If not decentralized, LA tax administration reform still needed

Lost in the shuffle about the redistributive issues involving Louisiana income tax reform during this year’s legislative session was how administration of the state’s tax assessment and collection put a drag on the state’s economic development prospects. A recently-released report reaffirms the need for reform in this area.

The Council on State Taxation issued its triennial brief on tax administration in the states, where Louisiana bucked its recent trend of improving performance in the area of economic development by coming in dead last, tied with perennial economic growth-unfriendly California. Its “Scorecard on Tax Appeals & Procedural Requirements” grades along the assumption that, as the system for tax collection largely functions through voluntary compliance, practices that encourage this and make it easier produce a competitive advantage relative to non-adopters of such.

The report notes that Louisiana has significant aspects that tend to weigh the system against the filer in favor of the state, makes it more difficult to stay informed about complexities of the code, is needlessly complex, and creates extra costs. Tellingly, its worst category score was in the area of other issues, which were related to complexities and costs involved when disputes arose.

In part, that category found minor addressing in the reform legislation, in its proposal to create a dedicated state tax court. This would have streamlined operations by disputants avoiding their having to go to state district courts for relief, as well as could have saved on and facilitated appeals as what got proposed would have sidestepped the bonding requirement to have a case on a court’s docket. But when the remainder of the plan that would have swapped lower rates for fewer deductions got junked for lack of groundswell in favor among the public and legislators, so did this item.

That one should be resurrected, and to it added several others. Establishing this court in fact would be the only reform that would have anything beyond trivial costs. Based upon the report, these should include

loosening Department of Revenue controls over whether cases can get appealed to the state’s Board of Tax Appeals

eliminating any bonding requirements to have an appeal heard

lengthening the length of time to protest an assessment from 30 days to at least 45 days

allowing for automatic extension for payment rather than only upon taxpayer request

increasing transparency through requiring website reporting of significant DOR rulings, case decisions, and BTA judgments (all with taxpayer information redacted)

stopping the forcing of taxpayers that dispute to pay up to 10 percent of amount collected in attorney’s fees compounded by allowing the jurisdiction to pay outside counsel on a contingency basis

These changes especially need to be made because the state is just one of three that has entirely local jurisdictions for assessment and collection. It’s bad enough that the state administrative processes of DOR appeal control and lack of transparency hamper the ability of filers to get a fair deal, but consider the impediments to the protest and appeal processes and then multiply them by 64 to realize it’s nightmarish for an entity that has business statewide. If the state is not going to go to a centralized collection mechanism, a highly beneficial simplification but which would require amending the Constitution, then the least lawmakers can do is pass a statute to change these others aspects to smooth operations and to increase taxpayer rights across the highly duplicative system.

Little of this bureaucratic agenda packs political drama that catches headlines, but its enactment certainly would ease compliance costs and enhance the state’s reputation for business friendliness. That attracts capital and creates jobs and thus puts lucre into the state’s coffers. Legislation along these lines, which would entail no tax rate nor exceptions changes, should get introduced and passed during the 2014 session.