SSB 3216 (LSB 6204XC (1) 85)

SENATE FILE _____

BY  (PROPOSED COMMITTEE ON WAYS AND MEANS BILL BY CHAIRPERSON BOLKCOM)

A BILL FOR

An Act relating to the administrative appeals process for certain tax matters and a related study and report, and including effective date and applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

DIVISION I

STATE BOARD OF TAX REVIEW
    Section 1.  Section 421.1, subsection 5, paragraph a, Code 2014, is amended to read as follows:
   a.  Upon its own motion or upon appeal by any affected taxpayer, the state board shall review the record evidence and the decisions of, and any orders or directive issued by, the director of revenue under Title X, subtitle 2, for the identification of taxable property, classification of property as real or personal, or for assessment and collection valuation of taxes property by the department under Title X, subtitle 2, or an order to reassess or to raise assessments to any local assessor under Title X, subtitle 2, and shall affirm, modify, reverse, or remand them within sixty days from the date the case is submitted to the board for decision. For an appeal to the board to be valid, written notice must be given to the department within thirty days of the rendering of the decision, order, or directive from which the appeal is taken. The director shall certify to the board the record, documents, reports, audits, and all other information pertinent to the decision, order, or directive from which the appeal is taken.
    Sec. 2.  EFFECTIVE UPON ENACTMENT.  This division of this Act, being deemed of immediate importance, takes effect upon enactment.
    Sec. 3.  APPLICABILITY.  This division of this Act applies to appeals made to the state board of tax review on or after the effective date of this division of this Act, and appeals pending before the state board of tax review on the effective date of this division of this Act shall be governed by section 421.1, Code 2014.

DIVISION II

ADMINISTRATIVE APPEALS
    Sec. 4.  Section 421.23, Code 2014, is amended to read as follows:
   421.23  Fees and mileage.

   The fees and mileage of witnesses attending any hearing of the department, including contested case hearings but excluding small case hearings, pursuant to any subpoena, shall be the same as those of witnesses in civil cases in district court.
    Sec. 5.  Section 421.60, subsection 2, paragraph g, Code 2014, is amended to read as follows:
   g.  A taxpayer may request in writing that a contested case proceeding or small case proceeding, whichever is applicable, be commenced by the department after a period of six months from the filing of a proper appeal by the taxpayer. The department shall file an answer within thirty days of receipt of the request and a contested case proceeding or small case proceeding, whichever is applicable, shall be commenced. In the case of an appeal of an assessment, failure to answer within the thirty-day time period and after a request has been made shall result in the suspension of interest from the time that the department was required to answer until the date that the department files its answer. In the case of an appeal of a denial of a refund, failure to answer within the thirty-day time period, and after a request has been made, shall result in the accrual of interest payable to the taxpayer at double the rate in effect under section 421.7 from the time the department was required to answer until the date that the department files its answer.
    Sec. 6.  Section 421.60, subsection 4, paragraph a, unnumbered paragraph 1, Code 2014, is amended to read as follows:

   A prevailing taxpayer in an administrative hearing other than a small case proceeding, or a court proceeding related to the determination, collection, or refund of a tax, penalty, or interest may be awarded reasonable litigation costs by the department, state board of tax review, or a court, incurred subsequent to the issuance of the notice of assessment or denial of claim for refund in the proceeding, based upon the following:
    Sec. 7.  Section 421.60, subsection 6, unnumbered paragraph 1, Code 2014, is amended to read as follows:

   The burden of proof with respect to assessments or denial of refunds in contested case proceedings and small case proceedings shall be allocated as follows:
    Sec. 8.  Section 421.60, Code 2014, is amended by adding the following new subsection:
   NEW SUBSECTION.  11.  Small case proceedings.
   a.  The department shall establish small case proceedings to be used in lieu of the contested case proceedings provided pursuant to this Title X and chapter 17A.
   b.  The department shall adopt rules relating to small case proceedings, including but not limited to rules establishing the types of actions of the director or department that shall be considered eligible for appeal to the director under the small case proceedings, the amount of tax at issue that shall be considered a small case, and rules relating to the transfer to small case proceedings of eligible cases pending before the director on the effective date of this division of this Act. Actions of the director or department under Title X, subtitle 2, shall not be eligible for the small case proceedings.
   c.  Use of the small case proceedings shall be at the election of the taxpayer. The director may for good cause refuse use of the small case proceedings by a taxpayer that otherwise meets the requirements for use of the small case proceedings.
   d.  Notwithstanding the provisions of this Title X, chapter 17A, or any other provision of law to the contrary, all of the following apply to small case proceedings:
   (1)  Small case proceedings shall be informal. To the extent consistent with the requirements of due process, the department may by rule dispense with or otherwise modify provisions relating to formal contested case proceedings, including but not limited to the recording and transcribing of proceedings, the creation of a detailed case record, ex parte communications, and the rules of civil procedure.
   (2)  The presiding officer of a hearing under small case proceedings shall be an administrative law judge assigned by the division of inspections and appeals in accordance with the provisions of section 10A.801.
   (3)  The decision of an administrative law judge shall be considered the final action of the department under chapter 17A, and shall not be reviewed by the director. Notwithstanding section 17A.19 or any other provision of law to the contrary, the decision of an administrative law judge in a small case proceeding is not subject to judicial review.
   (4)  The decision of an administrative law judge in a small case proceeding shall not be considered as precedent in any other case, hearing, or proceeding.
   (5)  The administrative law judge shall notify the taxpayer and the director by mail of the decision.
   e.  The provisions of section 422.70 shall also be applicable to an administrative law judge acting under the authority of this subsection.
    Sec. 9.  Section 424.1, subsection 4, Code 2014, is amended to read as follows:
   4.  The board shall retain rulemaking authority, but may contract with the department for assistance in drafting rules. The board shall retain contested case jurisdiction over any challenge to the diminution rate or cost factor. The department shall conduct all other contested cases or small case proceedings, whichever is applicable, and be responsible for other agency action in connection with the environmental protection charge imposed under this chapter.
    Sec. 10.  APPLICABILITY.  This division of this Act applies to appeals pending before the director of revenue on January 1, 2015, and to appeals made to the director of revenue on or after January 1, 2015.

