By Michael M. Pollock
Tax News Update: Arkansas Tax Appeals Under New Commission’s Proposed Rules
The newly established Arkansas Tax Appeals Commission has released its Proposed Rules of Procedure to carry out its role under the Independent Tax Appeals Commission Act (codified at Ark. Code Ann. § 26-18-1101). The Proposed Rules set out the Commission’s: (1) Statement of Organization and Operations; (2) Information for Public Guidance; (3) General Organization, (4) Rulemaking; and (5) Adjudicatory Proceedings. A public hearing will be held on November 10, 2022, at 1:30 p.m. at the Bessie Moore Conference Room, Arkansas State Library, 900 W. Capitol, Suite 200, Little Rock, AR 72201. Unless revised during the public hearing period (November 10 through November 12), the Proposed Rules become final and effective December 10, 2022, or ten days after filing with the Secretary of State, whichever is later. § 1-101. The following is a brief overview of the Commission’s rules with a focus on its adjudicatory proceedings (Rule 5).
Assignment of Commissioners to Hear Cases.
Whether a tax appeal is to be heard by all or just one of the commissioners depends on the “nature and significance” of the Taxpayer’s appeal. § 5-102. The Chief Commissioner will assign one Commissioner to hear the case if (i) the amount in controversy (exclusive of penalties and interest) is less than $25,000 or (ii) the case involves an “expedited proceeding” under § 5-204. Depending on the commissioners’ “availab[ility]”, the Chief Commissioner will assign all the commissioners to hear a case en banc if the tax amount in controversy exceeds $250,000. § 5-102. The Proposed Rules do not seem to indicate what happens if the case is greater than $25,000.00 and less than $250,000.00.
Filing and Service.
The Commission intends to implement an electronic filing system for pleadings and other documents. Parties must use this system unless one of them is not a user of (or perhaps not accustomed to) electronic filing systems. § 5-106(a)–(c). If that is the case, service may be done by U.S. mail or by e-mail if the parties agree. § 5-106(c).
Petitions to the Commission (Appeal Petitions) and Cure for Noncompliant Documents.
A taxpayer cannot file an appeal petition with the Commission until the Arkansas Department of Finance and Administration (“DFA”) reaches a “final” determination of tax owed (or a determination of tax liability that will soon be deemed final). § 5-201. Key examples of such “final” determinations are DFA issuing (i) a Notice of Proposed Assessment or (ii) a Refund Claim Denial. § 5-201(a)(1).
The Commission serves appeal petitions on DFA within 15 days of the Taxpayer filing a petition. § 5-106(c)(3). The Commission’s appeal petition form (as well as its power of attorney form, request for redaction form, and expedited hearing form) are attached to the proposed rules. (Note that the Commission has its own power of attorney form, different than the one provided by the Arkansas Department of Finance and Administration).
Parties are given an opportunity to cure if they make a filing that does not adhere to the Commission’s rules. If a document filed with the Commission is noncompliant but is timely filed, the filing party has ten ten days to cure the noncompliance and re-file. § 5-108. The Proposed Rules do not indicate how the filing party is to receive notice of the noncompliant filing or whether the Commission gives notice.
DFA’s Answer to Petition, Taxpayer’s (Optional) Reply, and Amended Pleadings.
DFA has 60 days from the filing of the taxpayer’s appeal petition to file an answer. § 5-202. The Taxpayer may file a reply to DFA’s answer within 30 days, but the taxpayer is not required to do so. § 5-203. If the Taxpayer decides to file a reply, it cannot exceed the scope of the answer or the appeal petition.
An appeal petition may be amended before the time for DFA’s answer expires (60 days). § 5-205(a). An answer may be amended before the time for filing a reply expires (30 days). § 5-205(b). Any pleading can be amended after the expiration of the applicable deadline if the party seeking to amend gets written permission from either (i) the opposing party or (ii) the Commission. § 5-205(c).
The Commission’s Jurisdiction when a Tax Appeal is Pending with DFA.
Matters already decided by or pending with the (soon defunct) DFA Office of Hearings & Appeals are outside the Commission's jurisdiction, and thus taxpayers cannot petition the Commission to hear their case in such circumstances. § 5-201(e). However, if an action prior to January 1, 2023, has been protested by a taxpayer and no hearing or prehearing has been held before the DFA Office of Hearings & Appeals, the Taxpayer may file an appeal petition with the Commission on or after the effective date of the Rules of Procedure. § 5-206; see also § 1-101 referenced above (effective date).
Brief Overview of Commission Hearing Proceedings
In hearings before the Commission—similar to hearings before the DFA Office of Hearings & Appeals—there is no discovery, the evidentiary standard is based on relevancy with relaxed restrictions on admissibility compared to court proceedings (e.g., hearsay can be admitted), and witnesses may be called and cross-examined. §§ 5-402, -404. Per § 2-101, “Commission adjudicative hearings and associated files, proceedings, and records are confidential, closed to the public, and exempt from the Freedom of Information Act.” Citing Ark. Code Ann. § 26-18-1115.
Evidence that is “probative of material fact” is admissible. § 5-402(c). Witnesses to be called at the hearing must be disclosed to all parties at least ten days before the hearing. Motions (e.g., a notice for a continuance) can be filed in Commission hearings. § 5-301.
In sum, it appears Commission proceedings will look and feel like typical administrative hearings, with the order of proceedings dictated by the Commissioner. Decisions by the Commission are issued within 90 days after hearings are held. § 5-501.
Consolidation of Similar Cases.
Under § 5-105, if two or more appeals brought by taxpayers involve “similar issues of law or fact,” the Commission may hear and decide the cases together.
Ex Parte Communications.
Under § 5-109, substantive ex parte communications with a commissioner are generally prohibited. If an inappropriate ex parte communication is made, the Commissioner involved is to give notice to all parties allowing them an opportunity to respond. § 5-109. “Non-substantive” communications with commissioners are permissible if limited to “administrative” matters (e.g., to resolve a scheduling conflict among the parties).