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May 14, 2007
The Best and Worst of State Tax Administration: Score Card on Tax Appeals and Procedural Requirements
by Douglas L. Lindholm and Stephen P. Kranz

Full Text Published by Tax Analysts®

Document originally published in State Tax Notes
on May 14, 2007.

* * * * *
Executive Summary


The Council On State Taxation has long monitored and commented on state tax administrative practices. Part of that effort has resulted in the regular publication of a score card ranking the states on their treatment of significant issues that affect the perceived fairness of the rules and requirements for administration and appeal of state tax matters. Those administrative and appeal issues are important because of their relationship to the effectiveness of our voluntary system of tax compliance. Taxpayers are more willing to comply with a tax system they perceive to be balanced, fair, and effective. Taxpayers operating in an oppressive, unfair, or otherwise biased system are less likely to voluntarily comply. The clear message to state tax administrators and state legislatures is that they should be sensitive to the compliance implications and competitiveness concerns created by poor tax administrative rules and ineffective tax appeal systems.

COST has evaluated the states based on their treatment of selected procedural elements and the presence of an independent appeals process. The procedural elements consider whether the state has:

    • evenhanded statutes of limitations;
    • equalized interest rates;
    • adequate time to file a protest;
    • a due date for corporate income tax returns at least 30 days beyond the federal due date; and
    • an automatic extension of the state return due date based on the federal extension.

COST has evaluated state tax appeals processes using two separate questions to better articulate the elements of a high-quality appeals system. The first question addresses the need for an independent nonjudicial forum, and the second inquiry addresses the need for access to an independent tribunal without a prepayment requirement. It is COST's view that those elements, at a minimum, should be a part of any state's tax administration that seeks to achieve fairness, efficiency, and a customer-focused environment.

The 2007 score card ranks each of the states on their adherence to the above-mentioned procedural and appeals system elements. By focusing on objective criteria, the score card gives states the opportunity to enact corrective legislation to improve business climates. Indeed, several states have taken legislative steps over the years that have significantly improved their ranking on the score card. Maryland and Tennessee are examples of states that have moved upward on the score card as a result of favorable legislation regarding appeals systems or procedural issues. Texas and North Carolina are both likely to consider legislation that would improve their grade. It is our hope that by publishing this score card we will spur policymakers to improve the rules for tax administration and appeal of tax matters in all of the states.


Introduction


This score card is COST's third published effort to objectively analyze state treatment of significant procedural issues that reflect whether states provide fair, efficient, and customer-focused tax administration. The score card expands on and updates the 2001 and 2004 versions and sets the stage for important policy discussions in states where some procedural practices either create inefficiencies for business and government or focus on preservation of the fisc rather than providing good customer service. As with earlier versions, this score card provides an objective counterpart to the subjective surveys CFO Magazine presented in 1996, 2000, 2004, and 2007. While the COST study evaluates each state's statutory scheme against objective criteria, the CFO Magazine surveys asked corporate tax executives and state tax practitioners questions on their subjective views of state tax administrative practices and substantive tax positions.

        Top-Ranked States                  Bottom-Ranked States
 _____________________________________________________________________
 
State                Grade      State                       Grade
 _____________________________________________________________________
 Alaska               A          North Carolina              D-

 Arizona              A          Connecticut                 D

 Hawaii               A          Louisiana                   D

 Idaho                A          Rhode Island                D

 Iowa                 A          Alabama                     C-

 Montana              A          California                  C-

 South Carolina       A          Texas                       C-

 Virginia             A

To properly gauge taxpayer responses to specific state administrative systems, the approach taken by COST (assessing objective criteria) and the approach taken by CFO Magazine (compiling subjective taxpayer responses) should be viewed in conjunction. Taken separately, each approach may be fairly criticized. Analyzing a set of objective criteria creates a useful benchmark for comparison of administrative practices from state to state, but fails to recognize incompetent administration and aggressive personnel operating within a sound statutory framework. Conversely, an evaluation of taxpayer responses to subjective questions might mask a deficient statutory framework by recognizing only the goodwill engendered by fair and competent administrative officials.

A prime example of the difference between the two approaches is reflected in the different rankings each study gives to the independence of state administrative appeals processes. CFO Magazine ranks the administrative appeals process in Illinois, Pennsylvania, California, New Jersey, and North Carolina as the least independent from their audit departments. Those five states are ranked as the worst even though, according to the COST score card, New Jersey offers a tax court that is completely independent from the state's audit process and California provides for appeal of income and franchise tax matters to the State Board of Equalization (although the BOE also serves a dual role as a tax agency). That difference reflects the fact that the COST score card looks at the statutory provisions while CFO Magazine captures the subjective views of corporate tax representatives. Viewing the two analyses in conjunction, one can conclude that California and New Jersey, while offering independent review, each suffer from a perception that their appeals tend not to overturn revenue department decisions. The fix might have to be more than statutory.

The CFO Magazine and COST approaches produce consistent analyses when the statutory lack of independence is the cause of negative taxpayer opinion. As set forth above, North Carolina, Pennsylvania, and Illinois were among the five worst states in the CFO Magazine ranking of independent administrative appeals. Those three states lack statutory independence in their appeals process and were thus also ranked among the worst on this issue in the COST score card. Taxpayer attitude regarding the environment in those two jurisdictions will be improved only when true statutory reform is accomplished.


The COST Survey


The 2007 score card takes a different approach to ranking the states than has been COST's practice in the past. This year, rather than numerically ranking the states against each other, we have assigned a grade based on an accumulated point total. The point total was determined by assessing states 1 to 3 points for each category in which the state deviates from COST's recommendations for achieving a balanced, fair, and effective tax system. Specific scores are based on COST's determination of the relative importance of specific issues to business taxpayers and on the presence or absence of mitigating or aggravating circumstances. The final grades are based on the following scale:

      A = 0 to 4 points;
      B = 5 to 8 points;
      C = 9 to 12 points;
      D = 13 to 15 points; and
      F = over 15 points.

As in past editions of the score card, COST has evaluated the states based on their treatment of selected procedural elements and the presence of an independent appeals process. The procedural elements consider whether the state has:
    • evenhanded statutes of limitations;
    • equalized interest rates;
    • adequate time to file a protest;
    • a due date for corporate income tax returns at least 30 days beyond the federal due date; and
    • an automatic extension of the state return due date based on the federal extension.

In past versions of the score card, COST reviewed whether states had a policy of opening the entire state return to audit in response to federal audit changes. Because many states have moved away from that practice, we no longer include that factor as a separate question in the score card. Instead we have included that factor in the new "key additional issues" column discussed under "Barometers of State Tax Administration." Consistent with the 2004 score card, we have continued to use two questions to evaluate state tax appeals processes to better articulate the elements of a high-quality appeals system. The first question addresses the need for an independent nonjudicial forum, and the second inquiry addresses the need for access to an independent tribunal without a prepayment requirement. It is COST's view that those elements, at a minimum, should be a part of any state's tax administration that seeks to achieve fairness, efficiency, and a customer-focused environment.

The table on the next page ranks each state's procedural practice in the areas described above. Although much progress has been made over the last 20 years, many states are significantly behind the curve in providing fair and efficient tax administration. Detailed survey data for each state are provided beginning on page 482.


Barometers of State Tax Administration


Fair, Efficient, Independent Appeals


Foremost in good tax administration is a fair and efficient tax appeals system. A state's ability to recognize the potential for error or bias in its tax department determinations and to provide taxpayers access to an independent appeals tribunal are the most important indicators of the state's treatment of its tax customers.

Today, almost half of the states provide an independent nonjudicial appeals process dedicated to hearing tax cases. Although the structure and rules may differ from state to state, taxpayers in those states are able to establish a record for appeal in an independent adjudicative body, before judges well versed in tax matters. The ability to reach an independent tribunal, nonjudicial or judicial, without prepayment is another critical aspect of a fair and efficient appeals process. Today almost two-thirds of states offer that opportunity with a nonjudicial forum at a minimum, often with both judicial and nonjudicial review. Also, many tax dispute systems are designed to allow taxpayers and the state adequate opportunity to meet and discuss settlement opportunities before incurring the hazards and costs of litigation.

States without an independent tax tribunal or similar appeals system limit a taxpayer's real ability to challenge a state tax assessment. States that do not offer an independent tribunal are less attractive to businesses and are more likely to see taxpayers avoiding potential problems with the state by engaging in structural tax planning to minimize potential liabilities in the state.

States with fair and efficient tax appeal systems share three essential elements:

    • the tax tribunal is independent;
    • the tribunal's judges are specifically trained in tax law; and
    • taxpayers are not required to prepay a disputed tax or post a bond in order to receive an independent, impartial hearing.

      Independent Tribunals

First, the tax court or tribunal must be truly independent. It must not be located within, or report -- directly or indirectly -- to the department of revenue or to any subordinate executive agency. Without independence, the appearance of objectivity is simply not present. That perception, regardless of its accuracy, necessarily detracts from even exemplary personnel and work product of the adjudicative body. Independent tribunals are less likely to be perceived as driven by concerns over revenue collection, upholding departmental policies, or offending departmental decisionmakers.

On January 3, 2007, Texas Comptroller Susan Combs (R) transferred responsibility for administrative tax hearings in Texas from the comptroller's office to the State Office of Administrative Hearings. In announcing the transfer, Combs said, "It is imperative to move tax hearings out of the Comptroller's office, to remove any appearance of bias and ensure that the integrity of the hearing process is beyond question." We hope that the 27 states that lack independent tribunals will follow Texas's lead.


      Trained Judges
Second, the tax tribunal's judges must be specifically trained as tax attorneys, and the tribunal should be dedicated solely to deciding tax issues. The tribunal should be structured to accommodate a range of disputes from less complex tax issues, such as those arising from personal income tax matters, to highly complex corporate tax disputes. The tremendous growth and complexity in the body of tax law and the nature of our multijurisdictional economy make that consideration paramount. Judges not trained in tax law are less able to decide complex corporate tax cases on their merit, and a perception exists (rightly or wrongly) that the revenue impact of those complex cases too often helps guide decisionmakers through the fog of complicated tax statutes, regulations, and precedent. That perception reflects poorly on a state's business climate and reputation as a fair and competitive place to do business.

