Tax Executives Institute - Federation of Tax Administrators; liaison meeting agenda; December 4, 1989.

Tax Executives Institute - Federation of Tax Administrators

Liaison Meeting

Agenda

December 4, 1989

1. Introductory Comments

   Tax Executives Institute welcomes the opportunity to hold a formal liaison meeting with the Federation of Tax Administrators. As the principal association of corporate tax executives in north America, TEI brings a unique perspective to the issues set forth in this agenda. The diversity of the Institute's membership, the professional training of its members, and the continual nature of the relationship between TEI members and state tax authorities have all contributed to the Institute's solid appreciation not only for basic issues of tax administration but also for the constraints under which State Departments of Revenue are operating.

   The 1980s have been a time of dizzying change in the tax system. Legislation has come fast and furious, and practically every change in the Internal Revenue Code at the federal level has prompted a similar change in one or more of the States. The overall result is a tax world of unrivaled complexity and uncertainty. The challenges of such a world, of course, confront more than the taxpayer: they confront the tax administrator as well.

   TEI respectfully submits that the aggregate changes that have besotted the tax system during the last decade underscore the need for taxpayers and tax administrators to work together -- to identify issues of common concern and to seek solutions that are at once uniform, reasonable, and fair. Thus, as the 1980s come to a close, we believe it is appropriate and heartening for TEI and FTA to meet to explore a whole variety of issues. The Institute believes its liaison meeting marks a new, positive chapter in what can and should be a symbiotic relationship between State and corporate tax administrators--a portent of mutually beneficial efforts.

   TEI looks forward to addressing the issues that are outlined in this agenda during our December 4 liaison meeting, and we are eager to discuss the means by which our two organizations can further cooperate with one another. In particular, TEI wishes to explore the efficacy of establishing joint task forces which can work toward the development of commonly beneficial proposals.

2. Administrative Bill of Rights

   In recent years, much attention has been devoted to the need to establish uniform and even-handed procedures in respect of state tax administration. Uniformity is needed from jurisdiction to jurisdiction to reduce compliance costs, minimize confusion, and simplify audits. Governing procedures should be even-handed (as between similarly situated taxpayers as well as between taxpayers and the taxing authority) to vindicate basic principles of fairness and equity and maintain the integrity of the self-assessment tax system. Thus, TEI strongly supports the enactment of administrative or procedural "bills of rights" by the various States.

   In April 1987, Tax Executives Institute submitted a detailed position paper to the National Association of Tax Administrators on several administrative issues relating to the determination and collection of state and local tax liabilities. The Institute's position, which has remained essentially unchanged, can be summarized, as follows:

   1. Statutes of Limitations: A statute of limitations is designed to serve a dual purpose. It establishes time limits within which a State can seek additional tax dollars from a taxpayer through its audit process and, equally important, a taxpayer may recover tax dollars that were erroneously or illegally remitted or assessed.

      Because statutes of limitations define rights of parties, they should be equally applied. Unfortunately, statutes of limitations for assessments are often of a longer duration than those for refund claims. The inequality is aggravated in those States that have shorter statute of limitation periods for its domiciled corporations than for foreign corporations. Indeed, in these latter States, we suggest that discrimination in favor of domestic corporations raises substantial constitutional questions.

      To correct these inequities, TEI advocates the adoption of statutes of limitations that apply even-handedly to assessments and refund claims. TEI also urfes the abolition of statutes of limitations that differentiate between domestic and foreign corporations.

   2. Interest Rates: Many States (as well as the federal government) apply different rules in respect of interest payable or owing on tax assessments and refunds. Although all States charge interest on assessments, the rate of interest paid on refund claims is often less than that charged on assessments. Indeed, in some instances no interest is paid on refund claims.

      Differential interest rates may properly be characterized as punitive in nature. The amount of interest charged or credited should relate to the use (or forbearance) of money; "interest" should not be collected simply to raise revenues or to encourage or discourage specific taxpayer behavior.

      TEI opposes the application of different rates of interest to assessments and refund claims. Failure to equalize interest rates diminishes the value of the taxpayer's remedy of recovering tax monies to which it is legally entitled. It also undermines public confidence in the fairness of the tax system. A more fundamental question, of course, is the propriety of paying interest (whatever the rate) on refunds. Not only would the payment of such interest be eminently fair, but it would minimize any incentive a State might have to unduly delay the processing of refund claims.

   3. Penalties

      1. General Comments: Whether by express statutory authority or administrative practice, many States impose essentially automatic (or"no-fault") penalties on additional assessments of tax. These penalties are couched in such terms as "failure to pay" and "negligence." A taxpayer who had a reasonable cause for not paying his taxes is forced to accept the penalty unless the resources are available to challenge its imposition. In some instances, the penalty must be paid and its return then sought through the refund claim procedure. In light of the cost of challenging the...