Legislature(1995 - 1996)
03/08/1996 01:12 PM House JUD
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE
March 8, 1996
1:12 p.m.
MEMBERS PRESENT
Representative Brian Porter, Chairman
Representative Joe Green, Vice Chairman
Representative Con Bunde
Representative Al Vezey
Representative Cynthia Toohey
Representative David Finkelstein
MEMBERS ABSENT
Representative Bettye Davis
COMMITTEE CALENDAR
HOUSE BILL 493
"An Act relating to involuntary commitment for alcoholism or drug
abuse."
- SCHEDULED BUT NOT HEARD
HOUSE BILL 462
"An Act relating to the offenses of driving while intoxicated and
refusal to submit to a chemical test of breath or blood; amending
Rules 6 and 32.1, Alaska Rules of Criminal Procedure; and providing
for an effective date."
- SCHEDULED BUT NOT HEARD
HOUSE BILL 536
"An Act relating to charitable gaming."
- SCHEDULED BUT NOT HEARD
HOUSE BILL 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."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 493
SHORT TITLE: INVOLUNTARY COMMITMENT:ALCOHOL/DRUG ABUSE
SPONSOR(S): REPRESENTATIVE(S) IVAN
JRN-DATE JRN-PG ACTION
02/09/96 2698 (H) READ THE FIRST TIME - REFERRAL(S)
02/09/96 2698 (H) JUDICIARY, FINANCE
02/23/96 (H) JUD AT 1:00 PM CAPITOL 120
02/23/96 (H) MINUTE(JUD)
02/26/96 (H) JUD AT 1:00 PM CAPITOL 120
02/26/96 (H) MINUTE(JUD)
03/08/96 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 462
SHORT TITLE: DRUNK DRIVING: EVIDENCE & SENTENCING
SPONSOR(S): REPRESENTATIVE(S) PORTER,Toohey
JRN-DATE JRN-PG ACTION
02/02/96 2606 (H) READ THE FIRST TIME - REFERRAL(S)
02/02/96 2606 (H) TRANSPORTATION, JUDICIARY
02/28/96 (H) TRA AT 1:00 PM CAPITOL 17
02/28/96 (H) MINUTE(TRA)
03/06/96 (H) TRA AT 1:00 PM CAPITOL 17
03/06/96 (H) MINUTE(TRA)
03/08/96 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 536
SHORT TITLE: CHARITABLE GAMING:PERCENTAGE TO CHARITY
SPONSOR(S): FINANCE
JRN-DATE JRN-PG ACTION
02/29/96 2962 (H) READ THE FIRST TIME - REFERRAL(S)
02/29/96 2962 (H) JUDICIARY
03/08/96 (H) JUD AT 1:00 PM CAPITOL 120
BILL: HB 341
SHORT TITLE: TAX APPEALS/ASSESSMENT/LEVY/COLLECTION
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 (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
02/29/96 (H) MINUTE(JUD)
03/01/96 (H) JUD AT 8:00 AM CAPITOL 124
03/06/96 (H) JUD AT 1:00 PM CAPITOL 120
03/08/96 (H) FIN AT 8:00 AM HOUSE FINANCE 519
03/08/96 (H) JUD AT 1:00 PM CAPITOL 120
03/08/96 (H) FIN AT 1:30 PM HOUSE FINANCE 519
WITNESS REGISTER
DAN SECKERS, Chairman
Tax Committee of the Alaska Oil &
Gas Association (AOGA)
Alaska Tax Counsel for EXXON
3301 C Street, Suite 400
Anchorage, Alaska 99503
Telephone: (907) 564-3776
POSITION STATEMENT: Provided information on HB 341
TOM WILLIAMS
Tax Committee of the Alaska Oil &
Gas Association
Alaska Tax Counsel for BP
P.O. Box 196612
Anchorage, Alaska 99519-6612
Telephone: (907) 564-5955
POSITION STATEMENT: Provided information on HB 341
DEBORAH VOGT, Deputy Commissioner
Department of Revenue
P.O. Box 110405
Juneau, Alaska 99811-0405
Telephone: (907) 465-2300
POSITION STATEMENT: Provided information on HB 341
ROBERT BRIGGS, Assistant Attorney of Law
Oil, Gas & Mining Section
Department of Law
P.O. Box 110300
Juneau, Alaska 99811-0300
Telephone: (907) 465-3600
POSITION STATEMENT: Provided information on HB 341
ACTION NARRATIVE
TAPE 96-31, SIDE A
Number 000
CHAIRMAN BRIAN PORTER called the House Judiciary committee meeting
to order at 1:12 p.m. Members present at the call to order were
Representatives Green, Toohey, Vezey and Finkelstein.
Representative Bunde arrived at 2:04 p.m. Representative Davis was
absent due to a death in her family.
HB 341 TAX APPEALS/ASSESSMENT/LEVY/COLLECTION
CHAIRMAN PORTER noted that the first bill for consideration was
CSHB 341 and added that a joint hearing took place with the House
Judiciary and House Finance Committees already regarding this
legislation. He asked that the sponsor give an opening statement
and a status report as to the legislation in it's present form. He
also asked that the industry representatives and the Department of
Revenue representatives come forward to present testimony as well.
Number 222
REPRESENTATIVE JOE GREEN as sponsor stated that at the joint
hearing already mentioned Mr. Paul Frankel, a partner of Morrison
& Foerester, a New York law office gave a presentation regarding
tax court systems. Mr. Frankel is an international expert on tax
appeal and he is very knowledgeable about how these systems work in
other states. Representative Green noted that while there were
still some sticking points to this legislation he stated that he
was extremely pleased with both the stake holders and the
department for a very cooperative and focused series of meetings.
There were still points which hadn't been resolved and he felt as
though these could be answered in the House Judiciary Committee
hearings.
REPRESENTATIVE GREEN said that the draft before the committee
9LS1129/R dated 3/7/96 was the product to the best of everyone's
ability to iron out a myriad of small difficulties encountered and
compromises given on both sides, but there are were major sticking
points left to resolve. The bill as drafted incorporates the
institution of a quasi-judicial board established within the
Department of Administration which would act on appeal matters
brought before it and the members of this board would be nominated
by the governor and confirmed by the legislature. Representative
Green noted that there was a fairly strong difference of opinion on
both the board and the makeup of the legislative approval for
confirmation. Most of the other issues have been resolved. He
added that there are still some very minor points that are being
worked out. Representative Green also mentioned three amendments
which he brought to the committee which did not cover points of
contention, but oversights relating to wording agreed to in
subcommittee.
Number 491
REPRESENTATIVE AL VEZEY stated that his first question dealt with
a two person make-up of this tax court and he personally didn't see
that they would need more than this amount of people. He noted
also that it took the majority of the board to dismiss one of these
individuals.
REPRESENTATIVE GREEN clarified that this majority would be of the
other members. He noted that this was the case because it takes
more than one individual to make up a board. Whether or not, one,
or two or three would be sufficient would certainly depend on the
case load and this bill began as establishing a tax court which
would handle essentially hydro-carbon type appeals because while
these cases don't represent a large number they certainly represent
a magnitude dollar wise. The appeals which are brought before the
department, superior court or otherwise are large in regard to the
dollar amount. This tax court system was modified significantly
through the efforts of the Department of Revenue. The governor
also introduced a similar bill, but that one covers more situations
other than hydro-carbons. This is mentioned in the opening page of
the legislation. Representative Green added that there may well be
more than two legislative law types of judges which are needed to
handle this case load.
REPRESENTATIVE VEZEY thought that the essence of Mr. Frankel's
testimony revolved around the fact that it didn't matter where they
created the Board of Tax Appeal as long as it wasn't in the
Department of Revenue.
CHAIRMAN PORTER stated that it was his impression that Mr. Frankel
said that this panel should not be in the Department of Revenue,
but there were varying degrees of comfort which might be felt by
everyone involved depending on where else it was placed.
