A Conversation with Senator Brubaker
Reforms Needed to Improve Tax Appeals Process
Many businesses and taxpayers have expressed frustration with the state's slow, cumbersome tax appeals process. A study several years ago ranked Pennsylvania among the worst states in terms of providing a fair, independent and predictable process for tax appeals, and a 2010 study by the nonprofit Council On State Taxation (COST) gave Pennsylvania's tax appeals process a D grade. Simplifying and streamlining this process will be one of the Senate Finance Committee's priorities in the weeks and months to come.
When the Department of Revenue determines that an individual or business failed to pay the appropriate amount of tax, taxpayers have the right to appeal to the Board of Appeals. Taxpayers who are not satisfied by a Board of Appeals ruling can appeal to the Board of Finance and Revenue. If the result from that panel is still unacceptable, taxpayers can appeal to the Commonwealth Court. This convoluted process can lead some disputes to drag on for months or even years until the issue is resolved. While the Federal government and other states have implemented programs to facilitate settlement of tax cases that have made some progress toward saving costs and easing the burden on taxpayers, there is no clear procedure to forge a compromise of tax liability.
Perhaps what is most frustrating for business taxpayers is the inability to challenge a tax adjustment made by the Department unless it results in a tax increase in the current tax year. Current law does not permit business taxpayers to contest a tax adjustment if their tax liability is zero in the year of the adjustment. However, the Department's tax adjustment could result in a significant tax increase in future tax years, placing a business at a disadvantage from a planning and operations standpoint.
This unwieldy appeals process not only creates frustration for individuals and businesses, but also serves as an obstacle for further economic growth. A state's business tax climate is a major factor businesses consider when making a decision to expand or relocate, and Pennsylvania's time-consuming appeals process is a significant concern for many business owners.
The Department of Revenue recently acknowledged these issues and began the process of addressing the problem. In November, the Department announced it would begin accepting requests for compromise of tax appeals. The new policy would allow petitioners to the Board of Appeals to propose a compromise prior to a final decision, potentially cutting weeks or months out of the appeals process for a successful petitioner. While this measure will help a limited number of taxpayers avoid the inefficient appeals process, it does not address the underlying difficulties that individuals and businesses face due to the complexities of the current system. This announcement was clearly a step in the right direction, but further action is needed to provide a process that is fair and efficient for all taxpayers.
Simplifying the tax appeals process could not only create greater fairness and efficiency for individual taxpayers, but also serve as a valuable economic development tool to foster business growth. In the coming weeks, I will introduce legislation to create a more customer-friendly and efficient tax appeals process to improve Pennsylvania's business climate.