            The Best and Worst of State Tax Administration
 ______________________________________________________________________________
                                           
Inde-
                                            pen-
     Even-                  State   Auto-   dent
     handed  Inter- Pro-    Return  matic   Dis-          Other
     Stat-   est    test    Due     Exten-  pute   Pay to Key     Total
     utes    Rates  Period  Date    sion    Forum  Play   Issues  Points  Grade

 ______________________________________________________________________________
 AL   0       0       2       3       0       2     1       4      12       C-

 AK   0       0       0       0       0       0     0       3       3       A

 AZ   0       0       0       0       0       0     0       3       3       A

 AR   0       0       2       3       0       3     3       0      11       C

 CA   0       2       0       3       0       2     2       3      12       C-

 CO   0       0       2       0       0       3     3       2      10       C

 CT   0       2       0       2       3       3     0       4      14       D

 DE   0       0       0       2       0       0     0       2       4       A-

 DC   0       3       2       3       3       0     0       0      11       C

 FL   0       0       0       2       1       3     1       4      11       C

 GA   0       0       2       3       0       3     0       1       9       C+

 HI   0       0       2       0       0       0     0       0       2       A

 ID   0       0       0       0       0       0     1       1       2       A

 IL   0       0       0       3       0       3     0       3       9       C+

 IN   0       2       0       0       0       3     1       5      11       C

 IA   0       0       0       0       0       3     0       0       3       A

 KS   0       0       0       0       0       0     0       5       5       B+

 KY   2       0       1       0       0       0     0       2       5       B+

 LA   0       2       2       0       0       1     1       7      13       D

 ME   0       0       2       0       0       3     0       3       8       B-

 MD   0       0       2       3       2       0     0       0       7       B

 MA   0       2       0       3       3       0     0       1       9       C+

 MI   2       1       2       0       0       0     0       3       8       B-

 MN   0       0       0       3       0       0     0       5       8       B-

 MS   0       0       2       3       0       3     3       0      11       C

 MO   0       0       1       0       0       0     0       6       7       B

 MT   0       0       2       0       0       0     0       0       2       A

 NE   0       0       1       3       0       3     0       0       7       B

 NV   0       2       1       0       0       3     3       0       9       C+

 NH   2       3       0       3       0       0     0       1       9       C+

 NJ   0       2       0       0       1       0     1       0       4       A-

 NM   0       1       2       3       0       3     0       1      10       C

 NY   0       3       0       3       3       0     0       0       9       C+

 NC   0       1       2       2       1       3     2       4      15       D-

 ND   2       1       2       0       0       3     0       0       8       B-

 OH   0       0       0       3       0       0     0       1       4       A-

 OK   0       0       0       3       2       1     1       4      11       C

 OR   0       0       2       0       0       0     0       3       5       B+

 PA   3       2       1       0       1       3     0       0      10       C

 RI   0       0       2       3       3       3     3       0      14       D

 SC   0       0       0       3       0       0     0       0       3       A

 SD   0       0       2       0       0       3     3       0       8       B-

 TN   0       0       0       0       0       3     2       1       6       B

 TX   0       1       2       0       3       0     3       3      12       C-

 UT   0       0       2       0       0       3     3       0       8       B-

 VT   0       0       0       3       1       3     0       0       7       B

 VA   0       0       0       0       0       2     0       0       2       A

 WA   0       0       2       0       0       1     3       1       7       B

 WV   0       0       0       3       0       0     3       3       9       C+

 WI   0       2       0       3       0       0     0       3       8       B-

 WY   0       2       2       0       0       0     0       0       4       A-


      No Prepayment Required
Finally, taxpayers should not be required to post bond or pay a disputed tax before an initial hearing. More than 60 percent of the states grant taxpayers at least a de novo hearing on the validity of the assessment, in front of an independent arbiter, before payment of the tax is required. As a matter of fundamental fairness and due process, taxpayers should have that right in every state. It is unfathomable that taxpayers would be denied a fair hearing before being deprived of property (that is, disputed taxes). It is inherently inequitable to force a corporate taxpayer to pay a tax assessment, often based on the untested assertions of a single auditor or audit team, without the benefit of a hearing before an independent trier of fact. Free access to an independent hearing without having one's property confiscated by the law is especially important in difficult state economic climates; once tax money is paid into the system, it is often difficult or impossible to wrest a refund from the state, even after disputes are resolved in the taxpayer's favor. There are three degrees of state prepayment requirements.

Full "Pay to Play": Since Massachusetts eliminated its pay-to-play requirement several years ago, we are unaware of any state that requires taxpayers to pay an assessed tax on receipt of a notice of assessment, without an opportunity to contest that assessment before an independent tax tribunal, the tax commissioner, or -- at the very least -- an administrative hearing officer. Such systems were the scourge of fair tax administration; their elimination represents a significant step forward in fairness.

Partial Pay to Play: While no state currently requires payment of a disputed tax during the administrative appeals process, some states still require payment of the tax or posting of a bond to obtain access to the circuit court level. In those states, taxpayers are at least granted a hearing before a nonjudicial tax tribunal, an administrative hearing officer, or the state tax commissioner before that payment is extracted. The perception of unfairness is more acute in partial pay-to-play states in which the initial hearing is before an adjudicatory body that is not independent from the state's department of revenue.

No Pay to Play: In almost two-thirds of the states, taxpayers may appeal a disputed tax to an independent tribunal for final determination of the issue before having to pay the tax. Some states require payment or a bond for an appeal to the circuit court level in the case of an adverse decision by an independent nonjudicial body, or if the taxpayer elects to bypass the nonjudicial forum and proceed directly to the circuit court level. Those systems are perceived to be the most fair -- in large part because taxpayers are not held hostage by the jurisdiction in possession of the taxpayer's funds.

Jeopardy Situations Justify Prepayment: We do not question the necessity of state jeopardy assessment and collection authority. If a state department of revenue feels that a particular tax assessment is in jeopardy based on the facts and circumstances before it, it should issue a jeopardy assessment on that amount. In those circumstances, states need the flexibility to move quickly and should do so as long as minimum due process protections are afforded. Those assessments are a legitimate means of protecting the state fisc. However, the jeopardy assessments should be used only in extreme circumstances, and the burden of proving that the assessment is in jeopardy should fall on the state. It would be an extremely unusual circumstance for a state to find it necessary to impose a jeopardy assessment on a publicly traded company.

Basic Procedural Provisions Reflecting Good Tax Administration

In addition to an independent tax tribunal accessible without prepayment and a nonjudicial forum, state tax administrations should include a number of fundamental components necessary to a fair, efficient, and customer-focused state tax system. The following are basic procedural elements that should be included in every state's law.


      Evenhanded Statute of Limitations
Statutes of limitation should apply evenhandedly to assessments and refund claims. Requiring taxpayers to meet one statute while the tax administrator is granted additional time is unfair and should not be tolerated in a voluntary tax system. A three-year statute of limitations for assessments should be accompanied by a three-year statute of limitations for refund claims. Extension of the statute of limitations for federal adjustments should apply equally for assessments and refunds. Claims for refund based on constitutional challenges should not be singled out for discriminatory treatment by shortening the statute of limitations.

With a single exception -- Pennsylvania -- COST is pleased to report that all states offer evenhanded statutes of limitations for assessments and refunds. Only four states -- Kentucky, Michigan, New Hampshire, and North Dakota -- have adopted provisions that shorten the statute of limitations when the challenge is constitutional in nature. Each of those states has been assessed two additional points for attempting to curtail taxpayers' rights to challenge unconstitutional deprivations.


      Equalized Interest Rates
Interest rates should apply equally to assessments and refund claims. Failure to equalize interest rates diminishes the value of the taxpayer's remedy of recovering tax money to which it is legally entitled. Although states are entitled to penalize taxpayers who underreport tax liabilities, the punishment should be imposed through the penalty structure. Interest rates are meant to compensate for the lost time value of money and should apply equally to both parties. Refunds and liabilities should offset in calculating the amount of interest and penalty due.

The current data show that two-thirds of the states offer evenhanded interest rates. Since COST began doing its score card, states have moved to narrow the difference between interest rates or close the gap altogether. Oklahoma has moved from an extremely large spread to evenhanded treatment; the District of Columbia passed legislation narrowing the spread between over- and underpayments; and South Carolina allowed its temporary rate discrimination to lapse.


      Protest Periods
The first step in the administrative process in most states is the issuance of an assessment with notification of a right to protest. That protest period should be at least 60 days and preferably 90 days. Shorter protest periods are unreasonable and could jeopardize a taxpayer's ability to fully respond to a proposed assessment. A notice period of 60 days or longer is of increasing importance in a global economy in which taxpayers are working to comply with the laws of many jurisdictions.

Many states have increased the number of days to submit a protest as compared to prior studies. Even so, 25 states still offer less than 60 days to file protests. While all of the states now offer at least 30 days to protest, COST hopes to see all states grant at least 60 days.


      Extended Due Dates
The state's corporate income tax return due date should be at least 30 days after the federal tax return due date. Further, the state's corporate income tax return due date should be automatically extended if the taxpayer obtains a federal extension. By extending state due dates to that point, state tax administrators allow taxpayers to file correct returns based on complete federal return information. Although corporate taxpayers often file a single consolidated federal return, the adjustments necessary to generate the multitude of state tax returns required are complex and time-consuming. A minimum of 30 days beyond the extended federal due date is needed to complete these adjustments; 60 or more days is preferred. To ease administrative burdens, an automatic state extension should only require attaching a copy of the federally extended return with the state return to qualify.

Twenty-five states do not give taxpayers the recommended 30 additional days to complete their state returns after the federal due date. All but 13 states automatically grant an extension of the state due date when the taxpayer obtains a federal extension.

Other Significant Procedural Issues

New to the 2007 score card is an opportunity for each state to earn extra demerits -- the "key additional issues" column. In preparing the score card, we surveyed tax practitioners, asking them to identify key additional issues that affect fair and efficient tax administration in the state. In past editions of the score card, we discussed many of those issues but did not affirmatively adjust state scores on the basis of those practices. This score card attempts to assign points to the states identified as having negative practices; the adjustments are identified in the state-by-state point chart at the end of the score card. Some of the noteworthy adjustments were made based on the following practices: independent local revenue departments that create disconformity and complexity; use of outside paid counsel to litigate tax matters (sometimes fees for those counsel are billed through to taxpayers); federal revenue agents report adjustments open the entire state return to audit; and imposition of retroactive penalty and interest provisions. States should guard against using those unfair and burdensome practices.


Detailed Survey Data


The table beginning on page 482 provides detailed survey data for each state. At least one practitioner from each state, and the department of revenue of each state, were asked to review and offer corrections to the data. When received, responses were integrated into the chart as appropriate to reflect the current status of the law in each state. COST extends its gratitude to the practitioners and revenue officials who assisted in compiling the data necessary for this study. Note that some exceptions to the general rules stated do exist, but were not included. Further, we were not always able to reconcile the responses by in-state practitioners with the responses by the Department of Revenue; that demonstrates the lack of clarity surrounding some of the issues. Accordingly, this document is not intended to be used as a comprehensive listing of legal authority for the issues identified, and taxpayers are cautioned to research individual state laws.