REPRESENTATIVE GREEN also stated that "the further the better" was
the concept behind where the court was placed and it was going to
be further in the first bill, but they got into a problem in
establishing a tax court which might not have a tax expert
appointed to it. They then decided to leave it not in the
Department of Revenue, but the Department of Administration. He
then gave a very brief overview of how someone would move through
this system.
REPRESENTATIVE GREEN said that the appeals now stay within the
Department of Revenue until they go to court. Under the new system
this method allows for an informal hearing within the department
and then there would be a formal hearing within the Department of
Administration and the case would be heard by a tax expert. The
alternative to this process is that a person can go from an
informal hearing, by-pass the formal review, and then go directly
to superior court. The reason for this is to allow at least some
place for a de novo hearing so all the facts can be heard, rather
than it stay in the Department of Revenue and finally get to an
adjudication where that amount of information be forwarded on to
the superior court. This could create a possible prejudice
situation.
DAN SECKERS, Chairman, Tax Committee of the Alaska Oil and Gas
Association (AOGA) and Alaska Tax Counsel for Exxon introduced
himself, as well as noted that there were others members of AOGA in
attendance from Marathon, Unocal and ARCO was on line from
Anchorage. He read the following statement into the record:
"AOGA is a trade association whose 19 member companies account for
the majority of oil and gas exploration, production,
transportation, refining and marketing activities in the state of
Alaska. We are grateful again for this opportunity to offer our
comments, which reflect the unanimous consensus of the Tax
Committee.
The present tax appeals process is, we believe, seriously flawed in
practice and denies taxpayers the opportunity to have their tax
appeals heard and decided by a truly independent and impartial
tribunal. The draft Judiciary CS for HB 341 would significantly
reform this process. There are nine areas in particular which we
would like to address. In some areas we have reached agreement
with the Administration, and in others we have not.
1. Legislative confirmation. Unlike the Department of Revenue,
AOGA believes it is sound public policy for the Legislature to
confirm appointments to the administrative law judge positions.
These people may decide cases involving tens or even hundreds of
millions of dollars in tax claims. Surely the Legislature has a
proper interest in ensuring that these people are qualified,
capable and fair.
AOGA also supports confirmation because it provides taxpayers with
an opportunity to comment on a candidate before the decision to
appoint him or her becomes final. This ensures that, in the event
someone is named who has demonstrated bias or similar improper
conduct in the past, that there will be an opportunity to make
people aware of those facts before the appointment becomes final.
Finally, AOGA supports confirmation because it prevents an improper
influence that the Executive Branch may otherwise have over an
administrative law judge if it could hold out the lure of
appointment or reappointment over that person. We are not saying
that this has ever happened, nor that we believe it is likely to
happen. But the point is, it could happen. By having an
independent body like the Legislature involved, even the
possibility of this happening is removed, since the Executive
Branch would no longer be able to 'deliver' on such a promise on
its own.
Under Bradner v. Hammond, 553 P.2d 1 (Alaska 1976), legislative
11confirmation is allowed under the 'separations of power' doctrine
only to the extent it is specifically authorized under the Alaska
Constitution. AOGA is pleased to see that '9-LS1129\R' dated
3/7/96 (which I will refer to as 'Work Draft R' in the rest of my
testimony) includes provisions to ensure that the new
administrative law judges will fall within the scope of allowable
legislative confirmation under section 26, Article III of the
Alaska Constitution.
2. Standards of review. It is important here to emphasize at the
outset that AOGA and the Department of Revenue are in fundamental
agreement about the standards by which the tax claims made by the
Department are to be reviewed. On questions of fact, both sides
agree that disputes about what actually happened should be heard
and decided as if there were a clean slate. This is the heart of
what the attorneys call 'trail de novo.' On questions of law,
which most often relate to what a particular statute or regulation
means, the administrative law judges will not be bound by the legal
positions taken by the Department of Revenue, but will be free to
decide for themselves which position or interpretation is best. On
questions where the Department has been legally vested with
discretion, its exercise of that discretion is to be upheld so long
as it is has a reasonable basis.
While both sides endorse these standards of review, it is probably
also true that both have concerns about how the last two will work
in practice. Given the broad statutory mandates of the Department
to administer, collect and enforce the state's tax laws, taxpayers
are concerned that almost any legal question could potentially be
characterized as one involving the Department's discretion. In
practice, this would make a dead letter of the 'substitution of
judgment' standard for ordinary legal issues, which is something
we, as taxpayers, do not believe is appropriate or intended.
Conversely, an unduly narrow reading of when the Department is
legally vested with discretion could end up impairing the
Department's proper exercise of the discretion that the Legislature
intended it to have, which is something we doubt is either
supported by the Department or intended by your Committee.
Because of the decision about which rule applies is so dependent on
the particular circumstances of each individual case, we do not see
a way to legislate so as to ensure that the administrative law
judges will make the right call in choosing which rule to apply.
Instead, we will have to trust the administrative law judges to
call balls as balls and strikes as strikes in this area. However,
because the question of which rule is applicable is itself a legal
question, the administrative law judges will decide this question
for themselves on a case-by-case basis without being bound by the
Department's characterization of it. This gives them the authority
to decide independently, which is as far as one can go with
legislation. Whether they actually exercise that authority in
practice will be up to the individuals who are named as the
administrative law judges.
There is one change however, that AOGA urges the Committee to make
to Work Draft R. In lines 15-16 on page 4, you should delete the
words 'the finding of fact of the informal conference decision are
presumed correct unless the taxpayer rebuts the findings' and also
delete the semicolon at the end of line 16. AOGA is pleased to see
that this amendment has been introduced already by Representative
Green.
3. Discovery. AOGA is in partial agreement with the Department of
Revenue about the subject of discovery. The Administration's bill
(HB 427) would generally limit discovery to only that information
which would actually be admissible in the formal hearing. AOGA
pointed out that there some types of discovery in which it is
impossible to know in advance whether it will yield admissible
evidence or not. For example, a taxpayer should be able to find
out whether the State has been taking a consistent position with
other taxpayers on an issue or not. If it has been consistent,
then there is no issue, and the answer to the question is
irrelevant and inadmissible. But if the State has been
inconsistent, then it becomes highly relevant to the question of
discrimination against particular taxpayers, or whether the
Department has actually adopted a position on the issue. There was
no disagreement over AOGA's point, nor did AOGA disagree with the
Department's concern that open-ended 'fishing expeditions' should
be prevented. As a result of discussions with the Department of
Revenue, compromise language was developed on this matter which is
satisfactory to both sides. AOGA is pleased to see that compromise
language appears in Work Draft R, beginning with line 28 on page 4
and continuing through line 5 on page 5.
However, the other area regarding discovery is one where AOGA and
the Department of Revenue do not agree. The Department wants to
declare inadmissible, as a matter of law, evidence about the
legislative history of bills that did not pass, about regulations
that were not adopted, and about other taxpayers. AOGA
acknowledges that in many cases these types of information may be
irrelevant. But there have been real cases in the past where these
types of evidence were in fact highly relevant to issues in the
appeal. It is therefore important not to prevent this information
from being discovered and admitted as evidence when it is relevant.
The latest language offered by the Department to AOGA still
declares these types of evidence to be irrelevant as a matter of
law, even though it then proceeds to authorize the administrative
law judges to make exceptions and admit the evidence anyway. We
believe it is completely inappropriate to declare an entire
category of evidence to be irrelevant when in fact everyone knows
that sometimes the evidence can in fact be relevant. Therefore,
AOGA cannot endorse the Department's most recent proposal.
We believe the language already in Work Draft R sufficiently
authorizes the administrative law judge to prevent discovery from
becoming abusive in tax appeals and thereby lead to greater
efficiency. Ultimately, one reaches a point in legislation where
one has fully enabled people to do the right thing, and thereafter
one must trust that those people will actually exercise their
authority and do it. We believe this is where we are with respect
to this area in the subject of discovery.
