taxpayer rights have expiration dates

Taxpayers have rights at the federal and state levels. Do you know what they are? Have you really looked at them? We often assume we know what the taxpayer bill of rights say, or that they don't really matter, but it's good to be reminded.

I am planning a series of blog posts covering private letter ruling request procedures by each state, but wanted to start with taxpayer rights. Since I am based in Virginia, let's start here.

In Virginia, the Taxpayer Bill of Rights are provided to guarantee that (1) the rights, privacy, and property of Virginia taxpayers are adequately safeguarded and protected during tax assessment, collection, and enforcement processes administered under the revenue laws of the Commonwealth, and (2) the taxpayer is treated with dignity and respect.

The Taxpayer Bill of Rights compiles, in one document, brief but comprehensive statements which explain, in simple, nontechnical terms, the rights and obligations of the Department and taxpayers. The rights afforded taxpayers to assure that their privacy and property are safeguarded and protected during tax assessment and collections are available only insofar as they are implemented in other sections of the Code of Virginia or rules of the Department.

The rights guaranteed to Virginia taxpayers in the Code of Virginia and the Department's rules and regulations are:

1. The right to available information and prompt, courteous, accurate responses to questions and requests for tax assistance.
2. The right to request assistance from a taxpayers' rights advocate of the Department, who is responsible for facilitating the resolution of taxpayer complaints and problems not resolved through the normal administrative channels within the Department.
3. The right to be represented or advised by counsel or other qualified representatives at any time in administrative interactions with the Department; the right to procedural safeguards with respect to recording of meetings during tax determination or collection processes conducted by the Department; and the right to have audits, inspections of records, and meetings conducted at a reasonable time and place except in criminal and internal investigations.
4. The right to abatement of tax, interest, and penalties attributable to any taxes administered by the Department, when the taxpayer reasonably relies upon binding written advice furnished to the taxpayer by the Department through authorized representatives in response to the taxpayer's specific written request which provided adequate and accurate information.
5. The right to obtain simple, nontechnical statements which explain the procedures, remedies, and rights available during audit, appeals, and collection proceedings, including, but not limited to, the rights pursuant to this Taxpayer Bill of Rights and the right to be provided with an explanation for denials of refunds as well as the basis of the audit, assessments, and denials of refunds which identify any amount of tax, interest, or penalty due and which explain the consequences of the taxpayer's failure to comply with the notice.
6. The right to be informed of impending collection actions which require sale or seizure of property or freezing of assets, except jeopardy assessments, and the right to at least fourteen days' notice in which to pay the liability or seek further review.
7. After a jeopardy assessment, the right to have an immediate review of the jeopardy assessment.
8. The right to seek review, through formal or informal proceedings, of any adverse decisions relating to determinations in the audit or collections processes.
9. The right to have the taxpayer's tax information kept confidential unless otherwise specified by law.
10. The right to procedures for retirement of tax obligations by installment payment agreements which recognize both the taxpayer's financial condition and the best interests of the Commonwealth, provided that the taxpayer gives accurate, current information and meets all other tax obligations on schedule.
11. The right to procedures for requesting release of liens filed by the Department and for requesting that any lien which is filed in error be so noted on the lien cancellation filed by the Department and in a notice to any credit agency at the taxpayer's request, provided such request is made within three years of the release of the lien by the Department.
12. The right to procedures which assure that the individual employees of the Department are not paid, evaluated, or promoted on the basis of the amount of assessments or collections from taxpayers.
13. The right to have the Department begin and complete its audits in a timely and expeditious manner after notification of intent to audit.

The key to the taxpayer bill of rights is to know them and know the procedures surrounding each right. Some taxpayer rights require action by the taxpayer to enforce the right within a specific passage of time (i.e., 30 days, 60 days or 3 years). This is specifically true in regards to protesting audit assessments and filing refund claims. Consequently, some rights have expiration dates.

