Historical Context: Alabama Tax Tribunal

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The Historical Context for the Alabama Tax Tribunal has been posted from the Records Disposition Authority (RDA) approved by the State Records Commission on April 17, 2024. The RDA establishes disposition requirements by designating records as either temporary records which may be destroyed after a specified retention period, or permanent records, which must be preserved in perpetuity. The complete RDAs for close to 175 agencies can be found on the Alabama Department of Archives and History website.

Alabama’s current tax system has undergone a number of changes since its development in the 1930s. A constitutional amendment approved by voters created the state’s income tax in 1933.[1] Initially, the State Tax Commission was responsible for collecting and managing this new form of revenue. After the passage of the General Revenue Act of 1935, the Legislature tasked the Alabama Department of Revenue (ADOR) with collecting taxes from Alabama’s citizens and businesses. Since that time, over forty taxes have been added to the state tax structure, including use, gasoline, and utility gross receipts taxes.[2] Likewise, taxpayers have sought relief from inaccurate and burdensome tax assessments since the inception of the state’s current tax system.

Initially, taxpayers had three options to secure judicial review of income taxes paid to the ADOR. Taxpayers could appeal their final tax assessments to the circuit court of Montgomery County or to the county where the taxpayer resided but were required to pay the assessment before taking their dispute to court. Taxpayers could also “pay under protest” before a final assessment had been made and then file suit against the Tax Commissioner in the circuit court of Montgomery County. The third option existed for those who voluntarily, but mistakenly, made an excessive payment of a final assessment. In this situation, the taxpayer could file a petition with ADOR for a refund of the overpayment. If the petition was not approved, the taxpayer could file a mandamus petitionin Montgomery County against the Tax Commissioner to secure a judicial review.[3]

In the 1980s, the ADOR established an Administrative Law Division to conduct hearings for preliminary tax assessments and issue orders and declaratory rulings. Taxpayers could petition for a declaratory ruling or request a contested case hearing after receiving a preliminary assessment from the ADOR. The Division followed the rules of evidence applicable in civil nonjury cases in the circuit courts. Once the Administrative Law Division entered a final assessment, either party could apply for a rehearing with the Division or appeal the assessment to the circuit court of Montgomery County, or in the circuit court of county in which the taxpayer resides or maintains its headquarters.[4]

The Alabama Taxpayers’ Bill of Rights and Uniform Revenue Procedures Act further streamlined the appeals process in the following decade.[5] The Act established new uniform procedures concerning appeals to the Administrative Law Division and established the authority and responsibilities of the administrative law judge concerning such appeals. Prior to the act’s passage, procedures for the assessment, collection, and refund of taxes varied according to each tax type, as did the penalties and appeals process, creating inconsistencies and causing confusion for taxpayers. These changes provided for the equitable treatment of taxpayers by providing written notification of their rights and creating easily understood, uniform procedures. Taxpayers could also appeal their assessment to the Division without first paying the disputed tax.[6]

While this new law helped streamline the state tax appeals process and solidify taxpayer rights, the Administrative Law Division still operated as a unit of the ADOR. Furthermore, only the ADOR possessed summons and subpoena power. Concerned about a potential conflict of interest when the tax authority responsible for assessing and collecting taxes also decided the outcome of an appeal, some Alabama tax professionals and lawmakers sought alternative methods to resolve tax disputes in an impartial venue without litigation, including the independent tax tribunal.[7]

Beginning in the 1990s, there were a number of attempts by the Alabama Legislature to create an independent executive branch agency to hear tax appeals.[8] For instance, House Bill 743 from 1998 would have dissolved the Administrative Law Division and created the Alabama Tax Appeals Commission to hear appeals of tax and other matters administered by the Department of Revenue. The bill died in committee. Although similar bills would be introduced over the next several years, none were ever signed into law.[9]

In 2006, the American Bar Association Section of Taxation developed the Model State Administrative Tax Tribunal Act (also known as “the Model Act”), which provides states a legislative template for forming an independent tax tribunal.[10] The Model Act has four core elements that must be included in an independent tax forum. The tribunal must be independent of the taxing authority and must be a hearing of record which provides for direct appeal of the Tribunal’s decisions. In addition, tribunal judges are required to possess a “substantial knowledge” of their state’s tax laws, and taxpayers must have to ability to challenge a tax assessment without being required to pay the tax in dispute or post a bond before the Tribunal renders a ruling.[11]

The Bar Association’s Model Act influenced the creation of Alabama’s independent tax court in 2014 with the passage of the Taxpayer Fairness Act. Act 2014-146, titled the Taxpayer Fairness Act, created the Alabama Tax Tribunal, an independent executive branch agency. The Tribunal’s purpose is to increase public confidence in the fairness of the state tax system by establishing a forum outside ADOR’s control to decide tax matters. With the passage of the Taxpayer Fairness Act, the ADOR’s Administrative Law Division dissolved, and its responsibilities and functions transferred to the newly formed state agency.[12]