4. Option to go directly to court. The option of proceeding
directly to Superior Court instead of to the new administrative law
judges was not something that AOGA had originally proposed.
However, we find merit in this proposal and accordingly endorse it.
Although we agree with the Administration that most taxpayers will
prefer that tax expertise and procedural rules of the new system of
administrative law judges, there may be times when it would be more
efficient and expedient to proceed directly to court. For example,
when it is clear that a particular issue will likely be appealed to
the Superior Court and beyond, the taxpayer may prefer to proceed
directly to court to avoid the time and expense of going first to
an administrative law judge and then to court.
Or, if a dispute involves issues that an administrative law judge
cannot rule on, such as constitutional issues, it would make much
more sense to allow a direct appeal to the forum where those issues
can be dealt with. Otherwise, they could well end up having to be
litigated twice - once before the administrative law judge anyway,
in order to preserve the right to argue those issues later on
appeal, and then again in court.
As Mr. Paul Frankel mentioned in his testimony before the joint
hearing of the House Judiciary and Finance Committees on February
29th, the federal tax system offers taxpayers a choice of forums.
Certain states likewise provide such an option (e.g. New Hampshire,
Florida, Georgia and Alabama just to name a few). By making the
option available in Alaska, the State is saying to taxpayers that
it is committed to ensuring the tax appeal process is fair. If any
taxpayer has a residual concern about the independence of the
administrative law judges, the taxpayer has the other option. But
I would repeat that we expect the option of going directly to court
to be one that is used only on an exceptional basis.
Having a choice to go either to an administrative law judge or to
court will provide a balance between the two forums and will aid
each other in arriving at fair, impartial decisions: one with
technical expertise and the other with judicial wisdom.
5. Court Rule change. In an earlier draft of the Judiciary CS,
there was a Bill Section stating that the creation of a right to de
novo review when a taxpayer elects to go directly to Superior Court
is a change in Rule 609(b) of the Alaska Rules of Appellate
Procedure. AOGA agrees with the legal conclusion, reflected in
Work Draft R, that the creation of such a right is a change of
substantive tax policy, and therefore does not require a two-thirds
vote of each legislative body as would be required in a change of
a Court Rule. In Matanuska-Sustina Borough v. Lum, 538 P.2d 994
(Alaska 1975), and Winegardner v. Greater Anchorage Area Borough,
534 P.2d 541 (Alaska 1975), the Alaska Supreme Court ruled that the
creation of a right to de novo consideration in court is a matter
of substantive tax policy, and not one of court procedure. In both
cases the Court upheld a statutory right to de novo consideration
in an administrative appeal despite former Appellate Rule 45, which
said that court review in administrative appeals would be based on
the record below.
Appellate Rule 609(b) reflects the general statutory rule under the
Administrative Procedures Act. AS 44.62.570, which sets the scope
of judicial review for all administrative appeals to which the
Administrative Procedures Act applies, does not create a right to
de novo consideration in court. Rather, it says the court 'may'
grant trial de novo in whole or in part, which means de novo
consideration is discretionary with the judge.
However, tax appeals currently are not subject to the
Administrative Procedures Act, nor would they be under Work Draft
R. And, as Wingardner and Lum make clear, the Legislature can, by
statute, create a substantive right to de novo consideration in
certain kinds of administrative appeals, and that right will be
upheld even though it may be inconsistent with the Court Rules.
Since it is a substantive right that would be created under Work
Draft R, and not a change in the courts' internal procedure, a two-
thirds vote is not needed and Bill Section 19 should be deleted.
Indeed, Rule 609(b) will still apply with perfect force to those
administrative appeals that are subject to the Administrative
Procedures Act since, in those, there still won't be a statutory
right under the Administrative Procedures Act to de novo
consideration in court.
6. Public proceedings. AOGA endorses the provisions in Work Draf
R to keep confidential the record, proceedings and decision in a
tax appeal in front of an administrative law judge until the appeal
gets to Superior Court. This reflects the rule under existing law.
The Department of Revenue has proposed that the proceedings be
opened at the beginning of the formal hearing process before an
administrative law judge, instead of at the end of that process.
AOGA sees no reason why, in moving the formal hearing to an
administrative law judge outside of the Department of Revenue,
there should be any change to the present rule. When a case moves
to court, the full record bearing on the argument and adjudication
of the issues in the case does become public. In other words, the
public cannot watch a tax appeal live and in person as they watched
the O.J. Simpson trial on TV. They have to wait to find out what
happened. But they are not cut off from that information;
eventually they do have access. Meanwhile, the existing protection
of confidentiality as the proceedings unfold allows the
participants to focus on the matters at hand, instead of
grandstanding to a public audience.
It has been suggested that the public feels uneasy about the
negotiation of large tax settlements in private in the past, and
that this public concern justifies opening the tax-appeal process
to the public at an earlier stage than the current law provides.
However, settlement discussions would still be private and
confidential even if the formal hearing were opened to the public.
Even the particular terms of any settlement could still be kept
confidential. In other words, opening the hearings up to the
public isn't a cure to the alleged problem about negotiating tax
settlements in private. Nor is there a cure to this particular
problem - if the State wishes to preserve the possibility of having
tax settlements in the future, there will have to be a way for them
to be negotiated privately and off the record. Otherwise there
simply would not be any settlements.
7. Definition of 'de novo'. AOGA and the Department of Revenue
have reached an agreement on the issue of whether a definition of
'de novo' should be included in the Bill or not. Both sides agree
that, in the context of this particular legislation, 'de novo'
means the standards and procedures for tax appeals that will be
heard before the administrative law judges under the Bill. Since
there is only one place that the term is used in the context of
administrative law judges, inserting language there to make this
clarification will eliminate the need for a definition. AOGA is
pleased to see that such a clarification has been made in lines 11-
12 of p. 4 of Work Draft R.
8. Procedure to rebut the presumed production rate at the economic
limit for ELF purposes under the production tax. Bill Section 15,
beginning with line 27 on p. 17 of Work Draft R and running through
line 7 on p. 18, makes certain amendments to AS 43.55.013(g).
Section 013(g) provides for the rebuttal of a presumption about the
rate of gas production at the economic limit for a lease or
property.
AOGA and the Department of Revenue agree that the second sentence
in AS 43.55.013(g) should be changed to read as follows: 'The
taxpayer may rebut this presumption by providing clear and
convincing evidence of a different monthly production rate at the
economic limit for the lease or property.' This change will ensure
that the 'clear and convincing' standard for rebutting this ELF
presumption under the present law will continue to apply under the
new procedures, both in making the initial showing to the
Department of Revenue and in any subsequent appeal from the
Department's decision based on that showing, regardless whether
that appeal goes to an administrative law judge or directly to
Superior Court.
It is unclear at this time whether any further changes to AS
43.055.0123(g) should be made in light of the procedural changes
made elsewhere in the Bill, and AOGA and the Department of Revenue
have agreed to study this question further.
9. Transition rule. AOGA is in basic agreement with the Department
of Revenue that taxpayers who are far advanced in their formal
hearings when the Bill becomes law should not be allowed to switch
over to the new procedures and start again. Conversely, they agree
with us that taxpayers who are still at a very early stage in their
formal hearing proceeding should be allowed to use the new
procedures.
We have been unable to reach agreement with the Department of
Revenue on the precise wording of such a transition rule, and so we
offer our own proposal for the Committee's consideration, AOGA
recommends striking in its entirety Bill Section 17(a), which
appears in lines 2-15 on p. 19 of Work Draft R, and replace it with
a new Bill Section 17(a) that would work as follows:"
MR. SECKERS stated that rather than reading this section into the
record, he would characterize it for the committee. He stated that
they were basically trying to establish it so the new bill can be
used by any taxpayer who hasn't progressed too far in the system so
that just because the bill happens to be enacted on a given date
for example, this tax payer should be precluded from having to
begin their case again.
CHAIRMAN PORTER asked if this should replace Section 17 in this R
draft.
