Arizona and City Audit and Appeal Procedure - July 2009

422 views
354 views

Published on

An overview of the Arizona Department of Revenue and Arizona city methods of sales tax auditing and how to challenge tax assessments.

Published in: Business, Technology
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
422
On SlideShare
0
From Embeds
0
Number of Embeds
25
Actions
Shares
0
Downloads
0
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Arizona and City Audit and Appeal Procedure - July 2009

  1. 1. Advanced Sales and Use Tax in Arizona:Arizona and City Audit and Appeal Procedure Presented by Mike Galloway Shareholder Bancroft Susa & Galloway, PC www.arizonatax.com Bancroft Susa & Galloway A PROFESSIONAL CORPORATION
  2. 2. Overview• Arizona Department of Revenue Tax Audits• Arizona City Tax Audits• Appeals of State Audits• Appeals of City Audits• Claims for Refund• State Taxpayer Bill of Rights• City Taxpayer Bill of Rights
  3. 3. Arizona Department of Revenue Sales and Use Tax Audits • The Department can audit for almost any reason. • The Department can review almost any books and records.
  4. 4. Arizona Department of Revenue Sales and Use Tax Audits • Audits must be finalized within the applicable statutes of limitation. • Auditors can do a detailed review or use sampling. – More on sampling later.
  5. 5. Types of Audits• There are essentially two types of audits:• Desk audits. – Usually by mail.• Field audits. – There is various paperwork. – The auditor visits the taxpayer’s business office. – The audit may last a long time. – The auditor will (usually) issue a deficiency assessment.
  6. 6. Other Examination Methods • The Department can order a person to testify before it. • It can issue a subpoena duces tecum. • It can apply to the Tax Court to shut down a business. – It can have the Sheriff seal the office. – It can deny the taxpayer access. • It can go straight to the Tax Court to collect unpaid back tax.
  7. 7. Other Examination Methods • Other methods if tax returns are not filed: – Review taxpayer and nontaxpayer records (after a demand). – Demand a return or estimate income, and go immediately to the Tax Court to enforce an assessment (false or fraudulent return). – Obtain a writ of mandamus to get a return filed (judgment). – Obtain a Tax Court order to compel the production of books and records (after willful failure to produce). • Failure to do so is punishable as contempt of court (jail).
  8. 8. Jeopardy Assessments• If the Department believes that collection of tax is threatened by delay, it can issue an assessment demanding immediate payment.• It can initiate immediate collection proceedings. – The taxpayer can stop this by filing a bond within ten days after getting notice of the assessment. – The taxpayer can appeal after this. – The taxpayer can appeal without filing a bond but the collection action is not stayed.• The taxpayer can obtain expedited review within the Department.• The Taxpayer can get quick review in the Arizona Tax Court.
  9. 9. Appeals of Department Sales and Use Tax Audits • Department notices of deficiency can be appealed. • The deadline is usually 45 days from when the notice is issued. – Individual income tax is 90 days.
  10. 10. The Department Protest Petition • The protest or appeal petition must contain various information. • Unprotested tax must be paid. • Unauthorized practice of law. • Powers of attorney.
  11. 11. The Informal Conference • Nothing requires an informal conference. • It is an opportunity to informally resolve remaining differences with the
  12. 12. Formal Hearings• If there still are disputes between the taxpayer and Department, the appeal goes to a formal hearing.• It is held before the Office of Administrative Hearings.• An in house attorney will represent the Department.• Post hearing briefing can be submitted to the judge.• The judge will issue a written decision.