Survey Questions for Practitioners and
Administrators


Does the state provide evenhanded statutes of limitation on over- and underpayments of income and sales/use tax?

Does the state provide equal interest on refunds and assessments of income tax?

Within what time period must taxpayers file a protest after receiving a notice of assessment from the department of revenue?

Is the state's corporate income tax return due date at least 30 days after the federal corporation income tax due date?

Does the six-month federal extension for corporate income tax returns automatically extend the state due date for six months?

Does the state provide a nonjudicial tax dispute forum (where the record for appeal is set) that is independent of the state DOR?

Are taxpayers required to prepay assessed amounts prior to an independent hearing in your state?

List any key additional issues that impact fair and efficient tax administration in your state.


COST Survey of Administrative Practices and Requirements


AL

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Ala. Code section 40-2A-7(b)(2). Refund Ala. Code section 40-2A-7(c)(2).

Interest rates on assessments and refunds Federal underpayment rate, equally applied. Underpayment Ala. Code section 40-1- 44(a). Overpayment Ala. Code section 40-1-44(b)

Number of days to protest an assessment 30 days. Section 40-2A-7(b)(4).

State return due at least 30 days after federal return No. Ala. Code section 40-18-39.

Federal extension automatically extends state due date Yes. Ala. Code section 40-18-39-.02. States "may grant a reasonable extension of time." Tax Form 20-E Instructions.

State provides independent, nonjudicial tax dispute forum No, admin. law judge only. Ala. Code section 40-2A-7, 9.

Payment or bond required before independent hearing Yes, unless taxpayer can show net worth = $20,000. Ala. Code section 40-2A-7.

Key additional issues affecting fair and efficient tax administration 1) Independent local revenue departments create disconformity and complex interpretive and compliance burdens for taxpayers. 2) Department is using outside counsel to challenge pending refund claims after losing South Central Bell at U.S. Supreme Court.

AK

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Alaska Stat. section 43.05.260(a). Refund Alaska Stat. section 43.05.275(a)(1)(A).

Interest rates on assessments and refunds Greater of Federal Reserve rate plus 5%, or 11%, equally applied. Underpayment Alaska Stat. section 43.05.225(1). Overpayment Alaska Stat. section 43.05.280(a), section 43.05.225(1).

Number of days to protest an assessment 60 days. Section 43.05.240(a).

State return due at least 30 days after federal return Yes. Taxpayer permitted to file return within 30 days after federal return due. Section 43.20. 030(a) tax is due and payable at the same time payable to the federal government 43.20.030(d).

Federal extension automatically extends state due date If tax is due, no. Tax return, yes. See Instructions 04-611.

State provides independent, nonjudicial tax dispute forum Yes. The Office of Admin. Hearings. Alaska Stat. 43.05.405 et seq. (as amended and effective July 1, 2005).

Payment or bond required before independent hearing No. Tax is not required to be paid to appeal to the Office of Admin. Hearings. It must be paid, or a bond posted, to appeal to court. Alaska Stat 43.05.480.

Key additional issues affecting fair and efficient tax administration Federal revenue agents report opens entire state return to audit. Section 43.20.030(d).

AZ

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment A.R.S. section 42-1104(A). Refund A.R.S. sections 42.1106(A) and 42-1104(A).

Interest rates on assessments and refunds Federal Reserve short-term rate plus 3%, equally applied. A.R.S. section 42-1123(A).

Number of days to protest an assessment 90 days from date of mailing for income tax protests; 45 days from receipt of notice to taxpayer for all other tax pro-tests. Section 42-1108(B).

State return due at least 30 days after federal return Yes. Ariz. Rev. Stat. Ann. section 43-325.

Federal extension automatically extends state due date Yes. A.R.S. section 42-1107.B if the 90% payment requirement is met.

State provides independent, nonjudicial tax dispute forum Yes. A.R.S. section 42-1252, 1253.a

Payment or bond required before independent hearing No.b

Key additional issues affecting fair and efficient tax administration 1) Taxpayers that receive sales tax refunds do not have to return them to their customers. Ariz. Dep't of Rev. v. Canyoneers, 200 Ariz. 139, 23 P.3d 684 (Ct. App. 2001). Refunds may be issued as credits or vouchers. A.R.S. section 42-1118.A. 2) Judges of the Arizona Tax Court are regular superior court judges with no tax background and are regularly rotated out of the court and replaced every three to four years. The Arizona courts rarely see sophisticated income tax cases.

AR

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment A.C.A. section 26-18-306(a). Refund A.C.A. section 26-18-306(i).

Interest rates on assessments and refunds 10%, equally applied. Underpayment A.C.A. section 26-18-508(1). Overpayment A.C.A. section 26-18-508 (3).

Number of days to protest an assessment 30 days. Section 26- 18-404(c).

State return due at least 30 days after federal return No. ACA 26-51-806 (a)(3); see Form AR1100 CT instructions.

Federal extension automatically extends state due date Yes. ACA section 26-51-807(a).

State provides independent, nonjudicial tax dispute forum No. A.C.A. section 26-18-405.

Payment or bond required before independent hearing Yes.c

Key additional issues affecting fair and efficient tax administration

CA

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment Calif. Revenue and Taxation Code section 19057(a), 19067(a), 19065. Refund Calif. Revenue and Taxation Code section 19306(a), 19308.

Interest rates on assessments and refunds Underpayment Federal underpayment from I.R.C. section 6621(a)(2) applies. Calif. Revenue and Taxation Code sections 19101(a) and 19521(a). Overpayment rate is modified to lesser of 5% or bond equivalent rate of 13-week treasury bills. Section 19521(a)(1)(A), (B), (C).

Number of days to protest an assessment 60 days for income tax. Section 19041. 30 days for sales/use. section 6561.

State return due at least 30 days after federal return No. See Form 100 instructions.

Federal extension automatically extends state due date Seven months. See Form 100 instructions.

State provides independent, nonjudicial tax dispute forum California does provide a nonjudicial tax dispute forum for corporation franchise and income taxes (that is the State Board of Equalization) that is independent of the Franchise Tax Board.d Calif. Revenue and Taxation Code section 19045, et seq. Sales/use tax issues are administered and appealed before the BOE.

Payment or bond required before independent hearing Not before BOE hearing. However, taxpayer must pay tax and file refund claim before de novo review at superior court.

Key additional issues affecting fair and efficient tax administration California imposed retroactive penalties and interest under their recent Voluntary Compliance Initiative with limited rights of appeal.

CO

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment Corporate four years C.R.S. section 39.21-107(2). All other taxes 3 years C.R.S. section 39-21- 107(1). Refund Corporate four years C.R.S. section 39-21- 108(1). All other taxes, three years C.R.S. section 39-21-108(1).

Interest rates on assessments and refunds Prime rate plus 3%, equally applied. Underpayment C.R.S. section 39-21-109/section 39-21-110.5. Overpayment C.R.S. section 39-21-110/section 39- 21-110.5 C.R.S. 39-21-110.5(2).

Number of days to protest an assessment 30 days. section 39- 21-105(1).

State return due at least 30 days after federal return Yes. See Form 112 instructions.

Federal extension automatically extends state due date Yes. See Form 112 instructions.

State provides independent, nonjudicial tax dispute forum No. Colo. Rev. Stat. section 39-21-103 to 39-21-105.

Payment or bond required before independent hearing Yes. Colo. Rev. Stat. section 39-21-105 (4).

Key additional issues affecting fair and efficient tax administration Local jurisdictions use private attorneys to prosecute tax cases.

CT

Evenhanded statutes of limitations (refunds and assessments) Three years both. Conn. Gen. Stat. sections 12-225, 12-226 and 12-233 for business tax. Conn. Gen. Stat. sections 12-415 and 12-425 for sales/use tax.

Interest rates on assessments and refunds Underpayment 1% per month section 12-235. Overpayment 0.66% per month C.G.S.A. section 12-227 Interest on underpayment runs from due date of return. Interest on overpayment only runs from claim for refund filed.

Number of days to protest an assessment 60 days. Section 12- 418.

State return due at least 30 days after federal return No. First day of the next month succeeding the due date of the federal return. Conn. Gen. Stat. section 12-222(b).

Federal extension automatically extends state due date No. Conn. Gen. Stat. section 12-222; see Form CT-1120 instructions.

State provides independent, nonjudicial tax dispute forum No.

Payment or bond required before independent hearing No. Taxpayer "may make" payment. Conn. Gen. Stat 12-39m

Key additional issues affecting fair and efficient tax administration 1) Federal revenue agents report opens entire state return to audit. section 12-727. 2) There is no time limit set for Connecticut to act on a refund request.

DE

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment 30 Del. Code section 531. Refund 30 Del. Code section 539.

Interest rates on assessments and refunds 1% per month, equally applied Underpayment section 533(a). Overpayment section 540(a).

Number of days to protest an assessment 60 days. Section 1904.

State return due at least 30 days after federal return No. First day of fourth month. See Del. Form 1100 instructions. See 30 Del. C. section 1904(b).

Federal extension automatically extends state due date Yes. See Del. Form 1100 instructions.

State provides independent, nonjudicial tax dispute forum Yes. The Del. Tax Appeal Board. 30 Del. Code section 544; see also 30 Del. S. section 321 et seq.

Payment or bond required before independent hearing No. 30 Del. Code section 544.

Key additional issues affecting fair and efficient tax administration DOR has used private attorneys to prosecute tax cases.

DC

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment D.C. Code section 47-4301(a). Refund section 47-4304(a).

Interest rates on assessments and refunds Underpayment 13% per year, simple interest (after Jan. 1, 2003, 10% per year compounded daily). Section 47-4201 Overpayment 6% per year, simple interest section 47-4202.

Number of days to protest an assessment 30 days. Section 47-3303.

State return due at least 30 days after federal return No. See Form D-20 instructions.

Federal extension automatically extends state due date No. See Form D-20 instructions.

State provides independent, nonjudicial tax dispute forum Yes. New Office of Admin. Hearings (hears both tax and nontax cases). D.C. Code 2-183, et seq.

Payment or bond required before independent hearing No, if appeal is to Office of Admin. Hearings. Yes, if taxpayer chooses to appeal to D.C. Superior Court.

Key additional issues affecting fair and efficient tax administration

FL

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Fla. Stat. section 220.705/section 95.091 (3). Refund Fla. Stat. section 220.727/section 215.26(2).