MR. SECKERS responded that this was correct. He went on to add.
"There is also a technical change to Work Draft R that AOGA would
ask the Committee to make. At the beginning of line 31 on p. 2, we
would ask that you insert the words 'disciplined or' in front of
the word 'removed'. This would treat the chief administrative law
judge the same way as the other administrative law judges are
treated in lines 1-3 on p. 3.
In conclusion, Mr. Chairman, we in AOGA applaud you and your
Committee for your diligence and hard work in developing the
Committee's CS for HB 341. We particularly applaud the
subcommittee and their efforts. We also acknowledge and appreciate
the willingness of the Department of Revenue and the Attorney
Generals' Office to meet with us and sincerely try to resolve or at
least narrow the areas of disagreement.
As it has been for a number of years, the reform of Alaska's
present tax-appeals system remains a priority of AOGA and its
members. We believe that, with the changes outlined earlier, you
will have a sound, fair and workable bill that will provide real
reform to the tax appeals process. I can pledge to you that we in
AOGA are committed to working with you, with this Legislature and
the Administration to ensure that these reforms are enacted.
Once again, thank you for the opportunity to testify."
Number 2000
DEBORAH VOGT, Deputy Commissioner, Department of Revenue was next
to testify on CSHB 341.
"Mr. Chairman you have before you the product of a great deal of
effort on the part of both the administration and the oil industry
not to mention Representative Green, to develop legislation that
will change the way tax matters are reviewed and appealed. As you
know, this is a subject that were encouraged to give a fresh look
to by the industry, and when we did look, we agreed that moving the
appeal process out of the Department of Revenue is an idea whose
time has come. The department worked with representatives of the
industry to develop legislation that was submitted by the
Governor."
MS. VOGT said she wanted to emphasis that the governor's bill is
the result of a long effort of a lot of meetings with people
outside the administration, it's not just the administration's
bill, but the result of a lot of compromises on the
administration's part. Many of the provisions of the bill before
the committee are taken from the governor's bill.
"There are, however, a number of very significant differences that
have emerged between the bill that the governor submitted and the
CS that you have in front of you. While the administration has
agreed to some changes in approach, and to quite a number of more
minor changes, we do not agree with the CS in some important ways.
I would like to address those differences, first in a general sense
and then perhaps at your pleasure after the testimony, by way of
actual amendment.
First, the CS permits a taxpayer to take its choice between the
administrative law judge review established by the bill and going
straight to court for a hearing "de novo" at the superior court.
This is a very substantial departure from the approach suggested in
the Governor's bill and is an idea that was not suggested by the
AOGA Tax Committee, in the comments that they provided to the
subcommittee."
MS. VOGT noted that AOGA now endorses the idea, but it was not an
AOGA idea to begin with.
"In our view, providing a taxpayer with the unilateral opportunity
to jump out of the process and go to superior court, where the case
will be randomly assigned, negates the whole purpose, the whole
point of setting up an office of tax appeals.
Most of you had the pleasure of hearing Mr. Paul Frankel testify
last week at the joint Judiciary/Finance Committee meeting. As you
know, Mr. Frankel is a taxpayer advocate with whom the Department
of Revenue consulted early in this process. We asked him to review
our current laws and regulations, and advise us on our system.
When I first spoke with Paul and asked if he would work with us, he
said he'd be happy to work with us, and he told me what he would
say. He said he would say that a tax review system should have
three components: First, it should be independent from the taxing
agency (the Department of Revenue in this case); second, it should
provide the taxpayer with the opportunity to make its case, to have
its trial, to present its evidence, before the taxpayer had to pay
his taxes (it should be a prepayment forum), and third, tax cases
should be heard by tax professionals - by people who are trained in
tax, and people who like tax. Sure enough, that's what he told us
when he finished looking over our statutes and regulations and
that's what he told the committee last week. In working with the
taxpayers or tax representatives of some of the taxpayers to
develop the governor's bill, we kept those three standards firmly
in mind.
The CS does not meet those criteria. A system that permits a
taxpayer to bypass the administrative law judge and go straight to
court for trial is not a system that provides for tax professionals
deciding tax cases. It strikes terror into my heart, as a tax
administrator, to think that complex tax cases, involving issues of
first impression, might be decided by a superior court judge who is
bored silly by tax matters. Such a decision would be binding on
the department, and set precedent for all other taxpayers."
MS. VOGT added that in Mr. Frankel's presentation he emphasized
that most of these systems, especially the federal tax court
required pre-payment if the tax payers wanted to go outside of the
tax court. But secondly, if a system was established which had
thousands of tax payers who argue the same issues over and over,
fisheries business tax for example, she wouldn't mind in these
instances if the taxpayers had an option to go directly to court.
This would especially be true on a tax case where there are a lot
of small tax players who are not going to be arguing over half of
the state's general revenue in one year. She thought the committee
should think about non-tax professionals deciding cases of the
magnitude they get in Alaska.
"There are other problems with the 'straight to court' option. The
taxpayers that we worked with in developing the governor's bill
were concerned about the language setting the standards of review.
We labored and labored over the language that appears on page 4 of
the bill, in Section 43.05.435. That language is very carefully
drafted to provide for the de novo review that the taxpayers desire
while being careful not to usurp the policy prerogatives of the
Commissioner of Revenue. However, the 'straight to court' option
of the CS provides no such guidance to the superior court judge.
There are no standards of review at all set out, if the taxpayer
goes straight to court.
Apparently under the CS (and this is something they didn't discuss
in the committee meeting), the taxpayer could request a jury trial.
There is nothing in the legislation that would prohibit a taxpayer
from requesting a jury. I would doubt that there is any place in
the United States that a taxpayer can have its tax liability
determined by a jury. It is a very bad idea. A tax program needs
integrity and predictability, and scholarly attention.
The second major difficulty with the CS is the creation of a board,
appointed by the governor and confirmed by the legislature, instead
of a hearing officer within the Department of Administration. The
idea of legislative confirmation appeared in AOGA's comments. We
pointed out that it would be unconstitutional to require
confirmation of an Administrative Law Judge (ALJ) within the
Department of Administration; the legislature cannot require
confirmation of a person down within the bowels of an agency.
Their response to this was to suggest the creation of a separate
board, which they agreed would meet the constitutional requirements
of Alaska's constitution.
The taxpayers response to our constitutional comment was to
jettison the idea of an administrative office within the Department
of Administration, and to create a whole special board to hear tax
appeals. Since a board cannot be just one person, the draft
provides for 'at least' two members. Thus, the fiscal impact of
the legislation is much higher than the governor's bill envisioned:
Two highly paid board members instead of one hearing officer-style
ALJ; a full time clerical person instead of half; rent for office
space; office machine, furniture, equipment that would have been
provided by the Department of Administration. We have provided a
draft revised fiscal note; but she noted that she wasn't sure who's
fiscal note this would be. The fiscal note would be significantly
in excess of the fiscal note prepared initially for $125,000 for a
hearing officer within the department.
The taxpayer's concern that is intended to be addressed by
legislative confirmation option is independence. We agree that the
administrative law judge set up by this legislation should be the
best available person; should have integrity; should be
independent; should not be either seen as or in fact be a
'political' appointee, appointed to carry out any particular
governor's agenda or Revenue Department's agenda. But we do not
agree that legislative confirmation is the way to accomplish that
goal. To us, legislative confirmation makes the process more
political, not less political. Judges in Alaska are not confirmed
by the legislature. We don't think administrative law judges
should be.
We believe that the tail is wagging the dog here. We worked hard
in the Governor's bill to provide protection for independence --
like the ALJ serving for a term of years, and being dismissible
only for cause. If taxpayers are still uncomfortable with the
provisions that were drafted in the governor's bill, we would be
happy to work to find mutually acceptable protection. But an
unwieldy and expensive board is the wrong way to go.
