TEI issues policy statement on retroactive tax legislation.

• Position: TECHNICAL SUBMISSIONS

On September 20, 2016, TEI issued a new policy statement on retroactive tax legislation. The policy statement takes the position that sound tax policy and administration require governments to provide taxpayers with certainty and fairness, and these principles are not satisfied when legislatures are permitted to enact retroactive tax legislation without meaningful limits.

TEI's policy statements reflect TEI's position on important administrative and procedural issues, and facilitate advocacy by providing formal position papers TEI's members can use when communicating with taxing agencies. Other policy statements generated by the State and Local Tax Committee over the past year address: (1) Reporting Federal Income Tax Changes, (2) Audit Procedures, (3) Corporate Tax Return Due Dates, (4) State and Local-Imposed Audit Fees, and (5) Interest Rates, (6) Statutes of Limitation, (7) Alternative Apportionment, and (8) State Tax Haven Legislation.

The policy statement was prepared under the aegis of TEI's State and Local Tax Committee, whose chair is Jamie Fenwick. Committee member Vic Ledesma and Committee Vice Chair Marji Gordon-Brown coordinated the drafting of the policy statement with TEI Tax Counsel Pilar Mata.

**********

Tax Executives Institute, Inc. (TEI) maintains that sound tax policy and administration require governments to provide taxpayers with certainty and fairness. These principles are not satisfied when legislatures are permitted to enact retroactive tax legislation without meaningful limits.

The Due Process Clauses of the U.S. and state constitutions protect against the deprivation of life, liberty, or property without due process of law. Retroactive tax legislation, which changes the tax rules applicable to past years, has the potential to violate this right.

The U.S. Supreme Court has repeatedly stated that retroactive legislation "presents problems of unfairness because it can deprive citizens of legitimate expectations and upset settled transactions." (1) Thus, the standards applied to retroactive legislation are higher than those applied to prospective legislation. (2)

The U.S. Supreme Court held retroactive tax legislation must be "supported by a legitimate legislative purpose furthered by rational means" in United States v. Carlton.' The Court held the test was satisfied in that case, finding: (1) the legislative purpose was not "illegitimate" or "arbitrary" because it fixed a drafting error, and (2) the legislature...