Interest rates on assessments and refunds Prime rate plus 4%, not to exceed 12%, equally applied. Underpayment Sections 220.809 and 220.807. Overpayment F.S.A. sections 220.723 and 220.807 213.255.

Number of days to protest an assessment 60 days. Section 72.011.

State return due at least 30 days after federal return No. First day of 4th month. Fla. Stat. 220.222(1).

Federal extension automatically extends state due date Yes. Fla. Stat. section 220.222(2). Taxpayer must file Form F-7004 to obtain the extension.

State provides independent, nonjudicial tax dispute forum No. F.S.A. sections 213.015, 213.21 and 213.731.

Payment or bond required before independent hearing No.e Section 72.011.

Key additional issues affecting fair and efficient tax administration 1) Taxpayers seeking direct appeal from informal determination must do so within 30 days and are limited to the record appealed from. 2) The ALJ in formal administrative litigation may "fast-track" the final hearing on 14 days' notice.

GA

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Ga. Code Ann. section 48-2-49(b). Refund Ga. Code. Ann. section 48-2-35(b)(1).

Interest rates on assessments and refunds 1% per month, equally applied. Underpayment Sections 48-2-48 and 48-2-40. Overpayment Aection 48-2-35(a).

Number of days to protest an assessment 30 days. Section 48-2-45.

State return due at least 30 days after federal return No. See Form IT 611 instructions and O.C.G.A. section 48-7-56

Federal extension automatically extends state due date Yes. GA Code Ann. section 48-7-57 (d); Revenue Rule 560-7-8-.08.

State provides independent, nonjudicial tax dispute forum No. Ga. Code Ann. sections 48-2-46 to 48-2-50, and 48-2-59.f

Payment or bond required before independent hearing No.g

Key additional issues affecting fair and efficient tax administration Taxpayers may not directly appeal to court of appeals; must first file application for discretionary appeal seeking permission to file.

HI

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment H.R.S. section 235-111(a). Refund Section 235-111(b).

Interest rates on assessments and refunds 2/3 of 1% per month, equally applied. Overpayment section 231-39(b)(4)(A). Underpayment section 231-23(d)(1).

Number of days to protest an assessment 30 days. Section 235-114.

State return due at least 30 days after federal return Yes. Form N-30 instructions.

Federal extension automatically extends state due date Yes. Form N-30 instructions.

State provides independent, nonjudicial tax dispute forum Yes. H.R.S. sections 232-8 through 232-13. Proviso: Appeal from Board of Review to tax appeal court is de novo.

Payment or bond required before independent hearing No. H.R.S. section 235-114 [effective July 1, 2006].

Key additional issues affecting fair and efficient tax administration

ID

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Idaho Code section 63-3068(a); sales tax 63-3633(a). Refund Idaho Code section 63-3072(b); Sales Tax section 63-3626(b).

Interest rates on assessments and refunds Same as Federal Reserve mid-term rate plus 2%, equally applied. Underpayment Section 63-3045(6)(c). Overpayment Section 63-3073 / section 63-3045(6)(c).

Number of days to protest an assessment 63 days. Section 63-3045(1).

State return due at least 30 days after federal return Yes. Idaho Code sections 63-3032 and 63-3085.

Federal extension automatically extends state due date Yes. Idaho Code section 63-3033. Idaho allows an automatic six-month extension.

State provides independent, nonjudicial tax dispute forum Yes. Idaho Code sections 63-3801 through 63-3820.

Payment or bond required before independent hearing Yes. 20% of the amount asserted. Idaho Code section 63-3049 [effective July 1, 2005]

Key additional issues affecting fair and efficient tax administration If Idaho taxable income or credits are adjusted as a result of a final federal determination, and the limitations period is less than one year, the limitations period is extended to one year from the date the IRS delivered the final notice to the taxpayer. Idaho Code section 63-3072.

IL

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment 35 Ill. Comp. Stat. section 5/905(1). Refund 35 Ill. Comp. Stat. section 5/911(1).

Interest rates on assessments and refunds Federal underpayment rate, adjusted semiannually, equally applied. Underpayment 35 ILCS sections 5/1003(a) and 735/3-2. Overpayment 35 ILCS sections 5/909(c) and 735/3-2.

Number of days to protest an assessment 60 days. 35 ILCS 5/908.

State return due at least 30 days after federal return No. ILCS section 5/505(1), 35 ILCS section 5/505(a)(i)

Federal extension automatically extends state due date Yes. The extension is six months plus 1 additional month 35 ILCS 5/505 (L).

State provides independent, nonjudicial tax dispute forum No. 35 Ill. Comp. Stat. sections 5/908 through 5/918, and section 5/1201.

Payment or bond required before independent hearing No. ILCS section 5/3-103.

Key additional issues affecting fair and efficient tax administration Cumbersome administrative hearing process. Taxpayers are subject to discovery although rules of evidence do not apply. Appeal to circuit court is not de novo, but on the record made at the administrative hearing.

IN

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Ind. Code section 6-8.1-5-2(a). Refund Ind. Code section 6-8.1-9-1(a)(1).

Interest rates on assessments and refunds Underpayment Average investment yield on state money plus 2%. IC 6-8.1-10-1(c). Overpayment Average investment yield on state money. IC 6-8.1- 9-2(c); IC 6-8.1-10-1(c).

Number of days to protest an assessment 60 days. Section 6- 8.1-5-1.

State return due at least 30 days after federal return Yes. Compare IC 6-3-4-3 (15th day of fourth month following the close of the tax year); IRC. section 06072(b) (15th day of the third month).

Federal extension automatically extends state due date Yes. IC 6-8.1-6-1(c).

State provides independent, nonjudicial tax dispute forum No, but appeals from the DOR may be brought before the Indiana Tax Court de novo. See Ind. Code section 6-8.1-5-1(g) and (h) and Ind. Code section 6-8.1-9-1(c) and (d).

Payment or bond required before independent hearing No, but only if an appeal is taken under Ind. Code section 6-8.1-5-1(g) (as opposed to refund appeals under Ind. Code section 6-8.1-9-1(c)), and either an injunction against collection is granted by the Tax Court under Ind. Code 33-26-6-2 or the DOR agrees to stay collection.

Key additional issues affecting fair and efficient tax administration 1) Federal revenue agents report opens entire state return to audit. Section 6-3-4-6. 2) Administrative hearings for refund denials are at DOR discretion. Also, some appellate rights are different in refund cases. See IC 6-8.1-9-1. 3) Special time limitations are imposed on taxpayers who wish to either petition to commence filing combined (unitary) returns or to stop filing combined (unitary) returns. See Ind. Code section 6-3-2-2(q), as amended by the Indiana General Assembly in 2006 (House Enrolled Act 1001, not yet signed by the governor). Similar time periods are not imposed upon the DOR.

IA

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Iowa Code section 422.39, 422.25, and 423.37. Refund Iowa Code section 423.37 and 423.47.

Interest rates on assessments and refunds Average Prime Rate (previous 12-month period) plus 2%, equally applied. Underpayment Sections 422.39, 422.24, and 421.7 and 423.40(1). Overpayment 421.7/422.28/422.41/422.39/422.25(3) and 421.60(2)(e).

Number of days to protest an assessment 60 days. Sections 422.28, 422.41 and Iowa Reg. section 701-55.5.

State return due at least 30 days after federal return Yes. Iowa Code 422.21.

Federal extension automatically extends state due date Yes. Form IA 1120 instructions; taxpayer must pay 90% of correct tax by due date.

State provides independent, nonjudicial tax dispute forum An ALJ of the Admin. Hearings Division of the Department of Inspections and Appeals conducts evidentiary hearings, unless the director of revenue retains jurisdiction. Dept. rule 701-7.50(1).

Payment or bond required before independent hearing No. Iowa Code section 17A.19 and section 421.1; 422.28; 423.47.

Key additional issues affecting fair and efficient tax administration

KS

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment K.S.A. section 79-3230(a). Refund K.S.A. section 79-3230(c).

Interest rates on assessments and refunds Federal Reserve underpayment rate plus 1%, equally applied. Underpayment K.S.A. sections 79-3228(a) and 79-2968. Overpayment K.S.A. sections 79-32,105(e) and 79-2968.

Number of days to protest an assessment 60 days. Section 79- 3226.

State return due at least 30 days after federal return Yes. Form K-120 instructions.

Federal extension automatically extends state due date Yes. Form K-120 instructions.

State provides independent, nonjudicial tax dispute forum Yes. Kan. Stat. Ann. 79-3233g.

Payment or bond required before independent hearing Board of Tax Appeals -- no. K.S.A. sections 74-2433 and 74-2426 (d).

Key additional issues affecting fair and efficient tax administration 1) Concerns have been expressed about the lack of specific state tax experience required for arbiters serving on the Kansas Board of Tax Appeals. 2) DOR doesn't pay interest on refunds paid within 60 days; Also, interest is calculated from the date the amended return is filed, and not the date of overpayment.

KY

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment K.R.S. section 141.210(2). Refund K.R.S. section 134.580(4). Statute is shorter if challenge is constitutional. K.R.S 134.590.

Interest rates on assessments and refunds Adjusted prime rate, equally applied. Underpayment K.R.S. section 131.183(1). Overpayment K.R.S. section 131.183(2).

Number of days to protest an assessment 45 days. Section 131.110(1) and 131.081(11); 103 KAR 1:010.

State return due at least 30 days after federal return Yes. K.R.S. sections 141.160 and 141.220.

Federal extension automatically extends state due date Yes. Form 720 SL instructions.

State provides independent, nonjudicial tax dispute forum Yes. K.R.S. sections 131.310 through 131.370.

Payment or bond required before independent hearing No. Ky. Admin. reg. 1:010 section 4.

Key additional issues affecting fair and efficient tax administration DOR is using private attorneys to prosecute tax cases.

LA

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment La. Constitution Art. 7, section 16; La. R.S. 47:1579 and 1581 based on La. Constitution Art. 7 section 16. Refund La. R.S. 47:1623.

Interest rates on assessments and refunds Underpayment 1.25 % per month La. R.S. 47:1601(A). Overpayment Discount rate plus 3.25 % per year La. R.S. 47:1624(A) La. C.C. Art. 2924(B)(1) La. R.S. 13:4202(B). R.S. 47:1601(2)(a).

Number of days to protest an assessment 15 calendar days from notice if no return filed; 30 days from notice if incorrect form filed. section 47:1563.

State return due at least 30 days after federal return Yes. La. R.S. 47:287.614 and 47:609.

