SB 0021 - Fiscal Note

Fiscal Note - SB 0021 - Puts burden of proof on taxing authority; grants various taxpayer protections during audits and collections

COMMITTEE ON LEGISLATIVE RESEARCH

OVERSIGHT DIVISION

FISCAL NOTE

L.R. NO.: 0558-01

BILL NO.: SB 21

SUBJECT: Administrative Law; Revenue Dept.; Taxation and Revenue

TYPE: Original

DATE: January 22, 1999

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FISCAL SUMMARY

ESTIMATED NET EFFECT ON STATE FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
All State Sales Tax Funds	(Unknown)	(Unknown)	(Unknown)
Total Estimated Net Effect on All State Funds	*(UNKNOWN)	*(UNKNOWN)	*(UNKNOWN)

* The unknown revenue loss is expected to be significant.

ESTIMATED NET EFFECT ON FEDERAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Total Estimated Net Effect on All Federal Funds	$0	$0	$0

ESTIMATED NET EFFECT ON LOCAL FUNDS
FUND AFFECTED	FY 2000	FY 2001	FY 2002
Local Government	$0	$0	$0

Numbers within parentheses: ( ) indicate costs or losses

This fiscal note contains 4 pages.

FISCAL ANALYSIS

ASSUMPTION

Officials of the Department of Revenue (DOR) state this proposal places the ultimate burden of proof in audit and collection efforts on the taxing authority and changes the procedure of audits. It also adopts the innocent spouse provisions of the IRS and designates that all employees and agents of the Department of Revenue are subject to the Fair Debt Collection Act, in which a taxpayer may bring civil action against them for damages.

ADMINISTRATIVE IMPACT:

DOR staff state the impact of this proposal is unknown. The proposed legislation may have a significant impact on the Division of Taxation and Collection's ability to conduct and collect audits. Based on the audit restrictions in the legislation, the Division of Taxation and Collections would complete fewer audits or the staff would have to be significantly increased to maintain the same level of audit coverage and collections.

Officials of the Secretary of State's Office (SOS) state that the impact of this proposal would create a need for an additional attorney and support staff, space and equipment and would require computer programming changes to the franchise tax system. An annual cost of approximately $62,292.

Although SOS staff believes otherwise, if it's determined that section136.303.2 applies to SOS, then the fiscal impact of this proposal would be increased.

State Tax Commission, Department of Insurance, Office of Prosecution Services and the Attorney's General Office stated this proposal places the initial burden of proof on taxpayers and the ultimate burden of proof on the taxing authority. Officials state this proposal would not fiscally impact their agencies.

Oversight, for purposes of this fiscal note, assumes the fiscal impact of this proposal would be a significant unknown loss to all state sales tax funds.

FISCAL IMPACT - State Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
ALL STATE SALES TAX FUNDS	(UNKNOWN)	(UNKNOWN)	(UNKNOWN)
FISCAL IMPACT - Local Government	FY 2000	FY 2001	FY 2002
	(10 Mo.)
	0	0	0
FISCAL IMPACT - Small Business
Small businesses could be impacted by this proposal.

DESCRIPTION

This act requires that all state tax laws are to be strictly construed against the taxing authority, which bears the ultimate burden of proof. The bill also contains the following provisions:

1) Allows the taxpayer to choose the method and time frame for reconstructing income for an audit by the department of revenue, unless the department can show that the taxpayer's method would result in material misstatement of income (less than 50% of income derived by an accepted alternative method); 2) Requires audit findings of the department of revenue to be accompanied, if requested in writing by the taxpayer, by a statement of legal principles relied upon by the auditor. Collection of any amount based on an invalid rule or regulation is required to be refunded to the taxpayer with interest, along with attorney's fees; 3) Requires auditors assigned to an audit to commit no less than 75% of their work time to completion of that audit;

4) Allows a taxpayer for whom a tax has been collected to receive a refund even if the collecting

party does not file for one; 5) Requires refunds to be paid in a lump sum regardless of the filing status of the taxpayer; 6) Requires all tax refund requests to be processed, and a written confirmation or denial mailed, within thirty days of receipt of the request; 7) Applies same innocent spouse protections for state income tax returns as applies to federal income tax returns; 8) Subjects all agents and employees of the department of revenue to the same provisions of the Fair Debt Collection Practices Act as apply to the Internal Revenue Service due to the Restructuring and Reform Act of 1998. Taxpayers are given standing to bring a civil action for damages for any collection practice which violates those provisions.

This legislation is not federally mandated, would not duplicate any other program and would not require additional capital improvements or rental space.

SOURCES OF INFORMATION

Department of Revenue

Department of Insurance

State Tax Commission

Office of Prosecution Services

Attorney General's Office

Secretary of State's Office

Jeanne Jarrett, CPA

Director

January 22, 1999