Nowlin Bill Levels Playing Field With Taxman

While Sen. A.G. Crowe’s Louisiana Healthcare Freedom Act seems to be drawing most of the oxygen among the bills at Louisiana’s legislature so far in the 2010 legislative session, a little-publicized bill by Rep. Rick Nowlin (R-Natchitoches) could have a not-insignificant effect on the relationship between the individual and the government.

And since that relationship is one of our favorite subjects here at the Hayride, naturally we can’t wait to dive right in on this one.

Nowlin’s bill is H.B. 667, and it deals with tax assessments by local governments on businesses. Unlike several other states, Texas in particular, where sales taxes are collected by the state’s revenue department and then distributed to local governments based on the location of their generation, in Louisiana the tax collectors work for local governments as well.

And this causes trouble. Because what all too often happens is that local assessors will wait until the last minute before doing audits on merchants. Since there is a prescription which will kick in at the end of a year and prevent tax collections, businesses will find themselves given sales tax estimates which may be wildly inaccurate and then told to either pay the assessments or sign a prescription waiver. It’s not unheard of that a tax collector will descend on a merchant with both an assessment and a waiver at the same time in mid-December.

That, as you might imagine, basically amounts to extortion. Because nobody wants to end up fighting the local government in court over taxes; you look like a tax cheat in the newspaper, which is bad for business, it’s a pain in the rear end to have to go to court and it’s costly to hire an attorney.

Worse than that, should you lose you’ll end up getting hit with the government’s fees and court costs.

Nowlin’s bill addresses the situation by making one simple change; namely, that if the assessment the taxman lays on a business is wildly off the mark, as they very often are, and the merchant fights in court and wins, the government has to pony up for costs and fees. It’s a “loser pays” arrangement on both sides of the equation, whereas at present the loser only pays when the government wins.

The effect of a bill like this becoming law could be significant. A local government used to harrassing its merchants with impunity might soon find that practice to be a very expensive one, and instead of sloppily handing down grossly inflated assessments a premium on accuracy and promptness in tax collections might end up raising revenues through increased cooperation.

But don’t expect rainbows and unicorns on this one. Nobody has paid much attention to Nowlin’s bill yet, but the expectation is that local governments are going to go absolutely insane with fear of this bill once it gets going in the House Ways and Means committee. Look for a good bit of screaming should this thing gain some traction. The Louisiana Association of Business and Industry is one of several business groups in favor of the bill, though, so it won’t just be a one-sided fight. We might see a good old-fashioned barroom brawl on this – and when it comes to business vs. the government, that’s how we like it here at the Hayride.

We’ve talked about how Louisiana’s business tax environment, while improving, is still a negative to the state’s economic growth. We’ve talked about how the lawsuit environment is in dire need of improvement. We’ve talked about education and workforce development, and how the governor’s efforts to ameliorate the problems with that need to progress further. But with some of the Byzantine machinations of petty local tyrants allowed and encouraged in Louisiana law, the unfriendly state of the rules on local sales tax assessments is one more example of the ways we’re not where we should be. If Nowlin’s bill succeeds, in a small way things could improve.

UPDATE: There are actually three bills addressing local tax collections and how the process needs improvement – HB 605, authored by Rep. Noble Ellington and HB 666, which Rep. Nowlin also wrote, address the question of taxpayers collecting attorneys’ fees in the event they win cases such as we discussed above.

Here’s a full description of the current state of things, as provided by John LeBlanc at LABI:

State Ranking.  In an independent review of the fairness of state tax administration, Louisiana received the grade of “D” – tied for second worst in the country (“The Best and Worst of State Tax Administration,” COST, Feb 2010).  Resolution to these issues simply requires our tax laws to treat our taxpayers on a level playing field with the tax collectors.  Below are a few of the tax policy and procedure areas that need to be addressed in order to improve our state ranking:

A.        Right to Independent Appeal.   Under current law, taxpayers in local sales tax cases have no right to an independent appeal of their tax issues. Taxpayers should have the same right to an independent appeal in local sales tax cases as is afforded them in state cases to the Board of Tax Appeals (BTA). 

B.        Arbitrary” Assessments Louisiana law provides for a prescriptive period of three (3) years for tax matters.  So, therefore, a tax collector may not issue an assessment for additional tax due after the expiration of the three year prescription period.  Occasionally taxpayers may receive notice of a pending audit, but the audit may be delayed, not scheduled, or maybe never even conducted.  However, as the prescription deadline draws closer at the end of the year, the tax collector might: (1) offer the taxpayer a “voluntarily” waiver of prescription to allow the tax collector additional time to begin or complete the audit beyond the three year prescriptive period, or in the alternative (2) issue an “arbitrary” assessment for the tax that the tax collector believes may be due, even though the audit may not have been conducted nor completed. 

This use of the assessment process is an abuse of procedure and needs to be addressed.  The “estimated” assessment procedure should be available to the tax collector only if the taxpayer fails to make and file a report, or files a false report.  The jeopardy assessment procedure should be available to the tax collector only if the taxpayer may quickly depart the state or remove from the state property subject to tax. Otherwise, the tax collector should not be allowed to simply cut off the prescriptive period by forcing the execution of a waiver or issuing an arbitrary assessment.  Three years is a sufficient amount of time for the tax collector to conduct its audit or other investigation.  The tax collector should not be allowed to use the assessment procedure to effectively erase the three year tax prescriptive period out of our state constitution.

C.  Private Counsel Attorney Fees (local sales tax cases)Another tax policy slanted in favor of the tax collector is the area of private counsel attorney fees. Our local sales tax laws limit the award of attorney fees to only to the tax collector – so, the taxpayer may not be awarded his attorney fees even if he is successful in the tax case. Fairness dictates that attorney fee provisions should apply equally to the tax collector and the taxpayer.

D.  Private Contract Auditors (local sales tax). Another tax policy in need of significant reform is the local sales tax private auditor program.  Presently, there are no specific rules or standards in place for this program.  However, several areas need to be addressed, including: (1) minimum standards for educational and professional auditing experience or certification; and (2) the protection of taxpayer confidentiality and privacy of taxpayer records and related information.

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