Federal extension automatically extends state due date Yes. La. R. S. 47:614(D) and 47:612.

State provides independent, nonjudicial tax dispute forum Yes. La. R.S. 47:1401 to 1486; however, the La. DOR has some control over whether a taxpayer can appeal to the BTA. See La. R.S. 47:1431 (formal assessment required).

Payment or bond required before independent hearing Yes.h sections 47:1401 to 1486.

Key additional issues affecting fair and efficient tax administration 1) Numerous separate local taxing authorities (parishes) create disconformity and complex interpretive and compliance burdens for taxpayers. 2) Local jurisdictions use outside counsel to prosecute tax cases. 3) Taxpayers are liable for outside counsel's attorney fees up to 10% of amount collected.

ME

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment 36 M.R.S.A. section 141(1). Refund 36 M.R.S.A. section 5278(1).

Interest rates on assessments and refunds Prime plus 3 %, equally applied. Underpayment 36 M.R.S.A. section 186. Overpayments 36 M.R.S.A. section 5279(1) and 186.

Number of days to protest an assessment 30 days. Section 151.

State return due at least 30 days after federal return Yes. 36 M.R.S.A. section 151.

Federal extension automatically extends state due date Yes. Automatic, federal plus 30. 36 M.R.S.A. section 5231.1-A.

State provides independent, nonjudicial tax dispute forum No. 36 M.R.S.A. sections 5301 and 151.

Payment or bond required before independent hearing No.

Key additional issues affecting fair and efficient tax administration Although appeal to superior court is de novo, the AG's office argues taxpayers are precluded from raising issues not heard at the informal conference level.

MD

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Md. Code Ann. Tax -- Gen. section 13-1101(a). Refund Sections 13-903 and 1103(a).

Interest rates on assessments and refunds Greater of 13% or average prime rate plus 3% per year, equally applied.

Number of days to protest an assessment 30 days. Section 13- 508, section 13-1104.

State return due at least 30 days after federal return No. Form 500 instructions.

Federal extension automatically extends state due date Yes. HB 1434, effective July 1, 2006, if the comptroller finds that good cause exists and subject to section 13-601, the comptroller may extend the time to file a tax return up to seven months for a corporation. Otherwise the Form 500E instructions had set the extension at six months.

State provides independent, nonjudicial tax dispute forum Yes. Md. Code Ann. Tax -- Gen. sections 3-101 to 3-113.

Payment or bond required before independent hearing No. Md. Code Ann. Tax -- Gen. section 13-510.

Key additional issues affecting fair and efficient tax administration

MA

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment M.G.L.A. 62C section 26(b). Refund M.G.L.A. 62C section 37.

Interest rates on assessments and refunds Underpayment federal standard rate plus 4%. Overpayments federal standard rate plus 2%. L.L. c. 62C, s.32, 40.

Number of days to protest an assessment 60 days. Sections 37 and 39.

State return due at least 30 days after federal returnNo. Form 355 instructions.

Federal extension automatically extends state due date No. Form 355 instructions.

State provides independent, nonjudicial tax dispute forum Yes. M.G.L.A. 58A sections 1-14 Appellate Tax Board.

Payment or bond required before independent hearing No. M.G.L.A. section 32 G.L.C. 62C section 32.

Key additional issues affecting fair and efficient tax administration Statute of Limitations for refunds is 3 years from the unextended due date of the return; for assessments, it is 3 years from the extended due date.

MI

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment MCL section 205.27a(2). Refund MCL section 205.30(2), section 205.27a(2), 209.27a(2). Statute is shorter if challenge is constitutional MCL 205.27a(6).

Interest rates on assessments and refunds Prime plus 1%, equally applied. Underpayment MCL section 205.23(2). Overpayment MCL section 205.30(3)/section 205.23(2) MCL 205.23(2). But see special rules for refund claims.i

Number of days to protest an assessment 35 days. Section 205.22.

State return due at least 30 days after federal return Yes. MCL 208.73(4).j

Federal extension automatically extends state due dateYes -- period of federal extension plus 60 days -- MCL 208.73(4) "automatic" with filing of required forms by due date.

State provides independent, nonjudicial tax dispute forum Yes.k MCL 205.21, 205.22.

Payment or bond required before independent hearing No.l MCL 205.22.

Key additional issues affecting fair and efficient tax administration Refunds must be requested explicitly on the face of a return or in a separate request or correspondence in order to commence the refund payment process. Interest on a refund begins to run 45 days after the refund is requested.

MN

Evenhanded statutes of limitations (refunds and assessments) 3 1/2 years both. Assessment Minn. Stat. section 289A.38. Refund Minn. Stat. section 289A.40.

Interest rates on assessments and refunds 6% per annum, equally applied. Underpayment Minn. Stat. sections 289A.55 and 270C.40. Overpayment Minn. Stat. sections 289A.56, 270.76; section 270C.405.

Number of days to protest an assessment 60 days. Section 289A.65.

State return due at least 30 days after federal return No. Form M4/Minn. Stat. section 289A.18.

Federal extension automatically extends state due date Yes. Automatic seven months extension whether Federal 7004 filed or not. Form M4 taxpayers are not required to file a form for an extension but must pay 90% of the tax due by the original due date. Form M4/Minn.Stat. section 289A.19.

State provides independent, nonjudicial tax dispute forum Yes. Minn. Stat. Anns. 271.01 to 271.21.

Payment or bond required before independent hearing No.

Key additional issues affecting fair and efficient tax administration 1) Refund interest differential on purchaser refund claims compared with vendor refund claims (sales tax). 2) Refunds payable in installments when aggregate refunds exceed $50 million. Minn. Stat. section 270C.43. 3) Penalty abatement procedure resides in the Collections Division rather than the Appeals Division; no independent appeal review. 4) Revenue agent's report opens entire return to audit unless return has already been subject to field audit.

MS

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Income Miss. Code Ann. section 27-7-49(1). Refund Income Miss. Code Ann. section 27-7-313. Sales 27-65-42.

Interest rates on assessments and refunds 1% per month, equally applied. Underpayment Miss. Code Ann. section 27-7- 51(2). Overpayment Miss. Code Ann. section 27-7-51(2)/section 27-7-315.

Number of days to protest an assessment 30 days. Sections 27- 77-5 and 27-7-71(1).

State return due at least 30 days after federal return No. Form 83-100 instructions.

Federal extension automatically extends state due date Yes. Instructions say "commissioner may recognize time authorized by IRS for filing of annual income tax returns." Form 83-100 instructions.

State provides independent, nonjudicial tax dispute forum No.

Payment or bond required before independent hearing Yes. 2005 Miss. Laws Ch. 499 (S.B. 2742).

Key additional issues affecting fair and efficient tax administration

MO

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment R.S.Mo. section 143.711(1). Refund R.S.Mo. section 143.801(1).

Interest rates on assessments and refunds Adjusted Prime Rate equally applied. Underpayment R.S.Mo. section 143.731(1)/section 32.065. Overpayment R.S.Mo. section 143.811(1)/section 32.065.

Number of days to protest an assessment 60 days. Section 143.631. On appeal to the Admin. Hearing Commission, only 30 days to appeal. Section 621.052.

State return due at least 30 days after federal return Yes. Mo. Rev. Stat section 143.511.

Federal extension automatically extends state due date Yes. Form MO-1120 instructions.

State provides independent, nonjudicial tax dispute forum Yes. Mo. Rev. Stat. 621.015 to 621.205. The Admin. Hearing Commission is under a different state department. Commissioners are appointed by governor for terms of six years.

Payment or bond required before independent hearing No. Mo. Rev. Stat. section 621.050.

Key additional issues affecting fair and efficient tax administration 1) DOR argues that sales & use taxes are different taxes and if offset during audit, tolls the statute of limitations for the offset tax. 2) New issues to support claims for refunds may not be raised at the AHC. 3) The state does not allow the payment of refunds attributable to the carryback of income tax credits filed on amended returns. See L. 2002, S1248, effective 6-19-2002.

MT

Evenhanded statutes of limitations (refunds and assessments) Three years both. Corporate: Assessments Mont. Code Ann. section 15-31-509(1); M.C.A. section 15-30-146. Refunds Mont. Code Ann. sections 15-31-509(2); 15-30-149.

Interest rates on assessments and refunds 1% per month, equally applied. Underpayment Mont. Code Ann. sections 15-31- 503 and 15-1-216. Overpayment Mont. Code Ann. section 15-31- 531/section 15-31-503/section 15-1-216.

Number of days to protest an assessment 30 days. Section 15-1-211.

State return due at least 30 days after federal return Yes. Form CLT-4 instructions.

Federal extension automatically extends state due date Automatic whether federal 7004 filed or not; November 15 is furthest extension. Mont. Code Ann. section 15-31-111(3).

State provides independent, nonjudicial tax dispute forum Yes. Mont. Code Ann. sections 15-2-101 to 15-2-307.

Payment or bond required before independent hearing No. Mont. Code Ann. section 2-4-702.

Key additional issues affecting fair and efficient tax administration

NE

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Income Tax Neb. Rev. Stat. section 77-2786 Sales Tax section 77-2709. Refund Income Tax Neb. Rev. Stat. section 77-2793. Sales tax section 77-2708.

Interest rates on assessments and refunds Fed. standard Rate plus 3%, equally applied. Underpayment Neb. Rev. Stat. sections 77-2788(1), 77-2709(3), and 45-104.02(2). Overpayment Neb. Rev. Stat. sections 77-2794(1) and 45-104.02(2).

Number of days to protest an assessment 90 days for income tax, 30 days for sales and use and withholding tax. Section 77-2777.

State return due at least 30 days after federal return No. Form 1120 instructions and section 77-2768. 15th day of the third month following the close of the tax year.

Federal extension automatically extends state due date Yes. Form 1120 instructions and section 77-2770.

State provides independent, nonjudicial tax dispute forum No. Neb. Rev. Stat. sections 77-27,127.

Payment or bond required before independent hearing No. Neb. Rev. Stat. section 77-2798.

Key additional issues affecting fair and efficient tax administration

NV

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Nev. Rev. Stat. Ann. section 360.355. Refund Nev. Rev. Stat. Ann. section 372.635. See also NRS 374.640 for refunds.

Interest rates on assessments and refunds Underpayment 12% per annum. Overpayment 6% per annum Nev. Rev. Stat. Ann. section 372.660. See also NRS 374.665 with regard to overpayments.

Number of days to protest an assessment 45 days. Section 360.360.

