Illinois began 2014 a more taxpayer-friendly state.
Business and taxpayer groups are hailing a new, independent tribunal for state tax disputes as a boon to businesses and individual taxpayers and a significant step toward a friendlier business climate.
For the first time, Illinois taxpayers can appeal an Illinois Department of Revenue tax ruling to a body that’s independent of the department and do so without first paying disputed taxes, penalties and interest. The tribunal will hear cases involving taxes administered by the Department of Revenue if the amount in dispute is more than $15,000.
“Establishment of a tax tribunal was a huge win for Illinois taxpayers,” said Doug Whitley, president and chief executive officer of the Illinois Chamber of Commerce.
Whitley said the legislation that created the tribunal was a remarkable achievement for a state that is often unfriendly to business.
The new law is based on the American Bar Association’s Model State Administrative Tax Tribunal Act.
Under previous law, a taxpayer facing an assessed tax liability had two avenues of appeal – challenging the assessment in an administrative hearing within the Department of Revenue, or paying the disputed tax, penalties and interest under protest and taking the dispute directly to circuit court.
The administrative law judges who conduct the Department of Revenue hearings are department employees. They work in the same buildings as other Department of Revenue staff and sit in judgment of decisions of their co-workers. Correctly or not, many taxpayers perceive the process as more favorable to the department than to taxpayers. Many consider it an outright conflict of interest.
The tribunal will have offices in Chicago and Springfield. It will follow the same rules of discovery and evidence used in the circuit courts. Appeals from the tribunal will go directly to appellate courts. As many as four administrative law judges can be appointed to the tribunal as caseloads warrant. Taxpayers still have the option of paying under protest and taking their appeals directly to circuit court.
The call for an independent tribunal became law in 2011 when the Legislature approved a bill that authorized multi-million-dollar tax breaks for giant retailer Sears and the Chicago Mercantile Exchange, which were threatening to move out of Illinois.
A little-noticed provision of that legislation called for establishment of an independent tax tribunal by 2013. It didn’t happen quite that quickly but the tribunal opened for business on Jan. 2.
The tribunal’s website offers information about jurisdiction, rules, filing and methods of contact. It can be found at http://www.illinois.gov/taxtribunal.
The Illinois Chamber and the Taxpayers Federation of Illinois provided much of the energy behind the drive for an independent tribunal.
“The Illinois Chamber drafted the bill, testified for it, lobbied for it and is particularly proud of the success it represented, especially in the eyes of professional tax practitioners from around the country who were genuinely amazed that Illinois would take such a progressive move,” Whitley said.
He said multi-state taxpayers constantly complained about how Illinois tax appeals were handled in comparison to their experience in other states. More than half the states now have independent tribunals for tax appeals.
Whitley said the perception of anti-taxpayer bias was likely magnified by the state’s recent financial difficulties and pressures to maximize revenue collection.
Carol Portman, president of the Taxpayers Federation, said creation of the tribunal was “a great step” for the state but the delay in getting it funded and staffed was disappointing.
In September, Gov. Pat Quinn appointed James M. Conway as the tribunal’s chief administrative law judge; Quinn later appointed Brian Barov as the panel’s second administrative law judge. Additional appointments are expected as the workload increases.
In announcing Conway’s appointment, Quinn said: “Taxpayers deserve a fair opportunity at resolving any tax dispute they may have and the independent tax tribunal will do just that. James Conway’s experience and qualifications make him an excellent choice as the leader of the tribunal and he is committed to serving the people of Illinois.”
Portman said the Conway appointment was “a reason to be concerned” because he is not an expert in state tax matters as the language of the law requires.
“The governor basically is thumbing his nose at the law,” Portman said. She said Conway’s considerable experience with federal tax law “gets you to line one on the state tax return.”
Despite her misgivings, Portman called Conway “a very nice man” who seems to have done everything well in getting the tribunal up and running.
“He is not a political hack,” Portman said. “He is a lifetime public servant. Everyone has their eyes on the new judge to see how he works out. So far, so good.”
Portman said the two appointments are temporary until confirmed by the Illinois Senate and they likely won’t be taken up until spring. She said the coming months will provide more opportunities to see how Conway performs. Barov has abundant experience in state tax law and there are no concerns about his qualifications, Portman said.
Whitley said he also was disappointed at how long it took to fund the tribunal and appoint judges.
“It will no doubt be a couple of years before we can really say what the experience has been, but we are genuinely hopeful the end result will prove to be a fairer and speedier resolution of tax disputes,” he said. “If it works, taxpayers will have greater confidence in the state’s tax administration and that would be a good thing.”
Conway, of Wilmette, was an assistant U.S. attorney and chief of the criminal division in the U.S. attorney’s office in Chicago. He was a federal prosecutor for 29 years after seven years as a revenue agent with the Internal Revenue Service’s examination division in Chicago.
Conway declined to comment on the concerns about his experience. He said the startup of the tribunal was “going fine” and said five cases had been filed as of Jan. 23.
Portman said the $15,000 threshold for tribunal review was agreed upon as a precaution against the panel being overwhelmed with cases as it was getting started. She said the threshold could be lowered in the future to provide access for more taxpayers.
The Department of Revenue collects taxes under 22 separate statutes. Those taxes include income taxes, sales taxes and motor fuel taxes but not property taxes, which are collected locally and have a separate appellate process.