The Tax Tribunal operates as Alabama’s tax court and hears appeals of tax matters, mandatory motor vehicle liability insurance disputes, and disputes involving licenses issued by the ADOR.[13] It also hears disputes involving assessments by self-administered counties and cities that have not opted out of the Tribunal’s jurisdiction.[14] A taxpayer may also appeal to the Tax Tribunal to determine the propriety of any retroactive revocation of an ADOR revenue ruling, to challenge the proposed adjustment to a taxpayer’s net operating loss or carryback, and to dispute a preliminary assessment entered by the ADOR or a self-administered county or municipality that has not been made final or withdrawn within five years from the date of entry.[15]  

In addition to the establishment of the Alabama Tax Tribunal, the Act made several important changes to the Alabama Taxpayers’ Bill of Rights. For example, the Act requires the ADOR Taxpayer Advocate (at the request of the Tribunal) to review a final order issued by the Tribunal that was not appealed if there is newly discovered evidence that could not have been discovered in time to file an application for a rehearing. The Advocate may then propose relief for the taxpayer, subject to the approval of the commissioner or assistant commissioner of the ADOR.[16]

Per the mandate of the Code of Alabama 1975 § 40-2B-2, the Tribunal must be located in a building that is separate from the building in which the ADOR is located. The Tribunal conducts hearings at its home office but also has the authority to hold hearings anywhere in the state. Taxpayers may appeal an ADOR final assessment directly to the circuit court, and either party can appeal an adverse Tribunal ruling to the circuit court, as well. Attorneys in ADOR’s Legal Division represent the department in litigation pending in the Tribunal, and taxpayers may be represented by an attorney, certified public accountant (CPA), or another chosen representative.

From its creation in 2014 until the present day, the Alabama Tax Tribunal promotes the perception of fairness by providing an independent agency with tax expertise to resolve disputes between taxing authorities and taxpayers in the state.

[1] Keith D. Malone, Kathy Lewis-Adler, and Joseph Joiner. “The Alabama Tax System: Origins and Current Issues.” International Journal of Humanities and Social Science, no. 14 (2011): 1-11. http://www.ijhssnet.com/journals/ Vol_1_No_14_October_2011/1.pdf.

[2] Ibid; Use tax is a tax on tangible personal property brought into Alabama for storage, use, or consumption in the state when the seller did not collect seller’s use tax on the sale of the property.

[3] Alabama Act 1933-169; A mandamus petition is an order from a court to an inferior government official ordering the government official to properly fulfill their official duties or correct an abuse of discretion.

[4] Alabama Administrative Code Chapters 810.

[5] Alabama Act 1992-186.

[6] Alabama Department of Revenue, “Taxpayers’ Bill of Rights and Uniform Revenue Procedures Act Becomes Law,” Revenue Review, 4th Quarter FY 1991-92.

[7] Jamie Yesnowitz and Eileen Reichenberg Sherr, “State Independent Tax Tribunals: A Popular Alternative to Resolving Disputes,” The Tax Adviser, September 1, 2013. https://www.thetaxadviser.com/issues/2013/sep/ reichenberg-salt-sep2013.html.

[8] HB 748 (1999), SB 402 (2002), HB 730 (2005), SB 549 (2012).

[9] Ibid.

[10] Tax Tribunals are a means to resolve state tax appeal controversies prior to litigation in an independent forum outside the authority and control of a state tax agency. Over the last several decades, a number of states have successively established independent tribunal courts to adjudicate state tax disputes. Although the structure and rules of these adjudicative bodies may vary from state-to-state, more than half of U.S. states provide an independent appeals tribunal or court specifically dedicated to tax cases.

[11] Garland Allen and Craig B. Fields. “The ABA ‘Model State Administrative Tax Tribunal Act’: Why We Need to Change How States Decide Tax Cases.” The State and Local Tax Lawyer, Symposium Edition. 2009-2010.

[12] Alabama Act 2014-146. In addition to the creation of the Alabama Tax Tribunal, Act 2014-146 amended and supplemented the Alabama Taxpayers’ Bill of Rights and Uniform Revenue Procedures Act.

[13] The Tribunal hears tax matters of individual and business income; withholding, lease, sales and use taxes; and disputes involving the valuation of public utility property.

[14] A self-administered county or municipality administers its own sales and use taxes or other local municipal or county taxes levied or authorized to be levied by a general or local act, or contracts out all or part of that function to a private auditing or collecting firm. The Code of Alabama 1975 § 40-2B-2(g)(2)a states that a self-administered municipality or county may divest the Alabama Tax Tribunal of jurisdiction over appeals of final assessments or denied refunds by serving a copy of the ordinance or resolution evidencing the election-out.

[15] Revenue rulings provide clarification on the applicability of tax laws. The ruling answers the specific question at hand and describes the applicability of taxation laws to an individual taxpayer. Subsequent changes in the law, administrative rules, judicial decisions, Tax Tribunal decisions, or changes in department policies could affect the validity of the information presented in a revenue ruling.

[16] Jeff Patterson. “Alabama Taxpayers Gain Independent Tax Tribunal.” Journal of State Taxation (Spring 2015): 31-34. Advocates are employed by the Office of Taxpayer Advocacy within the ADOR, and act as the voice of the taxpayer to find relief from unresolved tax issues.

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