State return due at least 30 days after federal return N/A

Federal extension automatically extends state due date N/A

State provides independent, nonjudicial tax dispute forum No. Nev. Admin. Code 360.185.

Payment or bond required before independent hearing Yes. Taxpayers must prepay or enter a payment agreement. See NRS 360.395.

Key additional issues affecting fair and efficient tax administration

NH

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment N.H. Rev. Stat. section 21- J:29(I)(a). Refund N.H. Rev. Stat. section 21-J:29(I)(b). Statute is shorter if challenge is constitutional. RSA 21-J:29-I(d).

Interest rates on assessments and refunds Underpayment Federal underpayment rate plus 2%. N.H. Rev. Stat. section 21- J:28(II). Overpayment Federal underpayment rate less 3%. N.H. Rev. Stat. section 21-J:28(III).

Number of days to protest an assessment 60 days. Section 21- J:28-b.

State return due at least 30 days after federal return No. General instructions for filing business tax return. RSA 77-A:6(I).

Federal extension automatically extends state due date Yes. Automatic seven months whether federal 7004 filed or not. See N.H. general instructions for filing business tax -- but must have paid 100% of tax due.

State provides independent, nonjudicial tax dispute forum Yes. N.H. Admin. Rules, Tax 102.01; N.H.R.S. section 71-B:1 through B:22; RSA 21:J(3)-XVII Rev. 204. Taxpayer option to appeal administrative decisions to Board of Tax and Land Appeals (nonjudicial) or superior court.

Payment or bond required before independent hearing Generally, no. May be required to post bond if department makes a request based on risk of nonpayment RSA section 21-J:28-b, V but is unusual.

Key additional issues affecting fair and efficient tax administration DOR is asserting that "failure to pay" penalties apply on amounts assessed based on interpretive differences as well as on amounts paid on the original return.

NJ

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment N.J. Stat. Ann. section 54:49- 6(b). Refund N.J. Stat. Ann. section 54:49-14(a).

Interest rates on assessments and refunds Underpayment Prime rate plus 3% N.J.S.A. section 54:49-3. Overpayment N.J.S.A. section 54:49-15.1 [prime rate].

Number of days to protest an assessment 90 days. Section 54:49-18(2).

State return due at least 30 days after federal return Yes. Form CBT-100 instructions. N.J.S.A. section 54:10A-15.

Federal extension automatically extends state due date No. N.J.S.A. section 54:10A-19, N.J.A.C. 18:7-11.12. Must use Form CBT- 200T.

State provides independent, nonjudicial tax dispute forum New Jersey tax court provides independent tax dispute forum.

Payment or bond required before independent hearing No, but taxpayer may be required to post bond for contested amount.

Key additional issues affecting fair and efficient tax administration

NM

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment N.M.S.A. section 7-1-18(A). Refund N.M.S.A. section 7-1-26(D)(1).

Interest rates on assessments and refunds 15% per year, equally applied. Underpayment N.M.S.A. section 7-1-67(B). Overpayment N.M.S.A. section 7-1-68(B). Interest runs from date of claim for refund, not date of overpayment.

Number of days to protest an assessment 30 days. Section 7-1-24.

State return due at least 30 days after federal return No. N.M.S.A. 1978, section 7-2A-9; Form CIT-1 instructions.

Federal extension automatically extends state due date Yes. Form CIT-1 instructions. N.M.S.A. 1978, section 7-1-13.

State provides independent, nonjudicial tax dispute forum No. N.M.S.A. section 7-1-1 to 7-1-82. There is no prepayment remedy in a nonjudicial forum independent of the department.

Payment or bond required before independent hearing No. Taxpayer can challenge assessment without paying tax or can pay and claim refund. N.M.S.A. 1978, section 7-1-23, but see section 7-1- 26(d).

Key additional issues affecting fair and efficient tax administration The department will not offset an overpayment in an open period for assessment against an underpayment for a different open period on the theory that the SOL for claiming a refund on overpayments is closed.

NY

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Corporate franchise tax section 1083(a). Sales and Use Tax section 1147(b). Refund Corporate franchise tax section 1087(a). Sales and Use Tax section 1139(a),(c).

Interest rates on assessments and refunds Underpayment Federal standard rate plus 5%. N.Y. Tax Law sections 1084 (a) and 1096(e)(2)(B). Overpayment Federal standard rate plus 2%. N.Y. Tax Law sections 1088(a) and 1096(e)(2)(A).

Number of days to protest an assessment 90 days. Section 1138(a)(1).

State return due at least 30 days after federal return No. Form CT-4 instructions.

Federal extension automatically extends state due date No. A separate extension form must be filed for New York. (Forms may be obtained on the Department of Taxation and Finance's Web site.) N.Y. Tax Law sections 193, 0211, 1462, and 1515.

State provides independent, nonjudicial tax dispute forum Yes. The New York State Division of Tax Appeals and the Tax Appeals Tribunal. N.Y. Tax Law sections 2000-2026.

Payment or bond required before independent hearing No. N.Y. Tax Law 2006.

Key additional issues affecting fair and efficient tax administration

NC

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment N.C. Gen. Stat. section 105-241.1(e). Refund N.C. Gen. Stat. section 105-266(c)(1).

Interest rates on assessments and refunds The interest rate, set by the secretary twice a year (min. 5%/max. 16% per year), is applied equally.m Underpayment N.C. Gen. Stat. section 105- 241.1(i). Overpayment N.C. Gen. Stat. section 105-266(b).

Number of days to protest an assessment 30 days. Section 105-241.1(c).

State return due at least 30 days after federal return No. N.C. Gen. Stat. section 105-130.17.

Federal extension automatically extends state due date No, a taxpayer must submit a request for an extension to the DOR by the due date of the return. Extension is automatic if timely requested and gives the taxpayer seven additional months to timely file the return. N.C. Gen. Stat. section 105-130.17 (d); N.C. Gen. Stat. section 105- 263.

State provides independent, nonjudicial tax dispute forum No. The record on appeal is not set at the Tax Review Board, which hears appeals of the secretary's decisions based on the record established at a DOR hearing.

Payment or bond required before independent hearing Yes. GS 105-267. DS. 105-241.3 allows filing of a bond in lieu of payment of tax in order to obtain judicial review of the Tax Review Board's administrative review of the secretary's decision.

Key additional issues affecting fair and efficient tax administration Federal revenue agent's report opens entire state return to audit. Section 105-130.20. Lengthy and cumbersome administrative refund claim process. GS 105-266.1.

ND

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment N.D. Cent. Code section 57-38-38. Refund N.D. Cent. Code section 57-38-40. Statute is shorter if challenge is constitutional. N.D.C.C. section 57-01-19.

Interest rates on assessments and refunds Income taxes: 1% per month, equally applied. Underpayment N.D. Cent. Code section 57-38- 45(1)(d). Overpayment N.D. Cent. Code section 57-38-35.2(1). Sale and use taxes: Assessments 12% per annum; N.D.C.C. section 57-39.2-15. Refunds 10% per annum on refunds. N.D.C.C. section 57-39.2-24.

Number of days to protest an assessment 30 days. N.D. Cent. Code section 57-38-39.

State return due at least 30 days after federal return Yes. Form 40 instructions.

Federal extension automatically extends state due date Yes. Form 40 instructions.

State provides independent, nonjudicial tax dispute forum No. The Office of Administrative Hearings is an independent tribunal that conducts the hearings in tax disputes. The ALJ issues proposed findings of fact and conclusions of law, which may or may not be adopted by the tax commissioner. N.D.C.C. ch. 28-32, and sections 57- 38-39 to 57-38-40.

Payment or bond required before independent hearing No.

Key additional issues affecting fair and efficient tax administration

OH

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment Ohio Rev. Code section 5747.13(A). Refund Ohio Rev. Code section 5747.11(B).

Interest rates on assessments and refunds Federal standard rate plus 3%, equally applied. Underpayment O.R.C. sections 5747.13(C) and 5703.47. Overpayment O.R.C. sections 5747.11(C) and 5703.47.

Number of days to protest an assessment Franchise tax: 60 days. Ohio Rev. Code section 5733.11. Sales tax: 60 days Ohio Rev. Code section 5703-9-45.

State return due at least 30 days after federal return No. Form 1120 instructions.

Federal extension automatically extends state due date Yes. Form FT 1120-E instructions.

State provides independent, nonjudicial tax dispute forum Yes. Ohio Rev. Code Ann. sections 5717.01 to 5717.06.

Payment or bond required before independent hearing No. Ohio Rev. Code Ann. section 5717.02.

Key additional issues affecting fair and efficient tax administration Taxpayer may not raise new issues in an appeal from a final determination of the tax commissioner. Ohio Rev. Code sections 5717.02.

OK

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment 68 Okla. Statute section 223(A). Refund 68 Okla. Statute section 2373.

Interest rates on assessments and refunds Underpayment 1.25% per month 68 Okla. section 217(A). Overpayment 1.25% per month 68 Okla. Statute section 217(H).

Number of days to protest an assessment 60 days. Section 221.

State return due at least 30 days after federal return No. Form 512 instructions.

Federal extension automatically extends state due date Yes. Form 512 instructions. (Must file Oklahoma form.)

State provides independent, nonjudicial tax dispute forum No. Okla. Statute Ann. tit. 68, sections 101-102, 201-203, 207, and 225- 228. But the tax commission does offer a nonjudicial dispute forum statutorily and functionally separate from the audit functions of the commission.

Payment or bond required before independent hearing As of July 1, 2002, prepayment no longer required, but tax commission may "request." 68 Okla. Statute section 225(D).

Key additional issues affecting fair and efficient tax administration 1) Federal revenue agent's report opens entire state return to audit. section 2375(H). 2) The section of the Uniform Tax Procedure Code authorizing filing of a claim for refund and payment of a refund of tax provides that it does not apply to refunds of income tax erroneously paid. 68 O.S. 2001, section 227(f)(1).

OR

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment ORS section 314.410(1). Refund Three years after return filed or two years after tax or portion of tax paid, which-ever is later. ORS section 314.415(2)(a).

Interest rates on assessments and refunds Equally applied. Rates are different for different tax periods. As of January 1, 2006, rate is 7% simple per year. Underpayment ORS section 305.220(1). Overpayment ORS section 305.220(2).

Number of days to protest an assessment 30 days for informal conference at DOR; 90 days to magistrate division. Section 305.265(5).

State return due at least 30 days after federal return Yes. Form 20 instructions.

Federal extension automatically extends state due date Yes. Form 20 instructions. ORS section 314.385(1)(c).

State provides independent, nonjudicial tax dispute forum Yes. The record is not created in the state DOR; it is first created in the regular division of the court. ORS section 305.425.

