What's happening
This bill prohibits cities and villages in New York from paying auditors of utility taxes based on contingent fees or amounts collected.
Why it matters
Reduces conflicts of interest in tax auditing. By prohibiting contingent fees for auditors, the bill aims to prevent auditors from having a financial incentive to maximize findings or assessments, which could lead to more objective and fair audits of utility tax returns.
Could impact city and village revenues and audit practices. Municipalities may need to shift to fixed-fee or hourly compensation, potentially changing how they contract with auditors and possibly increasing up-front audit costs or changing the frequency of audits.
Intended to protect taxpayers and utilities. Without contingent-fee arrangements, taxpayers and utility companies may face fewer aggressive or adversarial audits, reducing the risk of over-assessment or unnecessary disputes.
Applies broadly across New York municipalities. The bill covers all cities and villages, including New York City, ensuring a consistent statewide standard for auditor compensation in utility tax matters.
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Who cares
Headline styles
Ban Contingent Audit Fees
Plain English, a few words. Used as the page title.
Sponsors
History
- Committed to rules
- Advanced to third reading
- 2nd report cal.
- 1st report cal.721
- Referred to energy and telecommunications
Full text
1 pageUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
7672
IN SENATE
February 6, 2018
Introduced by Sen. GRIFFO -- read twice and ordered printed, and when printed to be committed to the Committee on Energy and Telecommunications
AN ACT to amend the general city law, the village law and the tax law, in relation to prohibiting compensation for service of auditing returns or reports relating to certain taxes on utilities on a contingent basis
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Section 20-b of the general city law is amended by adding a new undesignated paragraph to read as follows:
A city shall not compensate any person or entity in whole or in part on a contingent fee basis or on any other basis related to the amount of tax, interest, or penalty assessed against or collected for the service of auditing a return or report filed pursuant to, or in compliance with, any local law authorized pursuant to this section.
§ 2. Section 5-530 of the village law is amended by adding a new subdivision 8 to read as follows:
8. A village shall not compensate any person or entity in whole or in part on a contingent fee basis or on any other basis related to the amount of tax, interest, or penalty assessed against or collected for the service of auditing a return or report filed pursuant to, or in compliance with, any local law authorized pursuant to this section.
§ 3. Section 1201 of the tax law is amended by adding a new subdivision (n) to read as follows:
(n) Any city in this state having a population of one million or more shall not compensate any person or entity in whole or in part on a contingent fee basis or on any other basis related to the amount of tax, interest, or penalty assessed against or collected, for the service of auditing a return or report filed pursuant to, or in compliance with, a local law authorized pursuant to this section imposing an excise tax on the gross income or gross operating income of utilities and vendors of utility services.
§ 4. This act shall take effect immediately.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD14219-01-8
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the general city law, the village law and the tax law, in relation to prohibiting compensation for service of auditing returns or reports relating to certain taxes on utilities on a contingent basis
Purpose
To prohibit localities from compensating private auditors on a contin- gent fee basis.
Summary of provisions
Section 1 of the bill amends section 20-b of the general city law by adding a new paragraph that prohibits a city from compensating auditors on a contingent fee basis or on any other basis related to the amount of tax, interest, or penalty assessed against or collected.
Section 2 amends section 5-530 of the village law by adding a new para- graph that prohibits a village from compensating auditors on a contin- gent fee basis or on any other basis related to the amount of tax, interest, or penalty assessed against or collected.
Section 3 amends section 1201 of the tax law by adding a new subdivision that prohibits a city from compensating auditors on a contingent fee basis when they file a return or report imposing an excise tax on the gross income or gross operating income of utilities and vendors of util- ity services.
Section 4 establishes an effective date.
Existing law
General City Law Section 20-b and Village Law Section 5-530 authorize cities and villages to tax utility companies. Cities and villages are allowed to hire private auditors to examine utility tax returns and propose additional taxes. The private auditors are usually paid a contingent fee for their services.
Justification
Currently, cities and villages are allowed to hire private auditors to examine utility tax returns and propose additional taxes. The contingent nature of the arrangements between localities and private auditors creates a conflict of interest for the auditor who is compensated only when audits result in additional tax. These arrangements jeopardize the neutral and objective weighing of the public's interest and instead create a direct economic interest in the outcome of the services rendered.
The objective of a tax audit should be to verify whether the correct amount of taxes was paid by a taxpayer. Contingent fee audits do the opposite as they encourage auditors to aggressively assess additional tax, rather than ensure that the proper tax was paid. The auditor has a financial incentive to file reports and returns that favor the taxing authority, and not the taxpayer.
These contingent fee arrangements hurt the business climate of New York State. They are a contributing factor to high utility costs as these taxes are ultimately paid by utility consumers. New York should follow the lead of other states, most recently, Alabama, and prohibit these contingent arrangements.
Legislative history
New Bill.
Fiscal implications
None to the state.
Local fiscal implications
To be determined.
Effective date
Immediately.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.