Allows the commissioner of taxation and finance to seek judicial review of decisions of the tax appeals tribunal

Section 2 of the bill provides that the bill takes effect immediately.

Existing law

Disputes between the Department of Taxation and Finance ("Department") and taxpayers are adjudicated by the Division of Tax Appeals through an administrative hearing process. Either the taxpayer or the Commissioner may appeal a determination of an administrative law judge and request a review by the three-member Tax Appeals Tribunal. However, judicial review in an Article 78 proceeding with respect to the merits of an adverse decision rendered by the Tax Appeals Tribunal is available only to the taxpayer.

Legislative history

In 2007, S.4119 (Winner) was introduced at the request of the Department, but not introduced in the Assembly.

Statement in support

The absence of a right to appeal adverse Tax Appeals Tribunal decisions by the Commissioner is a significant flaw in the Tax Law. Several rulings illustrate this clearly. For example, in 1988, the Tax Appeals Tribunal held in favor of the taxpayer when it ruled that a cable television company was subject to tax as a general business corporation under Article 9-A, rather than Article 9, of the Tax Law (Matter of Capitol Cablevision Systems. Inc., TSB-D88(3)C). This decision adversely affected many cable television companies that benefited from taxation under Article 9. However, because the Department could not appeal the determination, the only way for the cable companies to resolve the matter was to start the litigation process all over again. Thus, in Matter of New channels Corporation and Matter of Upstate Community Antenna, Inc., taxpayers were forced to go through the entire hearing process and then appeal the issue of the taxable status of cable television companies to the courts, where the issue was finally resolved in 2001 by the reversal of the Tribunal's decision. Denying the Commissioner the right to seek judicial review of the Capitol Cablevision decision resulted in duplicative litigation, expense for the taxpayers and the State, and a 13-year delay in reaching final judicial resolution of the issues, during which the entire cable television industry was in doubt as to its taxable status.

Another example is the Tribunal's 1992 decision in Matter of General Electric. Some taxpayers benefited from the decision and others were disadvantaged. Because the Department could not appeal, it challenged the holding of the General Electric decision in several subsequent cases, but it was not until the Tribunal's 2003 decision in Matter of CWM Chemical Services, Inc. and CWM Chemical Services, LLC that the Tribunal reversed its General Electric decision. In this case it took over 10 years to reverse a Tribunal decision and, during that time, the companies in this industry were subject to a great deal of uncertainty as to how to structure their contracts for waste disposal.

Because the Commissioner has no right to appeal an adverse Tax Appeals Tribunal decision, the only remedy available is to seek a legislative change. However, obtaining legislative relief from an adverse decision is not an efficient way to effectuate the needed change, and has been sought only in very few instances.

The Commissioner's lack of a right to appeal is at odds with the independent nature of the Division of Tax Appeals and is inconsistent with the right to appeal afforded to other State agencies. For example, the Industrial Board of Appeals and the Unemployment Insurance Appeals Board have jurisdiction to review certain actions taken by the Commissioner of Labor, and the Commissioner has the right to seek judicial review of decisions rendered by these boards. Further, other states with an independent administrative body charged with the resolution of tax disputes provide the tax administrator with the right to appeal the administrative body's decision to a court. Among those states are Massachusetts, Michigan, Minnesota, New Jersey, Ohio, Pennsylvania, Idaho, Iowa and Wisconsin.

Budget implications

The impact of this bill on the State's finances is difficult to quantify, but over the longer term it is likely to have a positive impact, since the State may be successful in its appeal of decisions that would otherwise not be appealable. Moreover, because this bill establishes a more balanced set of litigation risks, it may lead to some reduction in the volume of litigation, creating the potential for reduced costs and improved voluntary compliance.

EFFECTIVE DATE This bill would take effect immediately.