Payment or bond required before independent hearing No. Tax is not due in the magistrate division. ORS section 305.419(1). Another exception to the prepayment requirement exists for hardship. ORS section 305.419(3).

Key additional issues affecting fair and efficient tax administration Federal revenue agent's report opens entire state return to audit. ORS sections 314.140 and 314.380.

PA

Evenhanded statutes of limitations (refunds and assessments) Income/franchise assessment Req. within 18 months: resettlement within three years. 72 P.S. section 7407; sales tax three years plus current year. Income/franchise refund Req. within six months of payment on account of audit assessment or settlement; otherwise within three years from payment. 72 P.S. section 10003.1(a); sales tax three years plus current year.

Interest rates on assessments and refunds No. Underpayment The federal underpayment rate is used. Overpayment The federal underpayment rate minus 2% is used. 72 P.S. section 806.

Number of days to protest an assessment 90 days from date of settlement notice for corporate (section 1102) and individual (sections 1103 and 7340). 30 days for sales/use tax (section 7232).

State return due at least 30 days after federal return Yes. Form CT-1 instructions.

Federal extension automatically extends state due date Yes, provided the taxpayer files a request with Pennsylvania to get 30 days after the federal extended due date. 72 P.S. section 7405.

State provides independent, nonjudicial tax dispute forum No. Both the governor and the Business Tax Reform Commission has recommended the establishment of a nonjudicial tax dispute forum.

Payment or bond required before independent hearing No. However, security is required to stay collection action. Pa. R.A.P. 1731, 1782. (Appellants allegedly do not have to incur the cost of a bond.)

Key additional issues affecting fair and efficient tax administration

RI

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Corporate Tax: R.I. Gen. Laws section 44-11-7.1(a); sales tax: 44-19-13. Refund Corporate Tax: R.I. Gen. Laws section 44-11-20(a); Sales Tax: 44-19-26.

Interest rates on assessments and refunds Prime rate plus 2%, equally applied. Underpayment R.I. Gen. Laws section 44-11- 7/section 44-1-7. Overpayment R.I. Gen. Laws section 44-1- 7.1/section 44-1-7.

Number of days to protest an assessment 30 days. R.I. Gen. Laws section 44-30-89; section 8-8-25.

State return due at least 30 days after federal return No. Form RI 1120C instructions. The due date is set forth in 44-11-3 and it is not specifically tied to the federal due date.

Federal extension automatically extends state due date No. Have to file RI 7004. Form RI 1120C instructions. Under 44-11-3, the discretion to grant an extension is vested in the tax administrator.

State provides independent, nonjudicial tax dispute forum No. Appeals of decisions of the tax administrator go to the district court (8-8-25); administrative appeals are decided by the tax administrator (44-11-6, 44-11-20, 44-30-89, 44-19-17, 44-19-25).

Payment or bond required before independent hearing Yes. Taxpayer may file a motion for exemption. R.I. Gen. Laws section 8-8- 26. This exemption is available only in hardship cases when taxpayers can show a reasonable probability of success on the merits.

Key additional issues affecting fair and efficient tax administration

SC

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment S.C. Code Ann. section 12-54- 85(A). Refund S.C. Code Ann. section 12-54-85(F)(1).

Interest rates on assessments and refunds Interest on assessments and refunds is at the federal underpayment rate. See S.C. Code section 12-54-25 (d) and IRC sections 6621 (a)(2) and 6622.

Number of days to protest an assessment 90 days. Section 12- 60-450.

State return due at least 30 days after federal return No. Form SC1120 instructions. S.C. Code section 12-6-4970 (B).

Federal extension automatically extends state due date Yes.

State provides independent, nonjudicial tax dispute forum Yes. S.C. Code Ann. 1-23-500-660 and Chapter 60 of Title 12.n

Payment or bond required before independent hearing No. Tax Appeal Procedures for State Tax Assessments and License revocations (other than property tax). Chapter 60 of Title 12.

Key additional issues affecting fair and efficient tax administration

SD

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment S.D. Codified Laws section 10-59- 16(3). Refund S.D. Codified Laws section 10-59-19.

Interest rates on assessments and refunds 1.25% per month, equally applied. Underpayment S.D. Codified Laws section 10- 59-6. Overpayment S.D. Codified Laws sections 10-59-24 and 10- 59-6.

Number of days to protest an assessment 30 days. Section 10- 59-9.

State return due at least 30 days after federal return N/A

Federal extension automatically extends state due date N/A

State provides independent, nonjudicial tax dispute forum No. SDCL 10-59.

Payment or bond required before independent hearing Yes. But bond may be posted in lieu of payment. S.D. Codified Laws section 10-59-9.

Key additional issues affecting fair and efficient tax administration

TN

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Tenn. Code Ann. section 67-1- 1501(b). Refund Tenn. Code Ann. section 67-1-1802(a).

Interest rates on assessments and refunds Formula rate of interest published in Tenn. Admin. Register, equally applied. Underpayment Tenn. Code Ann. section 67-1-801(a). Overpayment Tenn. Code Ann. section 67-1-801(b).

Number of days to protest an assessment 90 days. Section 67-1-1801.

State return due at least 30 days after federal return Yes. Tenn. Code Ann. section 67-4-2015.

Federal extension automatically extends state due date Yes. Tenn. Code Ann. section 67-4-2015.

State provides independent, nonjudicial tax dispute forum No. Tenn. Code Ann. sections 67-1-1801 to 67-1-1807.

Payment or bond required before independent hearing No. But bond, letter of credit, or affidavit is required in the amount of 150% of assessment. Tenn. Code Ann. section 67-1-1801.

Key additional issues affecting fair and efficient tax administration "Double-secret assessment" -- an assessment for additional tax is deemed made by recording the liability in the office of the department. The assessment is valid regardless of whether notice is provided to the taxpayer.

TX

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment Texas Tax Code sections 111.201, 111.205. Refund Texas Tax Code sections 111.107, 111.206, 111.201.

Interest rates on assessments and refunds Underpayment interest rate is prime rate plus 1%. Tex. Tax Code section 111.060(b). Overpayment interest rate is the lesser of the annual rate of interest earned on deposits in the state treasury during December of the previous calendar year or the prime rate plus 1%. Texas Tax Code section 111.064(a).

Number of days to protest an assessment 30 days. Sections 1.5, 111.009(b), and 111.105(a).

State return due at least 30 days after federal return Yes. Texas Tax Code Ann. section 171.202.

Federal extension automatically extends state due date No. Texas Tax Code Ann. section 171.202.

State provides independent, nonjudicial tax dispute forum Yes. All cases were transferred to the State Office of Administrative Hearings by Comptroller Combs effective January 3, 2007.

Payment or bond required before independent hearing Yes, unless the taxpayer files an oath of inability to prepay the tax and the court grants relief from the requirement to prepay the tax. Texas Tax Code section 112.051 and section 112.108.

Key additional issues affecting fair and efficient tax administration Federal revenue agent's report opens entire state return to audit. Sections 111.206 and 171.212.

UT

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Utah Code section 59-7-519(1). Refund Utah Code section 59-7-522(2)(a). Utah Code Ann. 59-12- 110 gives time for refund (2)(b) and assessment (6)(a).

Interest rates on assessments and refunds Federal standard Rate plus 2%, equally applied. Underpayment Utah Code sections 59-7-510 and 59-1-402(3)(b). Overpayment Utah Code sections 59-7-533 and 59-1-402(3)(a).

Number of days to protest an assessment 30 days for the petition, with supplemental information allowed later. Section 59-7- 517(3)(f).

State return due at least 30 days after federal return Yes. Utah corporate/franchise tax returns are due the 15th day of fourth month following close of tax year. Utah Code Ann. section 59-7- 505(2); Form TC-20 instructions.

Federal extension automatically extends state due date Yes, whether federal 7004 filed or not. Form TC-20 instructions; Utah Code Ann. section 59-7-505(3).

State provides independent, nonjudicial tax dispute forum No. Utah Code sections 59-1-501 to 59-1-505.

Payment or bond required before independent hearing Effective May 1, 2006, taxpayers seeking judicial review shall provide security to cover the deficiency in full or in part, but may be granted a waiver by the commission under some circumstances. Utah Code Ann. section 59-1-611.

Key additional issues affecting fair and efficient tax administration

VT

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment 32 Vt. Stat. Ann. section 5882(a). Refund 32 Vt. Stat. Ann. section 5884(a).

Interest rates on assessments and refunds Average prime rate (previous 12-month period), equally applied. Underpayment 32 Vt. Stat. Ann. section 3108. Overpayment 32 Vt. Stat. Ann. sections 5884(b) and 3108.

Number of days to protest an assessment 60 days. Section 5868.

State return due at least 30 days after federal return No. Form CO-411 instructions.

Federal extension automatically extends state due date No, but copy of federal form may be used for Vermont. Form CO-411 instructions.

State provides independent, nonjudicial tax dispute forum No. 32 Vt. Stat. Ann. sections 5883 to 5888.

Payment or bond required before independent hearing Corporate -- No. Vt. Stat. Ann. section 5886 Sales and Use -- Yes. Vt. Stat. Ann. section 9817.

Key additional issues affecting fair and efficient tax administration

VA

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Va. Code Ann. section 58.1-104. Refund Va. Code Ann. section 58.1-1823.

Interest rates on assessments and refunds Underpayment Federal underpayment rate plus 2%. Va. Code Ann. sections 58.1-308 and 58.1-15. Overpayment Federal overpayment (noncorporate) rate plus 2%. Va. Code Ann. section 58.1-15.

Number of days to protest an assessment 90 days. Section 58.1- 1821.

State return due at least 30 days after federal return Yes. Form 500 instructions.

Federal extension automatically extends state due date Yes. Whether federal 7004 filed or not. Va. Code Ann. section 58.1-453.

State provides independent, nonjudicial tax dispute forum No. Va. Code Ann. 58.1-1820 to 58.1-1825, 58.1-1845. But taxpayer does enjoy a right to an internal conference before a determination is issued for an administrative appeal filed under Va. Code Ann. section 58.1-1821. The conference does not establish the record for appeal. Any proceeding with the circuit court is de novo.

Payment or bond required before independent hearing Payment is not required before proceeding with an appeal in circuit court. The Tax Commissioner may petition the court to compel payment before proceeding with the appeal under some statutorily prescribed conditions designed to protect against frivolous litigation.

Key additional issues affecting fair and efficient tax administration

WA

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment Revised Code of Wash. section 82.32.050(3) and 82.32.100(3). Refund Revised Code of Wash section 82.32.060(1).

