRIAULT wondered if this system could further be            
 refined when the question was more mathematical in terms of how the           
 tax was figured or constitutional, that the individual could choose           
 one course of action over the other depending on the issue.                   
 Number 702                                                                    
 MR. FRANKEL stated that usually the appeal from the tax court is on           
 the record, it is not de novo.  It's an appeal usually claiming               
 error of law or a substantial error of fact at the lower level.               
 When an individual comes to a tax court, the job of that judge is             
 to make a decision based upon what comes into this court room.  The           
 Alaska pending legislation has a provision that if the judge                  
 believes a remand is appropriate, the judge could remand it to a              
 lower level, but what is in this court room as evidence should                
 decide this case.                                                             
 TAPE 96-27, SIDE B                                                            
 Number 008                                                                    
 REPRESENTATIVE VEZEY asked if he believed if this tax court system            
 works better when it's under the administrative branch of                     
 government or the executive branch of government.                             
 MR. FRANKEL said he thought it worked best when it's out of the               
 Department of Revenue.  What matters is that someone is told that             
 he or she is an administrative law judge or a judicial judge and              
 their job is to do the right thing.  They should not be responsible           
 to the commissioner who wrote the regulations, or a co-worker with            
 the auditors who did the audit and that they don't have to back up            
 their friends.                                                                
 Number 034                                                                    
 CHAIRMAN PORTER asked Mr. Frankel if there were other parts of the            
 bill which raised red flags.                                                  
 MR. FRANKEL responded that the time periods regarding a request for           
 reconsideration which was established at ten days grabbed his                 
 attention.  He said he would change this to 30 days.  He would make           
 any 30 day provision, 60 days.  There was also a provision which              
 said that the parties shall attend a hearing, except that the                 
 administrative judge can monitor by teleconference or telephone.              
 Mr. Frankel wouldn't give the judge this power.  He thought that if           
 the tax payer wants to come they should be able to attend the court           
 room.  If they don't want to come, they shouldn't be forced to do             
 so.  The tax payer should have the right to make the election for             
 a telephonic hearing.                                                         
 Number 073                                                                    
 REPRESENTATIVE GREEN asked about judges being appointed by the                
 governor and confirmed by the legislature.                                    
 MR. FRANKEL said that where he sees this system, it works.  He saw            
 no downside to doing this, but it shouldn't stop the bill either.             
 If the bill is ready to go and this is still a problem it's                   
 probably more important to push the bill through for passage.                 
 Number 102                                                                    
 REPRESENTATIVE CYNTHIA TOOHEY asked about rotating the appointments           
 of these judges, one Republican, the next Democrat and wondered if            
 this was included in the proposed Alaskan legislation.  She felt as           
 though this was an important concept.                                         
 REPRESENTATIVE GREEN said that no, the Alaska legislation did not             
 provide for this type of system.  He saw no reason for a                      
 prospective judge to disclose their party preference.                         
 Representative Finkelstein pointed out that the state of Alaska               
 does provide for this rotation in the appointment of their other              
 REPRESENTATIVE TOOHEY felt as though this party rotation was an               
 important concept to provide balance to the system.  She felt as              
 though this rotation spoke to the concept of keeping the system               
 CHAIRMAN PORTER said he had the opposite take on this.  He noted              
 that under this system there is the assumption that a person will             
 be appointed with a certain persuasion in mind and a different one            
 the next.  He spoke to the concept of neutrality.                             
 Number 145                                                                    
 REPRESENTATIVE GREEN felt as though that what they were looking for           
 was fairness, but not necessarily a concept of fairness based on a            
 party affiliation.  He then answered a question by Representative             
 Hanley regarding how the legislation treated discovery.  He noted             
 that there was an attempt to limit discovery.  The bill as drafted            
 does not address the specific types of discovery regarding                    
 depositions or interrogatories, but it does set up a procedure                
 where by the parties come to the administrative law judge for                 
 approval of a discovery plan.                                                 
 Number 193                                                                    
 MR. FRANKEL noted that the U.S. Tax Court works very well with                
 mandatory stipulations.  If discovery is changed, Mr. Frankel                 
 thought that depositions could be limited.  He felt that out of all           
 the forms of discovery which are burdensome for both sides, it                
 would be depositions.  They could be limited to special situations            
 such as perpetuation of testimony of someone which is ill.  He                
 added that generally depositions can be very burdensome.                      
 REPRESENTATIVE GREEN asked how far they could go with determining             
 relevancy because in some cases someone wouldn't know if something            
 was relevant until you go into it.                                            
 MR. FRANKEL said it helped if discovery was limited, the more the             
 better because attorneys love discovery and the process can go on             
 and on, but a small case can't afford this.  The mandatory                    
 stipulation of fact tends to limit this and makes the trial shorter           
 and helps to focus people on settlements.                                     
 CHAIRMAN PORTER adjourned the meeting at 5:15 p.m.                            

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