New report: Toward a More Effective Tax Appeals Process for Washington

In a new special report, we take a look at Washington's tax appeals process. Here's the executive summary:

The Council on State Taxation (COST) notes that the U.S. tax system works because of voluntary compliance; thus, it is imperative that the system be perceived “to be balanced, fair, and effective” (Lindholm et al. 2016). Washington’s tax appeals process often does not meet that standard. It is inefficient, lacks precedential value at most levels, and does not require tax and legal expertise for those hearing appeals.

The American Bar Association and COST have identified four principles that are essential for an effective tax appeals process. They are:

  • There must be no requirement for taxpayers to pay the disputed tax or post a bond prior to an independent hearing;
  • The members of the appeals forum must be experienced in state tax laws;
  • The appeals forum must be truly independent; and
  • The independent forum must establish the record for further appeals.

In Washington, the Washington State Board of Tax Appeals (WSBTA) hears property and excise tax appeals. Though the WSBTA does not require payment of the tax to access the forum, there is no stay on tax collection; as a practical matter, taxpayers must pay the disputed tax before any WSBTA proceedings occur. The WSBTA is an independent appeals forum and its decisions are published.

In 2016, Washington earned a C- on COST’s state tax administration scorecard, making it one of the five states with the lowest marks. Some of the reasons for Washington’s poor showing are:

  • Taxpayers must file an appeal within 30 days.
  • There is a lack of excise tax expertise at the WSBTA.
  • It can take too long for an appeal to be decided.
  • The Legislature has enacted retroactive tax legislation.
  • Taxpayers must, as a practical matter, pay the disputed tax prior to an independent hearing.

To improve the tax appeals process, Washington could look to the example of Oregon, which has a judicial branch tax court. The American Bar Association presents another option in its Model State Administrative Tax Tribunal Act, which shares the essential elements highlighted by COST. In 2015, the state Senate passed 2SSB 5449, which was modeled on Oregon’s Tax Court and incorporated many of the provisions of the ABA model act. To accommodate the structure of the judicial branch under Washington’s constitution, 2SSB 5449 would have created a tax appeal division in the Court of Appeals. The bill would have improved Washington’s grade on COST’s scorecard.

Washington’s current tax appeals system is inefficient. Making changes similar to those proposed in 2SSB 5449 would result in a tax appeals system that is more balanced, fair, and effective—and thereby improve Washington’s tax and business climate.

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