Taxpayer Rights Enhancement Act
By Penny Gold, CEO, Kentucky Society of CPAs
What if you got pulled over for driving too fast on a road that had no speed limit signs, and then had to wait years before your case was resolved? You’d be confused, aggravated and maybe even angry. That’s how many Kentucky taxpayers feel when dealing with our state’s tax system.
For this reason, the Kentucky Society of CPAs, Kentucky Chamber of Commerce and a number of other business groups are strongly backing legislation in the General Assembly to promote much-needed transparency, efficiency and equity in the administration of our state’s tax code. Sponsored by Rep. Tommy Thompson (D-Owensboro), the Taxpayer Rights Enhancement Act (TREA), HB 361, would strengthen the current Taxpayer Bill of Rights that was adopted 25 years ago, requiring the state to provide reliable guidance to taxpayers and meet reasonable deadlines in resolving tax disputes.
We all know tax reform has been a perennial issue in Frankfort for decades, and while there are understandably disagreements about how to best reform our tax system, how our tax code is administered shouldn’t be up for debate. TREA is an opportunity for the General Assembly to improve Kentucky’s tax climate without delving into disputes over raising or lowering taxes.
For over a decade now, taxpayers, tax professionals and business owners have been increasingly frustrated by the state’s lack of reliable guidance and lengthy audit and appeals process. It doesn’t have to be this way. And it hasn’t always been this way in Kentucky. For many years the state published helpful Policies and industry-specific Circulars that helped explain Kentucky’s tax code and provided examples. Then, following “tax modernization” in 2005-2006, the state revoked the majority of its Policies and Circulars, leaving taxpayers without reliable guidance available to the public.
Numerous other states, as well as the IRS, publish ample guidance to help taxpayers. In fact, a 2013 study by the Council of State Taxation (COST) ranked Kentucky last among its surrounding states when it comes to tax administration, in part because of its lack of guidance.
Without transparent, predictable tax policies and administration, everyone loses: taxpayers are confused on how much tax to pay and state government doesn’t collect the tax revenue expected or needed. Additional guidance would actually increase the state’s cash flow over time by minimizing errors and unnecessary disputes.
The administration of our tax code also has a direct impact on jobs. Not only do businesses want to locate, invest and expand in states that have competitive tax rates, but equally important, they want reasonable assurances that our tax laws will be administered transparently, efficiently, consistently and equitably.
Just recently, Chegg Inc., a textbook rental company that employs over 1,000 people during peak seasons in its Shepherdsville facility, announced it was leaving the state over a tax dispute and never coming back. Despite a $27.3 million investment in its Kentucky operations just seven years ago and a productive workforce, Chegg simply has had enough.
James Clemons, a representative from Bowling Green Metalforming, a Kentucky manufacturer with 900 full-time and 200 temporary employees, testified during a recent House committee hearing that it filed a $265,000 sales tax refund claim with the state over six years ago and still hasn’t gotten a response other than “we’re working on it.”
That’s unacceptable to hard-working Kentucky business owners who may have overpaid their taxes. TREA requires the state to offer a substantive response to a refund claim within six months, after which time, the taxpayer may elect a non-response to be a denial of the claim and move on to the appeals process. It also offers a similar timeframe when a taxpayer protests a tax assessment to ensure an expedient resolution.
Perhaps most importantly, TREA requires the state to engage with the public regularly to answer questions and help taxpayers better understand the tax code. It also empowers it to publish (in redacted form) any final rulings, forms and instructions, training manuals and any other material stating its policies or positions. Think about it: Shouldn’t the taxpayer, who is required to comply with the tax code, be armed with the same guidance used by the state to enforce the tax code?
The absence of information isn’t lost on our state’s business owners. Orn Gudmundsson Jr., the CEO of Northland Corp., a lumber business that spans three generations in LaGrange, testified at the same House committee hearing that its ongoing tax dispute with the state goes back to 1981.
“I do know that as a business owner, and in order to plan, I want to know what the rules are, I want to know there is some certainty in those rules, and I want to know that when there is a dispute, that it is settled fairly and in a reasonable amount of time,” said Gudmundsson Jr. “As the third generation of my family to address this single issue, I know we can do better.”
And we must do better. While HB 361 will not pass this session, the Kentucky Society of CPAs will continue to work with the General Assembly to promote the Taxpayer Rights Enhancement Act moving forward. In the end, most taxpayers like James Clemons and Orn Gudmundsson, Jr. simply want to know the rules of the road. It’s time for Kentucky tax administrators to post the speed limit.