  13. 13. Appeals to the Director• Either party may appeal the OAH decision to the Director of the Department.• If the Department loses, it must appeal to the Director.• If the taxpayer loses, appeals to the Director are optional.• At this point, taxpayers may also appeal to the Arizona Board of Tax Appeals or the Arizona Tax Court.
  14. 14. Appeals to the Director• The Director usually reviews the existing record.• The Director issues a written decision.• If the Department loses, it cannot appeal any further. – The Director’s decision becomes the official position of the Department.• If the taxpayer loses, it may appeal to the Arizona Board of Tax Appeals or the Arizona Tax Court.
  15. 15. Appeals to the BOTA• Taxpayers can appeal to the BOTA after it receives the Department’s final order.• OAH and Director decisions are final orders.
  16. 16. The BOTA Appeal Process • The BOTA protest petition requires certain information. • Briefing is required and is submitted pre- hearing. • The BOTA usually requires the parties to submit a pre-hearing stipulation of facts and statement of disputed facts. • A hearing is held before the three BOTA members. • The BOTA issues a written decision.
  17. 17. Recovery of Fees and Costs • A special rule allows taxpayers to recover some of their fees and costs if: – The Department’s position was not substantially justified, and – The taxpayer prevails on the most significant issues. • Apply to the Department’s TPRO. • The denial of fee or cost recovery can be appealed. • $20,000 cap per level. • Not just attorneys’ fees.
  18. 18. Appeals to the Arizona Tax Court • Decisions from the OAH, Director and BOTA can be appealed to the Arizona Tax Court.
  19. 19. The Tax Court Appeal Process • The Tax Court is a division of the Maricopa County Superior Court. • It hears all tax cases statewide except for some property tax appeals. • Tax Court appeals are de novo. • There is no “pay to play”. • The Department has the burden of proof on factual issues. • The Tax Court can publish full opinions. • It will issue some type of written decision. • There is a small claims division
  20. 20. Appeals to the Arizona Court of Appeals and Supreme Court • Tax Court final judgments are appealed like most other superior court decisions to the Court of Appeals. • Court of Appeals decisions can be appealed to the Arizona Supreme Court, which has discretionary review.
  21. 21. Recovery of Attorneys’ Fees and Costs • A special statutory provision allows taxpayers to recover some of their attorneys fees and costs if they ultimately prevail. • Fees are capped at $30,000 but that applies to each level of appeal. • Witness fees and similar expenses are also recoverable.
  22. 22. Appeals to the U. S. Supreme Court • Review is discretionary. • The Court rarely takes tax cases.
  23. 23. Arizona City Sales and Use Tax Audits • Big Arizona cities conduct their own audits. • Usually, the Department audits for small Arizona cities (the “Program” cities). – Usually when doing its own audits.
  24. 24. Arizona City Sales and Use Tax Audits • Sometimes small cities supplement the Department audits. – They hire contract tax auditors. • The audit procedures are essentially the same as with the Department. • The cities and Department share information. • City audits must conform with GAAS. – This can affect sampling.
  25. 25. Appeals ofCity Tax Audits • Big city audits are appealed to the MTHO.
  26. 26. Appeals of City Tax Audits • Small city audits conducted by the Department are appealed to the Department. • Small city audits conducted by a city are appealed to the MTHO. • The Model City Tax Code has specific appeal procedures for all types of appeals. • The MTHO or the OAH will conduct the hearing. • It will issue a written decision. • It can be appealed to the Arizona Tax Court. • The appeal from the MTHO is based on the final adjustment letter.
  27. 27. Claims For Refund• Refund claims can be filed with the Department and any city.• As with tax assessments, they must be filed within the appropriate statute of limitations.