They say, "knowledge is power." They also say, "the greatest gap in the world is the gap between knowing and doing." When dealing with state taxes, they couldn't be more right.  

random thoughts from your fellow state tax professional

Taking a break from working this afternoon. In the middle of doing multiple state market-based sourcing research. Earlier this week I spent time researching California apportionment and allocation rules and writing technical support. I also worked on Florida enterprise zone refund claims and other miscellaneous research.

Question for the day: what did you spend your time doing this week? what would you do differently if you could? what would you change?

My philosophy is that life is too short to be boring or do boring work. I have been a state tax consultant for 20+ years and I know what part of my work I enjoy and what part I don't. Consequently, I seek to spend more time doing what I like and less time doing otherwise.

Random thought - one of my favorite television shows is "Suits." A little sad that the season finale was this week. Looking forward to it starting again in the winter. If you enjoy "Suits" as well, drop me a line. The show can be a little tense and stressful. Nobody takes any crap from anyone, and they are constantly jumping to incorrect conclusions. However, I enjoy the creative problem solving and perspectives they execute.

I hate the 'bait and switch.' I hate it when products at the store say they solve a certain problem or perform a certain function, then you get it home and does nothing. Isn't that false advertising? How many products or services have you experienced this phenomenon with? Unfortunately, that's how it feels with state tax laws. They are so complicated to begin with, and then states pull the bait and switch after a negative court ruling. 

I leave you with this - life AND work are supposed to be fun. I hope you had a great week and don't spend your days living for the weekend.

Take care and talk to you next week.

mission impossible?

Multistate tax laws are so complicated that businesses are set up to fail, to be exposed to audit assessments, to miss out on refunds due to expired statute-of-limitations, pushed to appeal assessments because of unreasonable positions by department audit divisions, and coerced to pay computer generated notices simply because the cost of fighting outweighs the benefit. Companies are forced to obtain elaborate accounting software, put procedures in place to comply, and hire experts to plan to minimize tax and mitigate the risk of exposure. The compliance burden for multistate businesses is overwhelming.

State statutes and regulations, court cases, rulings, internal audit division policies, etc. change daily. The constant change and lack of uniformity among the states produces unintended consequences. Even years later, after statutes or regulations have been in place and businesses have complied, states may choose to change the rules again(or sometimes they change their interpretation of the same rules without actually changing the rules). To complicate matters even worse, these changes may be imposed prospectively or retroactively; whichever has the least impact on the state's revenue. Consequently, taxpayers who have relied on the state's interpretation or challenged the state's interpretation, may owe additional tax or be unable to obtain refunds they deserve.

Conclusions:

1. Tax policy must be fair and provide reasonable certainty (no bait and switch).
2. The tax professional community must have access to the best tools possible (i.e. timely and accurate information), and be able to navigate their way through the minutiae to support tax positions. 
3. Fortune 500 company tax departments are continually being required to do more with less as state tax complexity worsens. 

Mission:

1. Collaborate with tax policy organizations on policy statements, amicus briefs, studies, articles, reports, comments and testimony (positively influence state tax policy)
2. Write or review technical material to expand or build out tax research publisher libraries (build better tools)
3. Act as a 'stop-gap' independent contractor to Fortune 500 company tax departments that lack resources to accomplish a variety of projects (provide companies with a partner-level experienced resource who has low overhead and isn't bound by audit independence issues or bureaucracy, so companies can achieve desired results)

This is my mission. Is the mission impossible?

What is your mission?

I challenge you to find it. Pursue it. Engage.

market-based sourcing to be analyzed by MTC special subcommittee

The Multistate Tax Commission (MTC) has formed a Special Subcommittee to review market-based sourcing regulations in the context of separate-entity filing and related party transactions. The first meeting will be held Friday, August 28, 2015 at 3:30 pm EST via teleconference. The meetings will be held every Friday at 3:30 pm until further notice.

According to media reports, the special subcommittee was formed to examine concerns about the possible impact on taxpayers filing separate-entity income tax returns. The MTC is concerned that taxpayers may manipulate market-based sourcing methodology through the use of related party transactions, distorting the result. 

