Legislature(1995 - 1996)

1996-01-17 House Journal

Full Journal pdf

1996-01-17                     House Journal                      Page 2467
HB 427                                                                       
HOUSE BILL NO.  427 by the House Rules Committee by request of                 
the Governor, entitled:                                                        
An Act establishing the office of tax appeals in the Department               
of Administration; revising the procedures for formal hearing of               
certain tax appeals, including appeals regarding seafood marketing             
assessments; providing for the release of agency records relating              

1996-01-17                     House Journal                      Page 2468
HB 427                                                                       
to formal administrative tax appeals; relating to litigation                  
disclosure of public records; clarifying administrative subpoena               
power in certain tax matters; and providing for an effective date.             
was read the first time and referred to the State Affairs Committee, the       
House Special Committee on Oil & Gas, and the Resources and                    
Finance Committees.                                                            
The following fiscal notes apply:                                              
Fiscal note, Dept. of Administration, 1/17/96                                  
Fiscal note, Dept. of Revenue, 1/17/96                                         
Zero fiscal note, Dept. of Law, 1/17/96                                        
The Governor's transmittal letter, dated January 16, 1996, appears             
Dear Speaker Phillips:                                                         
Under the authority of art. III, sec. 18, of the Alaska Constitution, I am     
transmitting a bill relating to certain tax appeal procedures.  This bill      
addresses the concerns of fairness and improves the efficiency and             
openness of certain administrative tax appeals presently assigned to the       
Department of Revenue.                                                         
The bill has four main components: transfer of the function of hearing         
certain tax appeals (including appeals regarding seafood marketing             
assessments) from the Department of Revenue (DOR) to a newly-                  
created office of tax appeals in the Department of Administration;             
revision of the tax appeal procedures to encourage earlier exchange of         
information and resolution of tax disputes; opening administrative tax         
appeals to public examination and scrutiny; and clarification of the           
ability of the DOR to obtain information regarding tax matters.                
Transferring the function of hearing administrative tax appeals to the         
Department of Administration will address a perception held by certain         
taxpayers that the current system is unfair because the tax audit and          
appeal function are both in the DOR.  Courts have consistently found           
that combining the functions of auditing taxes and hearing tax appeals         
in the same department is fair.  Nevertheless, I have decided to               

1996-01-17                     House Journal                      Page 2469
HB 427                                                                       
recommend the transfer to remedy the perception of unfairness.                 
Transfer from the DOR will have the additional advantage of removing           
a difficulty the commissioner of revenue often faces.  As the ultimate         
decision maker in an appeal, the commissioner of revenue must                  
distance himself or herself from the auditing division when the matter         
reaches the formal hearing stage.  Transferring  these hearing functions       
from the DOR resolves this issue.  Under the proposed bill, the                
commissioner of revenue may be involved with the auditing division             
throughout the appeal process.  This will foster resolution of tax             
appeals more quickly and efficiently.                                          
The second component of the bill is a revision of the revenue tax              
procedures to encourage earlier exchange of information and to lessen          
the burden of discovery during the formal appeal phase.  The bill also         
requires that administrative law judges supervising tax appeals limit          
discovery to relevant information and permits further limitation of            
discovery in order to promote efficient, just, and speedy resolution of        
appeals.  The purpose is to prevent revenue tax appeals from becoming          
wars of attrition with huge volumes of documents being requested and           
produced.  The bill would induce both parties to a tax dispute to focus        
on the bona fide issues at hand.                                               
A third feature of the bill is that the formal tax appeal proceedings,         
records, and decisions would be open to the public.  Under current             
law, a tax matter becomes public only when it is appealed to the               
superior court.  Tax appeals often are of great public interest and            
public scrutiny will help the process.                                         
The fourth component of the bill is a clarification of the DORs                
subpoena power during the audit stage.  Under current law, the DOR             
has the power to compel production of records and testimony necessary          
to complete an audit, but in practice the DOR has almost always relied         
upon voluntary release of information by taxpayers and depended upon           
the discovery process of the formal hearing to obtain information that         
a taxpayer has refused or failed to release.  The current system has no        
express procedure for judicial enforcement of tax audit subpoenas.             
Many times in the past, a taxpayers position has been initially rejected       
due to the taxpayers failure to provide substantiating information.            
Then, during the appeal, the taxpayer released the relevant information        
and made the issue moot.  This practice has unnecessarily complicated          

1996-01-17                     House Journal                      Page 2470
HB 427                                                                       
and delayed tax disputes.  The bill provides a streamlined process for         
court enforcement of subpoenas issued during the audit stage and               
clarifies the current ambiguity in AS43.55.040 as to whether the DOR           
is vested with investigatory powers to the full extent of the law in           
order to perform the audit function.                                           
The DOR, in consultation with the Department of Law, has prepared              
a section-by-section analysis that is available to explain the detailed        
features of the bill.                                                          
This bill is designed to help break the chain of antagonistic tax              
disputes that have characterized our states recent history.  Disputes          
will not end, of course, but if this bill becomes law, they will be            
resolved more quickly and efficiently to the advantage of taxpayers            
and the public alike.  I urge your support of this bill.                       
						Tony Knowles