Perhaps taxes, like deaths, are unavoidable – but they do not have to be unfair or unpredictable. Leaders who care about job creation should remember that employers consider many factors when planning future investments and possible business expansion. Obviously, one such factor is the state tax system.
Both the fairness and the predictability of our state tax system shape our commonwealth’s business climate, and fairness and predictability are often dramatically affected by the appeals process.
Before I was elected treasurer, I spent two decades working as an entrepreneur and investor. I knew business leaders deserved clearer communication about how often-complicated tax laws would be applied. They also deserve to be certain that tax laws will be applied fairly and uniformly. That is why my staff and I worked hard to revise an antiquated and imbalanced tax appeals system.
The good news for taxpayers, both business and individual, is that Pennsylvania is about to increase the impartiality and transparency of its appeals system thanks to a new law. The Board of Finance and Revenue, which hears and decides appeals of tax matters, will now be more independent of state taxing authorities.
The reforms we achieved will put taxpayers on equal footing with the Department of Revenue when the board considers appeals. And a new requirement that the board publish its opinions will better inform the public about taxation rules.
Since taking office in 2009, I have called for modernization of BF&R, which the treasurer chairs under state law. While tax laws changed and the world modernized, the composition of BF&R and the manner in which it operates had not changed in more than 50 years.
This year, working with the General Assembly, the governor’s office and leaders of the business, legal and tax accounting communities, we crafted bipartisan legislation (part of House Bill 465) that finally overhauled this state agency.
The makeup of the board had long been criticized – and legitimately so. The board lacked independence from the very authority whose decisions were the subject of the appeal.
Until now, the board included the state Secretary of Revenue and two other members of the governor’s cabinet or staff – the Secretary of the Commonwealth and the governor’s general counsel. Only three members were independent: the auditor general, attorney general and treasurer.
The presence of the Secretary of Revenue and two other governor appointees was an essential flaw, allowing them to help decide appeals of the governor’s own Department of Revenue actions.
It is just common sense, and a matter of fairness, that the taxing authority with a stake in the outcome will no longer be a voting member of the board that decides appeals. The board should be independent and free to weigh the rights of both parties.
Under the new law, the board will consist of only three members, with two appointed by the governor and confirmed by the Senate, plus the state treasurer, who will remain the chair. The two appointees will be full-time and will serve six-year terms. An appointed board member must be either a Certified Public Accountant or lawyer and have at least 10 years of experience with state tax law.
Decreasing potential bias, the new law prohibits ex parte communications between the Department of Revenue or a taxpayer and board members. The department and the taxpayer both will be entitled to present oral and documentary evidence.
To increase efficiency and avoid unnecessary litigation, the board also will have the new power to settle cases upon mutual agreement of the department and the taxpayer.
Finally, the new law should dramatically increase transparency and predictability. BF&R will be required to publish all opinions – after redacting confidential information – and to provide specific explanations of how decisions were reached, thus equipping taxpayers with necessary knowledge about the tax consequences of financial and business decisions.
The opinions will be available on searchable databases for the public. The board gained legal authority to publicize its decisions three decades ago, but until I became treasurer in 2009, it had never made an opinion public. Now that practice is mandated by law.
Taxpayers deserve an appeals process that is open and transparent, predictable and fair. For decades, various parties have attempted and failed to revamp the tax appeals system for Pennsylvania citizens.
This year, we succeeded. We have finally taken a major step forward and provided pro-taxpayer reform.
Rob McCord was elected last year to his second term as state treasurer. After earning his MBA at the University of Pennsylvania’s Wharton School, he worked as an entrepreneur and investor in early stage companies. For more information, visit www.patreasury.gov.