The taxpayer and tax professional community must accept that market-based sourcing is here to stay and will eventually be adopted by all states. Therefore, we must be proactive in how the rules are crafted and implemented. The majority of the economy in the U.S. is derived of service providing companies, or companies that provide services along with selling tangible goods. Technology allows companies to provide several types of services across the U.S. without physically delivering the service into each state (i.e., services are performed in one state, while customers are in multiple states). Consequently, market-based sourcing in-conjunction with "factor-presence" nexus or "economic" nexus (a subject for another day) will create greater tax liability and/or compliance burdens for companies.

Be prepared. Be involved.

For more information, check out my previous posts on market-based sourcing.

Bloomberg BNA releases its 2015 state tax survey

Taxpayers are always trying to obtain certainty regarding their tax issues. Unfortunately, it is not possible to achieve 100% certainty when the facts are complex and the state's rules are grey. Consequently, the taxpayer and adviser generally review all binding authority (statutes, regulations, cases, etc.) and unbinding authority (informal guidance, etc.) to develop support for a tax position. This is why we have the lovely 'levels of assurance' such as the 'realistic possibility of success' (33%), 'substantial authority' (40%), or 'more likely than not' (> 50%).

Depending on the situation, taxpayers are commonly balancing risk and the amount of dollars to spend to chase down this elusive certainty.  Accordingly, taxpayers are trying to attain the most cost-effective and practical solution that reduces risk to an acceptable level. Thus, other factors (business, legal, financial) may determine how much effort is taken to support a specific tax position, resulting in some taxpayers choosing to default to paying more tax to avoid risk.

Bloomberg BNA released its 2015 Survey of State Tax Departments this week, which according to BBNA, clarifies each state’s position on the gray areas of corporate income tax and sales and use tax administration, with an emphasis on nexus policies. 

BBNA has added new sections addressing income and sales tax nexus for registration with state agencies, as well as sales tax nexus for drop shipment transactions. The survey also has a new focus on each state’s rules for sourcing sales factor receipts for income tax purposes. 

As I have stated in previous posts, surveys like this provide great insight into how a state will treat certain issues and fact patterns. The problem is that many answers provided by the state may not be based on actual statutes and regulations or court rulings. The answers may be based on internal policy or simply be an interpretation of a grey area (right or wrong). Regardless of the basis, the states' answers help a company formulate a conclusion.

You can download the report for FREE, just go here.

draft sales and use tax nexus model act open for public comment

The hearing is to be held on September 15, 2015. Written comments are due no later than September 11, 2015. Persons making oral presentations are requested to file written comments as well. 

The following is an excerpt of the Summary of the Important Provisions of the Model as published by the Multistate Tax Commission (MTC) Uniformity Committee:

While the model is called the “nexus” model, states generally do not define nexus as part of their sales and use tax statutes. Rather, almost all states impose tax payment or collection obligations on defined persons who engage in defined activities in the state (e.g., “retailers” or “vendors”, and “doing business” or “engaging in business”). Many statutes do this within a “general definitions” section for the particular act or article, while others do so in the imposition statute itself.

Most states explicitly or implicitly extend their statutory use tax collection obligations to the limits of what the Constitution allows. The draft model follows this general approach of defining the operative terms for imposing a collection duty. The draft consists of two main provisions – a definition and a presumption – in Sections (a) and (b) respectively.

Section (a) defines the person on whom a tax payment or collection burden is imposed (here, “retailer engaged in business”) as a retailer, whether or not authorized to do business in this state, that has a sufficient connection with this state under the United States Constitution to be subject to sales and use tax collection duties . . . .

Section (a) also contains a list of activities that would bring a person within the definition of “retailer engaged in business.”

Section (b) is the “click-through” nexus provision modeled on what other states have enacted, generally—which takes the form of a rebuttable presumption. This provision also contains a minimum threshold.

Other provisions of the bill define certain terms and also provide for the possibility that federal legislation might someday grant states authority over other out-of-state persons (i.e. remote sellers).

The workgroup discussed but decided not to include any explicit de minimis rule for the activities listed in Section (a) or any “trailing” nexus provision.

For more info, please see the MTC's Notice of Public Hearing and site.