  28. 28. State Refund Claims• If the Department doesn’t respond to a refund claim within six months, consider it denied.• If an appeal deadline for a tax assessment is missed, the tax can be paid and a refund claim filed.• Refunds do not have to returned to the actual customers that paid the tax.• A refund claim may trigger an audit. – The taxpayer may want an audit.
  29. 29. State Refund Claim Appeals • Refund claim denials are appealed in the same manner as tax assessments.
  30. 30. City Refund Claims• Essentially the same as Department refunds.• No six month rule. – A “refusal” to process or “request to refile” a refund claim can be appealed. – You may not know when these occur.• Refunds do not have to be returned to the actual customers that paid the tax.• A refund claim may trigger an audit. – The taxpayer may want an audit. – It must be reasonable.
  31. 31. City Refund Claim Appeals • Refund claim denials are appealed in the same manner as tax assessments.
  32. 32. State Taxpayer Bill of Rights • The TBOR was first enacted in 1994 and has been expanded many times. • Many of the provisions affect audits and appeals, and other disputes.
  33. 33. State Taxpayer Bill of Rights • 1. Arizona Taxpayer Assistance Office – A.R.S. § 42-2051. • 2. Erroneous or Misleading Advice and Statements – A.R.S. § 42-2052. • 3. Taxpayer Interviews – A.R.S. § 42-2053. • 4. Disclosure of Taxpayer Information – A.R.S. § 42-2054. • 5. Taxpayer Assistance Orders – A.R.S. § 42-2055. • 6. Closing Agreements With Extensive Taxpayer Misunderstanding – A.R.S. § 42-2056.
  34. 34. State Taxpayer Bill of Rights • 7. Agreement for Installment Payments of Tax – A.R.S. § 42-2057. • 8. Basis for Evaluating Department Employee Performance – A.R.S. § 42-2058. • 9. No Additional Audits or Proposed Assessments – A.R.S. § 42-2059. • 10. Refund If Items of Income Transfer from One Year to Another –- A.R.S. § 42-2060. • 11. Expedited Review of Jeopardy Assessments – A.R.S. § 42-2061. • 12. Abatement of Penalties – A.R.S. § 42-2062.
  35. 35. State Taxpayer Bill of Rights • 13. Department Responsibilities and Deadlines – A.R.S. § 42-2063. • 14. Reimbursement of Fees and Costs – A.R.S. § 42-2064. • 15. Abatement of Interest for Errors or Delays Caused by the Department – A.R.S. § 42-2065. • 16. Statute of Limitations on Tax Debts – A.R.S. § 42-2066. • 17. Limitation on the Use of Pseudonyms by Department Employees – A.R.S. § 42-2067. • 18. Suspension of Statute of Limitations During Taxpayer Disability – A.R.S. § 42-2068.
  36. 36. State Taxpayer Bill of Rights • 19. Privileged Communications With Tax Practitioners – A.R.S. § 42-2069. • 20. Prohibited Audit Techniques – A.R.S. § 42-2070.
  37. 37. State Taxpayer Bill of Rights• 21. Reimbursement of Bank Costs by Erroneous Tax Levies – A.R.S. § 42-2071.• 22. Stay of Enforcement Actions Pending Offer in Compromise – A.R.S. § 42-2072.
  38. 38. State Taxpayer Bill of Rights • 23. Report of Employee Misconduct – A.R.S. § 42-2073. • 24. Equitable Relief From Joint and Several Liability – A.R.S. § 42-2074. • 25. Duration of Audits – A.R.S. § 42-2075. • 26. Explanation of Audit or Refund Denial Results – A.R.S. § 42-2076. • 27. Distribution of Unpublished Tax Cases – A.R.S. § 42-2077. • 28. New Interpretation or Application of Law – A.R.S. § 42-2078.
  39. 39. Private Taxpayer Rulings • Private Taxpayer Rulings – A.R.S. 42-2101.
  40. 40. City Taxpayer Bill of Rights • The provisions are mostly the same. – Cities must issue private taxpayer rulings. – Allied Waste v. Chandler (TX 2003-000453) • Telling a taxpayer that it was taxable after years of not informing it that it was taxable
  41. 41. Advanced Sales and Use Tax in Arizona:Arizona and City Audit and Appeal Procedure Presented by Mike Galloway Shareholder Bancroft Susa & Galloway, PC www.arizonatax.com Bancroft Susa & Galloway A PROFESSIONAL CORPORATION

×