DIVISION III

STUDY REPORT
    Sec. 11.  ADMINISTRATIVE APPEALS PROCESS FOR TAX MATTERS —— REPORT.  The department of revenue, in consultation with the department of management and other interested stakeholders, shall continue to study the independence, effectiveness, and fairness of the state’s current administrative appeals processes for tax matters and shall make recommendations for changes, if necessary, and shall additionally study the desirability, practicality, and feasibility of replacing components of these processes with new administrative appeals processes for tax matters within the executive branch to resolve disputes between the department of revenue and taxpayers. The department of revenue shall prepare and file a report, if necessary, detailing its findings and recommendations with the chairpersons and ranking members of the ways and means committees of the senate and the house of representatives and with the legislative services agency by January 8, 2015.
EXPLANATION
The inclusion of this explanation does not constitute agreement with

the explanation’s substance by the members of the general assembly.
   This bill relates to the department of revenue’s administrative appeals process for tax and other matters.
   DIVISION I —— STATE BOARD OF TAX REVIEW. Division I relates to the state board of tax review. The state board of tax review (board) is an independent, bipartisan board consisting of three members appointed by the governor and confirmed by the senate. One of the powers and duties of the board is to review final decisions of the director, including but not limited to final decisions issued by the director in a contested case. The board also has the original jurisdiction to review the director’s assessments and valuations of centrally assessed property for purposes of property taxation, which means the taxpayer appeals the assessment or valuation of the director directly to the board. Both the taxpayer and the director have the right to appeal a decision of the board to district court.
   The division amends the types of decisions of the director that may be reviewed by the board to specify that only decisions made under Code Title X, subtitle 2 (property taxes), may be appealed to the board. As a result, decisions of the director with regard to income taxes, franchise taxes, sales and use taxes, and various excise and other taxes will no longer be appealable to the board and must instead be appealed directly to district court.
   The division takes effect upon enactment and applies to appeals made to the board on or after the effective date of the division, and appeals pending before the board on the effective date of the division shall be governed by current Code section 421.1.
   DIVISION II —— ADMINISTRATIVE APPEALS. Division II relates to the administrative appeals process of the department of revenue by authorizing small case proceedings.
   Under current law, when a taxpayer appeals a decision of the director and no settlement can be reached between the parties, the director grants a contested case hearing pursuant to the provisions of Code chapter 17A (Iowa administrative procedure Act). Following a contested case decision, the director issues a final decision. The director is authorized to transfer contested cases to an administrative law judge who presides over the hearing and issues a proposed decision. When this occurs, the director may adopt the proposed decision as the final decision of the department, or may reverse or modify the proposed decision according to the standards provided in the Iowa administrative procedure Act. Following the final decision of the director, a taxpayer may appeal the decision to the state board of tax review or may seek judicial review of the decision.
   The division requires the department of revenue to adopt small case proceedings that may be used at the election of the taxpayer, and shall be in lieu of a contested case hearing. The department is required to adopt rules relating to small case proceedings, including but not limited to the types of actions of the director and amounts of tax that will be considered eligible for small case proceedings. The department is also required to adopt rules relating to the transfer to the small case proceedings of eligible cases pending before the director on the effective date of the division. Actions of the director or department relating to property taxes are not eligible for the small case proceedings. The department may refuse use of the small case proceedings to a taxpayer for good cause. The division requires small case proceedings to be informal and allows the department to dispense with or otherwise modify provisions relating to formal contested case proceedings such as the recording and transcribing of proceedings, the creation of a detailed case record, ex parte communications, and the rules of civil procedure. The presiding officer of a hearing under small case proceedings shall be an administrative law judge assigned by the department of inspections and appeals. The decision of the administrative law judge in a small case proceeding shall be considered the final action of the department of revenue and shall not be reviewed by the director or appealed to district court by the taxpayer or the director. Furthermore, the decision of the administrative law judge in a small case proceeding shall not be considered as precedent in any other case, hearing, or proceeding.
   The division applies all the provisions of Code section 422.70, relating to the general hearing powers of the director, to an administrative law judge acting under the authority of the small case proceedings.
   The division specifies that the provision of fees and mileage of witnesses, and the awarding of litigation costs in certain situations, shall not apply to small case proceedings.
   APPLICABILITY. The division applies to appeals pending before the director on January 1, 2015, and to appeals made to the director on or after January 1, 2015.
   DIVISION III —— STUDY REPORT. Division III establishes a report to be prepared and filed, if necessary, by the department of revenue. The department of revenue, in consultation with the department of management and other interested stakeholders, shall continue to study the current administrative appeals processes for tax matters and make recommendations for changes if necessary, and also study the possibility of creating new administrative appeals processes. The report, if necessary, detailing any recommended changes or findings shall be filed with the chairperson and ranking members of the ways and means committees of the senate and the house of representatives and with the legislative services agency by January 8, 2015. A similar study and report was conducted last year and filed on January 8, 2014, by the department of revenue.