Interest rates on assessments and refunds Federal short-term rate plus 2%, equally applied. Underpayment Revised Code of Wash. section 82.32.050(2). Overpayment Revised Code of Wash. sections 82.32.060(1), (5)(b) and 82.32.050(2).

Number of days to protest an assessment 30 days for excise tax (no income tax for Washington). Section 82.32.160.

State return due at least 30 days after federal return N/A

Federal extension automatically extends state due date N/A

State provides independent, nonjudicial tax dispute forum Yes. Revised Code of Wash. sections 82.03.010 to 82.02.200. Taxpayers are allowed an appeal before the Board of Tax Appeal (an agency independent of the DOR). See Revised Code of Wash. 82.03.010 et seq.o

Payment or bond required before independent hearing Yes. Revised Code of Wash. section 82.32.180.p

Key additional issues affecting fair and efficient tax administration Subject to some exceptions, the DOR's administrative rule governing refunds provides that a purchaser "should" request a refund of overpaid sales tax directly from the vendor before requesting a refund from the DOR. See WAC 458-20- 229(3)(b)(ii). However, there is no statutory provision that supports the DOR's authority to impose such a requirement.

WV

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment W.Va. Code section 11-10-15(a). Refund W.Va. Code section 11-10-14(l).

Interest rates on assessments and refunds Greater of Adjusted prime rate or 8%, equally applied. Underpayment W.Va. Code sections 11-10-17(a) and 11-10-17a. Overpayment W.Va. Code sections 11-10-17(d) and 11-10-17a.

Number of days to protest an assessment 60 days. Section 11- 10-8.

State return due at least 30 days after federal return No. 2005 Combined Corporate Net Income/Business Instructions & Forms. Sections 11-23-9 and 11-24-13.

Federal extension automatically extends state due date Yes. 2005 Combined Corporate Net Income/Business Franchise Tax Instructions & Forms. Section 11-23-10 and 11-24-18.

State provides independent, nonjudicial tax dispute forum Yes. Procedural rule. W.Va. Office of Tax Appeals section 121-1-88 through 101. W.Va. Code section 11-10A-8.

Payment or bond required before independent hearing Bond required or certification of assets. W.Va. Code section 11-10A-19(e).

Key additional issues affecting fair and efficient tax administration Federal revenue agent's report opens entire state return to audit. Sections 11-24-6a, 11-24-6.

WI

Evenhanded statutes of limitations (refunds and assessments) Four years both. Assessment Wis. Stat. section 71.77(2). Refund Wis. Stat. section 71.75(5).

Interest rates on assessments and refunds Underpayment 12% per year Wis. Stat. section 71.82(1)(a). Overpayment 9% per year Wis. Stat. section 71.82(1)(b).

Number of days to protest an assessment 60 days. Section 71.88(1).

State return due at least 30 days after federal return No. Wis. Stat sections 71.44 (1)(a) and 71.24 (7).

Federal extension automatically extends state due date Yes. Wis. Stat. section 71.44 (3).

State provides independent, nonjudicial tax dispute forum Yes. Wis. Stat. sections 71.87 to 71.90, and 73.01.

Payment or bond required before independent hearing No. Wis. Stat. Ann. section 73.01(5)(a).

Key additional issues affecting fair and efficient tax administration Federal revenue agent's report opens entire state return to audit. Sections 71.76 and 71.77.

WY

Evenhanded statutes of limitations (refunds and assessments) Three years both. Assessment Wyo. Stat. section 39-15-110(b). Refund Wyo. Stat. section 39-15-110(a).

Interest rates on assessments and refunds Underpayment Average prime rate (by formula) plus 4% Wyo. Stat. section 39-15- 108(b). Overpayment Interest is provided on any protested payments of tax at average prime 39-11-109(f)

Number of days to protest an assessment 30 days. Section 39- 15-110.

State return due at least 30 days after federal return N/A

Federal extension automatically extends state due date N/A

State provides independent, nonjudicial tax dispute forum Yes. Wyo. Stat. sections 39-11-102.1 and 39-11-109.

Payment or bond required before independent hearing No. Wyoming Rules BOE Gen. 5 commencement of case.

Key additional issues affecting fair and efficient tax administration


FOOTNOTES


a
A.R.S. sections 42-1251 and 1253 and other authorities provide that appeals of tax assessments and refund denials must first go through the Arizona Department of Revenue and a hearing officer.

bUnder A.R.S. section 42-1251.A, no amount under protest must be paid before filing an appeal. Only those amounts not protested have to be paid. This remains the same throughout all possible appeals, including in the court system. (A.R.S. sections 42-1251.B says that if you fail to timely appeal an assessment, you can pay all of it and then file for a refund. To the extent it requires paying, it's an additional remedy after the normal appeal route is gone.)

cTaxpayer has only 2 options: 1) pay all or a portion of assessment. Tax agency may pursue collection activities on unpaid amounts (A.C.A. 26-18-406 (a)(1)(A)), or 2) file bond to secure payment of tax (A.C.A. 26-18-406 (a)(1)[2](A)).

dHowever, the court proceeding following an adverse decision by the State Board of Equalization is de novo and thus "no record for appeal is set" at the BOE level.

eIf the taxpayer elects to file an action with the Division of Administrative hearings under Fla. Stat. section 72.011 (1)(a) and Fla. Chapter 120. Yes - (Fla. Stat. section 72.011(3)) requires the taxpayer to pay the contested portion of the assessment if the taxpayer elects to file an action with the circuit court under Fla. Stat. section 72.011 (1)(a). The Department may waive the requirement to pay or provide bond. Fla. Stat. section 72.011 (3)(b)1. The superior circuit court may determine the amount, if any, of alternative security. Fla. Stat. section 72.011(3)(b)2.

fGeorgia provides alternate appeal routes - either to the superior court under O.C.G.A. section 48-2-59 as noted or to the Office of State Administrative Hearings where the matter is heard by an administrative law judge who is independent of the DOR. O.C.G.A. section 50-13-12. That decision can then be appealed to superior court.

gThere are several alternatives to contesting the matter without paying the tax. First, payment can be avoided in the appeal directly to the superior court under O.C.G.A. sec- tion 48-2-59 if taxpayer owns real estate within the state equal to the tax or posts a bond. Second, tax is not required to be paid if the taxpayer selects the appeal route through the Office of State Administrative Hearings as noted in note d. Third, the taxpayer can provide an "affidavit of illegality" to a levying officer of the DOR who is then required to file the matter in the superior court, and the matter will be adjudicated without payment of the tax.

hThe taxpayer has the right to a hearing in order to dispute an assessment of taxes, interest, and penalties by timely filing an appeal with the Board of Tax Appeals in accor- dance with R.S. 47:1414, 1431, and 1481. A taxpayer shall not be required to pay the disputed tax, interest, and penalties in order to exercise this right. The taxpayer has the right to a formal hearing in order to contest the assessment of taxes, interest, and penalties by timely filing suit with the appropriate state district court. The assessment must be paid in full under protest in order to exercise this right in accordance with R.S. 47:1576. By refusing to issue a formal assessment, the Louisiana DOR could effec- tively "force" a taxpayer to pay the disputed taxes under protest (La. R.S. 47:1576) and sue for a refund.

iIn contrast, interest on refunds does not accrue until 45 days after a refund claim is filed. MCL 209.30(3). Although the statute governing tax refunds provides that the decla- ration of an overpayment on a return constitutes a claim for refund MCL 209.30(2), the Department of Treasury ignores the statute and requires a separate refund claim to commence the running of interest.

jIf a taxpayer is granted an extension of time within which to file the federal income tax return for any tax year, the filing of a copy of the (federal) request for extension to- gether with a tentative (state) return and payment of an estimated tax by the due date (the last day of the fourth month after the end of the taxpayer's tax year) will auto- matically extend the due date for filing of the final return for an equivalent period plus 60 days.

kMichigan provides an opportunity for informal conference before the Hearings Division within the Department of Treasury under MCL 205.21(2)(c). There is no record made. MCL 205.21(2)(d). An appeal from a determination made following an Informal Conference is subject to de novo review in either the Michigan Tax Tribunal or the Michigan Court of Claims where a record is made. MCL 205.22(1).

lIndependent hearings are available in Michigan through a proceeding in the Michigan tax tribunal or the Michigan court of claims MCL 205.22(1). The taxpayer is not re- quired to prepay the contested amount of a final assessment before a tax tribunal appeal, but is required to prepay the amount of an assessment before an appeal through the Michigan court of claims. Amounts must be paid under protest before proceeding in the court of claims. MCL 205.22(2). Uncontested amount must be paid.

mInterest on an underpayment acrues from the date the tax was due. Interest on an overpayment of income tax accrues from a date 45 days after the latest of the following: (1) the date the return was filed, (2) the date the return was due to be filed, and (3) the date of the overpayment. Interest on an overpayment of franchise tax begins to accrue after 90 days instead of 45 days.

nThe ALJs are independent as they are elected by the Legislature; strictly speaking they are nonjudicial; even though they are referred to as ALJs, all are lawyers, and they are part of the Administrative Law Court, from a constitutional law perspective they are part of the executive branch, not the judicial branch.

oJudicial review of matters decided through formal BTA hearings are based on the record considered by the BTA and are reviewed under the state's administrative procedures act; judicial appeals of informal BTA hearings are reviewed de novo. RCW 82.03.180. Although the BTA is technically "independent" of the DOR, it is generally perceived as unsatisfactory for litigating excise tax disputes. In practice, the vast majority of the cases heard by the BTA are property tax valuation disputes. The three board members (appointed by the governor) often have little or no prior experience with excise tax matters.

pAlthough prepayment is not a jurisdictional prerequisite to filing a notice of appeal with the BTA, filing such an appeal does not stay collection, effectively requiring the tax- payer to pay the amount due unless arrangements for a stay can be negotiated with the DOR. See WAC 458-20-100(8) ("A taxpayer filing an appeal with the board of tax ap- peals must pay the tax by the due date, unless arrangements are made with the department for a stay of collection under Wash. Rev. Code 82.32.200."). Prepayment is a juris- dictional prerequisite to filing a refund suit in superior court. See RCW 82.32.180.


END OF FOOTNOTES



Douglas L. Lindholm is president and executive director of the Council On State Taxation. Stephen P. Kranz is COST's general counsel.

The authors would like to express their gratitude to Dr. Sandra Bland, professor of accounting at Bemidji State University and recipient of the 2006 faculty fellowship at COST, for her untiring efforts in the development and completion of the 2006 survey used to develop this report.



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