The CS creates a hybrid organization without precedent. Generally,
if a commission (like the Limited Entry Commission or the Public
Utilities Commission) holds hearings and decides cases, the way it
works is that the commissioners hire a hearing officer, who
proposes a decision to the commission, which adopts or rejects it.
Here, we would have a two-person commission, with each individual
deciding cases. Our idea was to have a simple little office, with
a chief and whoever else that person needed. But one person would
be in charge. (She noted that she didn't understand how the
Administrative Law Judges would work in terms of discipline, in
terms of one person deciding if there were disagreement among the
people in the office on how a case should be decided, etc. The CS
provides that the Chief ALJ is dismissible only for cause, but by
the Commissioner. She stated that this was an idea foreign to her.
She noted the Permanent Fund Board where the members of the board
are subject to dismissal by the Commissioner of the agency to which
they are attached. She noted that Will Condon cannot dismiss Grace
Shibel from the Permanent Fund Board.)
The third major disagreement we have with the CS is that it
provides that proceedings in front of the ALJ (or board) will be
behind closed doors. Although tax hearings are now confidential in
the Department of Revenue, we believed, when we drafted the
governor's bill, that the time had come to open the door on these
proceedings. Over the years, there has been a tremendous interest
both by the public and by the legislature in the large oil and gas
cases. The department has been hamstrung in talking about these
cases, even to the legislature.
There are strong public policy reasons to let these hearings take
place in the sun. Now, if a tax payer appeals to court from the
Department's decision, the court hearing is public. We believe
that when a matter goes out of the department, it should be public.
Allowing the sunshine in on these proceedings will allow the world
to see if the independence and integrity we all seek is in fact
taking place. (It would provide a measure of accountability which
isn't currently there and wouldn't be under the CS). The
governor's bill set up a system whereby if a taxpayer were
concerned about particularly sensitive trade or competitive
secrets, the taxpayer could request a protective order and certain
parts of the proceeding could be protected. Although I believe
that many individual taxpayers either liked or did not oppose the
provision as it appeared in the Governor's bill, AOGA will only act
if they are unanimous, so one objection can result in a
recommendation of opposition. However, when quizzed on an
individual basis, most taxpayers would not object to having the
proceedings public. The administration believes these proceedings
should be public.
Those are the three main concerns that we have with the bill as it
is drafted in work draft R. Other, more minor, matters include our
preference that an administrative law judge be in the partially
exempt rather than the exempt service. Exempt positions are
traditionally regarded as political appointments, dismissible at
will. The exempt classification is inconsistent with a desire to
shield an ALJ from politics. (Exempt service goes with the idea
of a Board or Commission which the department objects to.)
We are disappointed that taxpayers have failed to concur in part of
our recommendation of discovery."
MS. VOGT stated that they did concur in part of it, but they had
drafted language which would make three categories of information
irrelevant and inadmissible unless the administrative law judge
found that the information should be admitted in the interest of
justice and these three are 1) information relating to legislation
which hasn't passed, 2) information relating to a regulation which
was not adopted and 3) information of a taxpayer, other than the
taxpayer who's tax proceeding is at issue. As to the first two,
the court's have held in relation to what the legislature didn't
do, that no legal significance can be drawn from the legislature's
failure to do something. As a matter of law most of this
information is irrelevant. The reason they wanted the provision in
the legislation is that the Department of Revenue and the state's
lawyers are repeatedly asked for discovery and mountains of
discovery on legislation which is not at issue in whatever tax is
being litigated and legislation that in fact may not have passed.
She noted that they did recognize that there might occasionally be
circumstances in which this type of information should be admitted,
for example, the draft CS makes the legislative history on the
governor's bill concerning this subject a part of this bill, but
even if it didn't pass this information would be relevant in
determining the meaning of Representative Green's bill because they
have been joined together. As to the information of a taxpayer
other than the taxpayer at issue, information which taxpayer A
gives to taxpayer B is not confidential. To the extent that one
taxpayer agrees to show another taxpayer, this information wouldn't
even be covered by the bill. This concluded Ms. Vogt's testimony.
TAPE 96-31, SIDE B
Number 354
CHAIRMAN PORTER summarized the major disagreements with this
legislation for clarification. The first area was legislative
confirmation, with a sidebar that deals with the boards and how
that board is constituted (whether it would established to deal
with a constitutional issue or not), the second, the provision in
the draft that allows a taxpayer to go directly to court and
circumvent the informal and formal hearing process, and third,
whether the formal hearing should be confidential or not.
CHAIRMAN PORTER first noted that judges in Alaska do run for what
is called confirmation by an election of the public. He recalled
that Mr. Frankel had said that legislative confirmation was not
that unusual with other states.
Number 575
TOM WILLIAMS, Tax Committee of the Alaska Oil & Gas Association,
Alaska Tax Counsel for BP, said he saw no reason to second guess
Mr. Frankel's knowledge and expertise. He recalled that Mr.
Frankel said that where state's do have confirmation it works
perfectly well and he saw no downside to this procedure.
REPRESENTATIVE GREEN noted that this confirmation would involve one
or more members who would act as a tax board. He noted that they
would have something for them to be confirmed to as opposed to an
employee within the Department of Administration.
MS. VOGT noted that there was no disagreement here. If there is a
confirmation provision, a board would need to exist.
CHAIRMAN PORTER asked then, within this concept of a board, the
notion of an appeal by the board of an individual ALJ's decision
seemed to be perplexing and how would this work with a two person
board.
MR. WILLIAMS said that it would work much the same way as the
administration proposed in their bill where there would be
circulation of draft opinions between offices of two ALJ's. They
could set a rule if they had a situation of a tie.
Number 626
REPRESENTATIVE DAVID FINKELSTEIN noted that Alaska has
Administrative Judges all over the place and they work in a number
of areas. He said it seemed somewhat artificial not to require
confirmation of ALJs and put them on a board, but at the same time
retain provisions that they're still essentially part of the
hierarchy and that the Commissioner can get rid of the Chief
Administrative Law Judge and the Chief can get rid of the others.
He asked if there were fooling anyone. He questioned the use of
the term "board" even when the usual system for dismissing someone
is applied.
MR. WILLIAMS said that the word board is essential because this is
what the constitution calls for, it says that a board or commission
needs to be established at the head of a quasi-judicial agency. If
there's confirmation, there has to be a board. The constitution is
silent about how this board will operate and make it's decisions.
The most immediate paradigm that comes to mind is the APUC, but it
doesn't necessarily follow that this is the only way a board would
end up making a decision. There are a number of provisions in the
pending legislation where there are collective actions by the
board. If after five years an income tax is adopted there may well
be a lot of tax cases going to this board and the work load may
justify having three or four ALJ's and possibly more. Even small
cases considered could have important fundamental principles of law
involved.
Number 774
REPRESENTATIVE FINKELSTEIN said he didn't see the APUC analogy as
clearly as Mr. Williams did.
MS. VOGT said she understood that individuals in the Department of
Law would be looking at this issues and noted that she was bothered
by the same aspects. Boards and commissions are normally quasi-
legislative bodies which act with quorums and act on motions, etc.
This is a concept so totally different from anything she's seen in
government, it's hard to know if this would work or not.
CHAIRMAN PORTER asked Mr. Briggs if an APUC board member and be
removed for cause.
ROBERT BRIGGS, Assistant Attorney of Law; Oil, Gas & Mining Section
Department of Law; said that he couldn't answer this question
because this board question came up so recently, he said they were
trying to get a grip on all of the different aspects of this.
Number 895
MR. WILLIAMS noted that in the case of Bradner v. Hammond the
Supreme Court pointed out the difference between Section 25, which
provides for confirmation and boards and commissions. In Section
25 there is a specific provision that these commissioners serve at
the pleasure of the governor. In Section 26 it says that they can
be removed as provided by law. The court pointed out that this
doesn't necessarily mean that they serve at the pleasure of the
governor. The legislature has authority to prescribe how these
individuals are removed and by whom. The fact that APUC Chairman
can't remove other members means only that the legislature hasn't
legislated this statutory power for them to do so.
