TEI issues policy statement on statutes of limitation for state and local taxes.

• Position: Tax Executives Institute

On April 26, 2016, TEI issued a policy statement on statutes of limitation for state and local taxes. TEI maintains statutes of limitation for assessments and refund claims should be equal; unilateral administrative actions should only toll statutes of limitation for a reasonable, limited period; and when a federal change reopens a state or local statute of limitation, any resulting assessment should be limited to the impact of the federal change on the taxpayer's tax liability unless the taxpayer has signed an agreement extending/modifying the jurisdiction's statute of limitation.

State and Local Tax Policy Statement Regarding Statutes of Limitation

Two types of statutes of limitation affect corporate taxpayers: (1) statutes of limitation limiting the standard period for tax assessments and taxpayer refund claims, and (2) statutes of limitation extending the standard period for assessments and refund claims when a taxpayer reports changes from a federal tax return examination or on an amended return. TEI recommends states adopt the following guidelines and procedures to provide taxpayers with certainty and consistency:

1. Uniform Period for Assessments and Refund Claims

   Statutes of limitation serve a dual purpose. First, they limit the time for a jurisdiction to seek additional taxes through their examination process. Secondly, yet equally important, they limit the time for a taxpayer to recover taxes erroneously remitted or improperly assessed. Thus, statutes of limitation provide needed certainty for taxpayers and governments alike.

   Statutes of limitation for assessments are often longer than statutes of limitation for refund claims. Moreover, some taxes have no limitation period at all. This lack of parity creates an uneven playing field and creates a perception of unfairness. TEI maintains statutes of limitation for assessments and refund claims should be equal and should apply on the later date of (i) taxes paid or (ii) returns filed. A uniform period limiting assessments and refund claims provides parties with greater certainty and is in accord with sound tax policy.

2. Suspension of Statutes of Limitation by Unilateral Administrative Action

   A few jurisdictions permit tax authorities to toll statutes of limitation for assessments by unilateral administrative action (e.g., the mailing of a notice of examination). TEI maintains that unilateral administrative actions should only toll statutes of limitation for a reasonable, limited...