In a landmark development for Arkansas taxpayers, Act 586 of the 2021 General Assembly creates an independent Arkansas Tax Appeals Commission. The commission will provide a neutral panel of tax professionals to hear and resolve taxpayer disputes with the Department of Finance & Administration. It will be established by July 2022 and will begin hearing cases in January 2023.
Current DF&A Appeal Process
Taxpayers now appeal a DF&A proposed assessment or claim denial to the DF&A’s Office of Hearings & Appeals, where the case is heard by an administrative law judge. There is also a secondary internal appeal to the secretary of the DF&A, the secretary’s revision, which is typically heard in practice by the commissioner of revenue. This internal appeal process will be replaced by the commission.
Independent Tax Appeals Commission Act
The Independent Tax Appeals Commission Act is based loosely on the American Bar Association Model Administrative Tax Tribunal Act. Within the executive branch, the commission will be in the Department of the Inspector General and based in Little Rock. While part of that agency, it will independently decide cases. A companion bill, Act 593, provides conforming technical changes to other parts of the Arkansas tax code.
3-Member Commission of Tax Experts
A chief commissioner and two additional commissioners will make up the commission. The chief commissioner will be dually licensed (CPA and lawyer), and of the other two, one must be a CPA and the other a lawyer.
The commissioners will have staggered nine-year terms and be limited to two terms. Salary and benefits will be comparable to state district judges.
The chief commissioner will answer to the Arkansas Legislature through required annual reports. A staff attorney will help draft decisions, and the panel will employ an accountant with experience in tax issues related to manufacturing and business.
The governor must appoint the three commissioners by July 1, 2022, and then the commission must promulgate rules by Dec. 1, 2022. Appeals from the DF&A proposed assessments, claim denials or other actions made on or after Jan. 1, 2023, shall be made to the commission. Protests pending before DF&A’s Hearings & Appeals Office may be transferred to the commission if no hearing or prehearing has been held.
Proceedings Before the Commission
Proceedings before the commission should take about a year. A taxpayer may petition the commission within 90 days of DF&A action. The commission notifies the DF&A, DF&A answers, and the taxpayer has a chance to reply. Then the commission will schedule a hearing. After that, and any post-hearing briefs, the commission has 90 days to decide. For appeals of permit cancellations or other time-sensitive matters, there are expedited proceedings.
Rules of evidence do not apply to commission hearings. The hearing is to admit relevant evidence, including hearsay, if probative of a material fact in controversy. Much like current DF&A hearings and appeals proceedings, cases before the commission are confidential. Decisions will be published with taxpayer data redacted.
Decisions of the Tax Appeals Commission may be appealed to the Arkansas courts. For taxpayers, it is essentially unchanged: Bring suit in circuit court in Pulaski County or the taxpayer’s home county. The DF&A has similar appeal rights.
Conclusion
Enactment of the Independent Tax Appeals Commission Act is just the first step in making the commission an independent and impartial decider of Arkansas tax cases. Much work remains to be done in 2021 and 2022, including selecting commissioners, establishing operations, hiring staff and promulgating rules of practice and procedure. Taxpayers should monitor these developments and anticipate being able to appeal to the commission in the near future.
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