REPRESENTATIVE AL VEZEY said he happened to like the idea of
confirmation by the legislature. He thought that this reduced the
politics involved. He felt they may have created an unnecessary
problem for themselves by calling this a board rather than a court.
He noted that this situation goes to the problem of keeping this
body separate from a department's jurisdiction. If they give a
commissioner the right to dismiss any judge, they haven't got
anything different than what currently exists.
MR. WILLIAMS said that they were in agreement with the
Administration about what cause is regarding removal. He noted
that removal for cause would result as a violation of the code of
conduct and such.
Number 1100
CHAIRMAN PORTER next opened up the discussion about a taxpayer
circumventing the process and go directly to court. He asked what
circumstances did the participants see as an avenue that a taxpayer
would want to pursue superior court instead.
MR. SECKERS said that one case would be on constitutional issues,
such as equal protection. An Administrative Law Judge would not
be permitted to decide an issue such as this.
MS. VOGT said that she didn't agree that an Administrative Law
Judge cannot decide whether a certain set of circumstances denies
equal protection. What an Administrative Law Judge cannot do is
invalidate a regulation or a statute because of a constitutional
challenge. The administration agrees that there are certain powers
that an ALJ doesn't normally have, but they rule all the time on
due process under equal protection and constitutional questions.
MS. VOGT responded to Chairman Porter's question regarding if a
formal hearing was de novo, would the trial be on the record of the
formal hearing or would the trial be de novo, she stated that there
was confusion in the use of the terms on the record. On the
record, for purposes of the legislation, means that there is a
recording devise, or a court reporter present at the proceedings.
The administrative proceeding envisioned by everyone in the
Department of Administration is a proceeding where all evidence
presented by the taxpayer can be brought forward. There were
certain provisions which were agreed upon that if the taxpayer
refuses to show any information to the auditors or the informal
conferee and then brings everything into the Administrative Law
Judge, the ALJ can remand the case to the department if the
department has not had an opportunity to examine the evidence.
CHAIRMAN PORTER said he was concerned about the next step, from the
formal proceeding, if it was the position of the taxpayer that the
ALJ couldn't change the regulation or wasn't correct in their
interpretation of the constitutionality of a regulation what kind
of a hearing would the court procedure be, a de novo hearing or a
hearing on the record of the informal hearing.
MS. VOGT said that it would be on the record, but the superior
court judge is going to substitute their judgment on the questions
of law which a constitutional question most certainly is. Normally
what happens when constitutional issues are raised to an ALJ they
are simply preserved, to the extent that they are pure
constitutional issues. It is very rare that pure constitutional
issues arise. If so the administrative proceeding is skipped and
the case goes directly to court. Often what a taxpayer can do is
preserve a constitutional question for appeal.
Number 1320
MR. WILLIAMS said that there is a problem when there is an appeal
from the Administrative Law Judge to the superior court and it is
on the record unless the court exercises it's general discretion
itself and retries part of a case. It may be as an excess of
caution that the taxpayer has to present it's evidence to the ALJ
even though it knows that the ALJ won't be able to rule on the
question (indisc. - crosstalking with Chairman Porter). Then this
case goes to the superior court and then this judge is faced with
the dilemma of either taking the record without being able to judge
how the witness's looked and that sort of thing, which is a key
element. Great transcripts can be made and actually the witnesses
come off really "crummy" and conversely you can have very good
witnesses who make an incoherent transcript. If the judge decides
that these issues will be heard over again, these facts relating
constitutional issues will be litigated twice.
REPRESENTATIVE GREEN made the remark that rather than take a chance
of having back to back de novo hearings, this would in fact allow
a single hearing. It would then have to be decided if the case
would be heard at superior court or a formal hearing within the
department.
Number 1411
MS. VOGT noted that she had heard the taxpayer representatives here
this afternoon and earlier assert that this superior court avenue
would be rarely used. She had never heard any indication of how
they are suppose to know it is rarely used. It seemed to her that
if an ALJ ruled against a taxpayer in a major oil and gas case this
is the last time an ALJ would be used. This would rather be the
avenue rarely used. With the type of Alaska cases, setting up a
system where the taxpayer can take their choice of forums does not
make good sense. The constitutional issue referred to was a red
herring, if they want to work on making provisions to permit some
special treatment for constitutional issues, they might be able to
do this.
MR. WILLIAMS stated that the department (indisc. - paper shuffling)
to the court on the grounds that there is no specialized tax
expertise in the judiciary. It might be purely happenstance that
someone gets a judge who if familiar with tax law or interested in
tax. This in itself is a concern to them. In the separate
accounting case which Ms. Vogt referred to, Judge Carlson came out
with an opinion upholding the constitutionality of the law which
was one and a half pages long. Half of the page was just the
caption. This was a case involving $2 billion dollars already
collected in the state treasury and $6 billion by the time it
reached the state Supreme Court. They don't want to go to a forum
such as this one where there this type of superficial treatment,
unless there is a good compelling reason otherwise. This is why
they feel as though this avenue would be rarely used.
MR. WILLIAMS continued that if an ALJ ruled against them, if it's
an opinion which is soundly reasoned and the better the quality of
this opinion, the less likely they will say this judge has a bias
against them. If it is a one page opinion as noted, they would be
inclined to think that there is very little point in wasting their
time with the ALJ process. It would be a function of the
experience, but it's also a function of who is appointed and
confirmed. Their preference would be to go with the forum of
expertise.
Number 1587
MR. SECKERS pointed out that if a superior court judge rules
against a taxpayer then it's just as equal that the taxpayer may
not want to go there and rather go to the ALJ. Just because Ms.
Vogt says that if an ALJ rules against a taxpayer that they're all
going to go superior court could also be true in the opposite. He
said they don't understand what would be the aversion to having
this option available. He said he couldn't see where there would
be a fiscal note to the state. The court is already in existence.
Superior courts right now have to hear appeals from a formal
hearing process. They would have to be competent enough to
understand what the "tax expert" in the ALJ decided on the case.
Superior court judges are qualified. They hear complex cases today
and there's no evidence to suggest that their cases are anymore or
any less complex than tax cases. Right now under the procedure
provided in legislation someone goes formal, then to a de novo
hearing at the ALJ level and then this is appealed to superior
court, and then to the Supreme Court. While it may be true that
some of the discovery procedures would be more relaxed in the
court, it seems that this cost comparison would pale to the cost of
a de novo for a formal hearing and then an appeal to superior court
and consequently an appeal to the Supreme Court. A lot of the
cases that were decided in the past were decided in the superior
court in an on the record review, which was a record controlled by
the Department of Revenue in it's current hearing process. This
would be a de novo review. There is no way someone could suggest
that the same results, a one page decision would be the product.
This would be a very rare exception.
Number 1732
MR. BRIGGS addressed some of the points made by Mr. Seckers. One
of the features of HB 427 was to create a system for creating a
body of precedent of tax law through the ALJ and this provision is
in the CS now considered. The problem with the dual track system
created by work draft R is that it is unclear which opinions would
be controlling, either the opinion of a superior court judge in a
case where a taxpayer has gone directly to superior court, would
that control over a decision by an Administrative Law Judge. This
is unclear under the bill. He thought that the committee members
intrinsically understand the importance of stability in the tax law
area for this state and the taxpayers. House Bill 427 was
carefully drafted in consultation with taxpayers to try to set up
a system which gives them more stability, more predictability in
tax law, but having a dual track system will erode this and de-
stabilize the predictability of Alaska's tax laws.
MR. BRIGGS rhetorically asked why it was bad to go to superior
court in the first instance and suggested that they talk to a
superior court judge about this. He would guess that nine out of
ten superior court judges would tell them that they would prefer
that a tax case be tried at an administrative level first because
it would refine the issues, it would narrow the issues and would be
a much easier case for them to decide than getting a tax case
plopped on their doorstep in the first instance. For this reason,
the department thinks it's a very bad idea to have this dual track
system.
Number 1856
REPRESENTATIVE GREEN stated as they may recall, when Mr. Frankel
made his presentation he mentioned that in California, a state with
60 times as many people as Alaska, their system provides for a
taxpayer to go directly to court rather than the Board of
Equalization. Apparently it works there and not all case
automatically funnel to the court. This option is used with
discretion.
REPRESENTATIVE VEZEY asked if they were talking about Section 11 of
the bill in relation to an individual opting to go straight to
court. He referred to page 16. He asked if this provided for an
alternate method of adjudication prior to paying the disputed tax.
His understanding was that this tax had to be paid before the
appeal can be made.
Number 1959
MS. VOGT said that as she understood the language, the taxpayer was
required to pay the amount of the tax which is not in dispute and
post a bond for the rest.
REPRESENTATIVE VEZEY said he saw nothing in the legislation to
provide for a jury trial.
MR. WILLIAMS stated (indisc. - coughing) if the state sues somebody
then the defendant has the right to choose a jury, but if someone
brings an original action against the state, the state has the
right not to have a jury trial. Secondly, these will be appeals
still even though the proceeding will be a de novo proceeding, the
court is acting as an appellate court, not as a (indisc. - cross
talking with Representative Vezey).
REPRESENTATIVE VEZEY asked if it was in statute or court rule that
if the state is a defendant it's up to the defendant to request a
jury trial.
MR. WILLIAMS remembered that when he was in the AG's office that
this was the way it worked then.
Number 2100
REPRESENTATIVE FINKELSTEIN asked if they would be agreeable to an
amendment to preclude jury trials.
MR. SECKERS stated that AOGA didn't have a position on this issue
at this time. This was something that they haven't had cause to
take up before now.
CHAIRMAN PORTER didn't know how they could obtain one. In response
to Representative Finkelstein's reference to the previous
information imparted by Mr. Williams, Chairman Porter noted that
they would be sitting in an appeal position and not a court of
general jurisdiction. He stressed that a jury is not required for
an appeal procedure.
Number 2169
MR. BRIGGS noted that the problem with work draft R as currently
proposed is that the language is not clear regarding this de novo
trial proceeding. He suggested that the committee adopts language
to clarify this, where there is no right to a jury trial. He felt
as though tax cases shouldn't be tried before a jury.
MR. WILLIAMS noted that in the federal system someone can get a
jury trial by paying in the amount of tax disputed instead of going
to a tax court. The assessment is paid and then this person goes
to the Court of Claims, not the district court, they sue and then
they ask for a jury trial. This means that plutocrats get to have
jury trials and ordinary people don't. AOGA doesn't have a
position on this, but neither has AOGA been asking for a jury
trial. This issue came up in the context of appeals where there
are no juries.
REPRESENTATIVE GREEN and Chairman Porter agreed that the parties
should probably work on some language to take care of this
situation of duality.
Number 2401
REPRESENTATIVE VEZEY reiterated that in the federal process if
someone wants a jury trial they have to go to the court of appeals.
His understanding of the federal process is that if someone wants
a jury trial, the tax must be paid and then the person sues the
federal government in district court and then this person can
request a jury trial.
MR. WILLIAMS noted that it used to be the practice and it still
might, if a person pays the tax, they had two choices, they could
go to district court or to a special U.S. Court of Claims in
Washington, D.C. If this person goes to the Court of Claims, but
only there do they have the right to a jury trial. In the district
court, it used to mean that the person would not get a jury trial.
REPRESENTATIVE VEZEY said this was not the advise that he gets from
his attorney. He said it wouldn't be the first time his attorney
was wrong.
MR. BRIGGS stated that the committee could decide easily enough one
way or another if they wanted to do away with a jury trial
provision. This would obviate litigation on the point ultimately
decided by the Supreme Court. He urged the committee to call it up
or down.
TAPE 96-32, SIDE A
Number 254
MR. SECKERS responded to a another general discussion concerning
which avenue a taxpayer would choose and what they were allowed to
chose under existing systems. He noted that it seemed to him that
if an ALJ ruled on a particular situation under issue A for
example, and another taxpayer took this same issue to superior
court and prevailed, whether this tax payer would appeal this
decision to the superior court the judge would be bound by this
court anyway and rule in the same way. There wouldn't be this
inconsistency as Mr. Briggs indicated. Under current law, if the
ALJ system is upheld and then the tax payer goes to superior court,
if the superior court overturns the ALJ system this is binding on
the ALJ.
MR. SECKERS used the example of his company and if they were to
litigate an issue that another taxpayer won in superior court and
they were involved in this issue with the ALJ and the ALJ ruled
against them, they would appeal to the superior court. They would
have their decision because the judge would rule the same way as
the prior superior court judge ruled on the same issue at a
different time.
Number 287
CHAIRMAN PORTER asked about an example where an informal hearing
occurs and the taxpayer prevails. Six months later another
taxpayer takes a complicated case to superior court, but for
whatever reason the superior court rules on the previous issue
before the ALJ and overturns this decision. He asked what then
would prevail. How would this be resolved, are they guided by the
superior court's decision on this issue or by the previous ALJ
decision.
MR. SECKERS said it seemed to him that if the superior court has
ruled on this exact issue, then it comes up again, the ALJ should
be bound by this decision, because if the ALJ rules inconsistent
with this same issue and the same laws apply, whoever the losing
party is will appeal this decision to superior court. There
wouldn't be this inconsistency and as Mr. Frankel pointed out there
are a number of states which provide this very option.
Number 395
MR. WILLIAMS noted that ordinarily decisions of the superior court
aren't precedent even to that judge or other judges of the same
court. It's the appellate courts which have precedent. Even if
the court has acted as an appellate by the first instance, if it's
a concern they could specify in the bill that these ALJ decisions
have a precedent until (indisc.) the full board of ALJ's, by the
Alaska Supreme Court or by legislative enactment.
MS. VOGT thought that this was an important issue and one of the
things they were trying to address in the efforts that the
administration has put in, is to develop a spot in which tax law
will reside. It is important that they have a body of tax law that
is available to all tax payers so that they can understand and
adjust their actions accordingly, both the state and the taxpayers.
She felt uncomfortable with the idea that case law would be made
simultaneously in two or more forums. She understood that they'll
still get cases which go off into different directions. At least
one body will deal with them all first, the Administrative Law
Judge.
Number 580
CHAIRMAN PORTER noted for the record that there was probably still
a disagreement in this area which needed work. The next area to
discuss was whether the administrative hearings should be sunshined
or not. He asked about the inconsistency of this concept when
settlement hearings would still be confidential.
MS. VOGT noted that there was an entire spectrum of issues which
they are asked about time and again, issues they would be able to
discuss and read about if the proceedings were public. Certainly
settlements to the extent that the parties wish to keep them
confidential would remain so. She hoped that more and more matters
would go to hearing and be decided. Almost all of the Alaska tax
cases have been settled in the last few years. The public aspect
of proceedings speak to a lot of the concerns which have been
expressed from the taxpayers, in order to require accountability,
impartiality and so on. All of these things are protected if the
proceedings are made public. They would like to see options for
portions of some the cases under protective order.
Number 781
MR. WRIGHT said that it was easy to think of this system through
oil and gas tax issues, but without going into details of one
particular case settled over separate accounting and production
taxes, they paid in settlement $1,400,000,000.00 dollars so they
could imagine the claims. He submitted that in a state this size
a two to eight billion dollar cases are going to have exactly the
same sensational coverage that they saw with the O.J. Simpson
trial. He personally thought that BP shouldn't have to go through
a circus like that. These big spectacular cases really would
become circuses rather than good, sound administrative
adjudications.
MR. WRIGHT went on to make the point that there are a lot of small
tax cases and used the example of a dentist with a professional
corporation and this dentist has to pay corporate income tax. Why
should this dentist have all their issues out in the public. If
there is a personal income tax, why should an individual's tax
return be ventilated around in the public to have an impartial
ruling and the merits of claims made against them.
Number 910
MR. BRIGGS stated that with all due respect to Mr. Williams he
disagreed that it was likely that tax cases would generate the kind
of publicity the O.J. Simpson trial did. Mr. Briggs participated
in the last phase in the ANS oil royalty litigation. It was every
bit as sophisticated and fully litigated as the O.J. Simpson trial,
but did not generate the same type of interest.
MR. BRIGGS also made a second point that Alaska does not have a
personal income tax now. He noted that the state is also concerned
about an individual being required to divulge their personal issues
to the public as part of litigation. Mr. Briggs said that this
type of issue was not addressed in the legislation because of the
lack of an Alaska personal income tax.
Number 1009
REPRESENTATIVE VEZEY said that if a taxpayer elects to go before a
superior court rather than an administrative proceeding, to the
best of his knowledge there wouldn't be any question this
information would be public. He thought that this would be an
incentive to use the administrative adjudication channels instead.
He tended to agree that tax matters should stay out of the public
domain as long as possible. This could be very intimidating to any
person that is required to expose their records to public scrutiny.
REPRESENTATIVE FINKELSTEIN stated that in either version of the
legislation, with or without an amendment to this there will still
be the provision that says, "upon a showing of good cause an
Administrative Law Judge can keep portions of it confidential" and
if parts are at issue then these portions can be deleted. He
reminded everyone that they were in the business of government.
There are lots of times they deal with subjects they would rather
not have exposed, but that's the price to be paid in dealing with
the government. Another confusing issue was that he thought this
information would be made available anyway.
MR. WILLIAMS responded that taxes aren't optional for BP and
they're not optional for an individual with the IRS.
Confidentiality is a lynch pin to a self-reported, self-assessed
taxation system under the United State constitution. When it is
made mandatory for people to disclose the full particulars about
their liability, they have protection here. He didn't feel it was
appropriate that someone should have a choice between having one
shot at a fair hearing on the claims made against someone with
respect to their tax liability or they give up their rights to
privacy and confidentiality, etc. They shouldn't be forced to
choose between confidentiality and having the right to petition
government for redress of grievances. Someone shouldn't be put in
this position. This in effect would happen if a case was opened
up. He noted that there is tons of information disclosed, but
irrelevant when a case comes to a hearing. Nonetheless this
information would be exposed to the public domain.
Number 1275
MS. VOGT responded to this irrelevant information as being
discoverable and noted that they worked long and hard on discovery
provisions so there wouldn't be tons of stuff produced and in the
second place, until it's entered into the record information
doesn't become part of the record. Just because information is
discoverable doesn't mean it will all become part of the public
record. She said she was surprised about the vehemence of the
comments here because since last summer since they started working
on this legislation and during this time they've heard from most of
the taxpayers. Since proceedings become public at the superior
court anyway, it really doesn't matter that much whether they're
public at the formal hearing or not and some of the taxpayers are
inclined to feel that the accountability and reviewability of
public proceedings is worth something.
REPRESENTATIVE FINKELSTEIN referred to the legislation which states
that once the final decision is released the records become public.
Number 1408
MR. WILLIAMS stated that it's true in the superior court forum that
discovery is not a part of the record except if copies are filed
with the court, but this legislation does not allow for a superior
court like forum with an Administrative Law Judge set up. The ALJ
system would be much more involved in the control of discovery. It
is not a foregone conclusion if there is a debate about what should
have been produced in discovery that this information will not be
in there and off the record.
REPRESENTATIVE BUNDE asked if confidentiality would be used as an
encouragement to use the Administrative Law Judge.
REPRESENTATIVE GREEN in response asked what purpose does the public
gain during the deliberation. It seemed to him that
confidentiality of cases is best preserved for the litigants. What
public benefit is there to have the record open during litigation.
REPRESENTATIVE VEZEY said he couldn't support an administrative
proceeding where all the records would become public. This would
give the Department of Revenue the right to take any taxpayer in
the state for a hearing and make all their records public
information. He said there was no way he could vote for something
like this.
Number 1568
MS. VOGT stated that the proceedings now are confidential until the
taxpayer appeals to court. If the taxpayer appeals to court
everything becomes public. The legislation as currently drafted
permits the parties to agree to a protective order for any
particularly sensitive information which a taxpayer hopes to keep
confidential. The whole reason this issue became a part of the
discussion was a concern by Mr. Briggs. He clerked for a superior
court judge before the last big royalty case was heard. The
parties involved worried a lot about confidentiality and
proprietary information. The first thing they did was hammer out
an extensive and elaborate protective order procedure by which the
producer parties could request that certain parts of the record be
closed or sealed, but this was never used.
Number 1680
MR. BRIGGS said the basis for the suggestion to make the record
public was that in the past there has been doubt about the outcome
of tax settlements. People have wanted to know what was at dispute
and why settlements were arrived at. The vision of HB 427 was not
that settlements or settlement proceedings would be opened to the
public or that proprietary or sensitive information would be made
public, the vision was that to the extent the public had any
interest in certain proceedings that they be permitted to attend.
Ms. Vogt pointed out the importance of the public being in
attendance during any kind of litigation, this is why civil trials
are open to the public so they can watch the proceedings and see
how the dispute is resolved. This was the primary purpose behind
this ideal. The committee must consider whether they think it is
sound public policy to adopt this type of proposal.
MR. BRIGGS noted that in drafting this bill they asked themselves
what are some of the problems with the way tax disputes are
resolved. Confidentiality was one example they came up with. He
went on to add that in the Oil and Gas Journal there is a lot of
published information about the operation of Oil and Gas companies
because this helps them get investors and because they're highly
regulated by other public agencies, this information is required to
be reported. He wondered if AOGA's expression of concern was
bonafide. For small taxpayers who's information is more private,
these concerns are real. He noted that the department was willing
to work on language which would address these concerns.
Number 1824
MR. WILLIAMS stated that everyone is aware that price fixing is a
crime and it's a violation of the anti-trust statutes. If Exxon
and BP shared their strategy about how they were going to sell
North Slope oil to their customers, the Justice Department would be
knocking on their door. If they spread the results of these
strategies in the form of contracts for the sale of North Slope
oil, which is relevant to value of oil for production tax purposes
in the record, this would result with problems from the Justice
Department as well. This would be the exact sort of situation
where they would want a protective order.
MS. VOGT pointed out that these exact same considerations are at
issue in royalty litigation which is not confidential and the
courts find a way to deal with it.
MR. BRIGGS noted that there was a public perception of doubt about
how tax disputes were resolved and that if the tax payers were
permitted access to tax proceedings and could observe them, there
might be more public confidence about how they were resolved.
Number 1929
REPRESENTATIVE TOOHEY said that tax disputes were not an issue for
her and if her taxes were out on the table, she would very
concerned that people in competition with her would have an
advantage to see where she is spending her money. It's a matter of
competition.
REPRESENTATIVE BUNDE noted that there were two things the public
wanted to know in relation to these disputes, how much money was
asked for and how much was accepted.
Number 2001
CHAIRMAN PORTER noted that their discussions so far had been good
and clear about what the sticking points still are. He asked that
the parties meet to discuss further compromises on these points.
He envisioned one more hearing such as this one with public
testimony. After that he suggested everyone have representatives
present while the committee discussed amendments.
Number 2245
REPRESENTATIVE GREEN said that another issue which hadn't been
discussed yet was the draft letter of intent regarding the
legislation. This letter did not have a purpose section in it, but
there should be a legislative intent letter to accompany the
legislation. He asked that he receive feedback on this letter from
the interested parties.
MS. VOGT noted that the letter of intent drafted by other folks
focused so much on the parts of the legislation which they don't
agree with, that it would be very hard for them to give some input.
ADJOURNMENT
CHAIRMAN PORTER adjourned the meeting at 3:28 p.m.
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