SALT Blawg – State and Local Tax Blog
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Judicial review of agency action is a critical part of the fair administration of tax laws. Effective September 2021, two new procedures are available for taxpayers to seek judicial review of actions by the Texas Comptroller to either deny a refund claim or impose an assessment based on alleged tax deficiencies.
First, the Texas legislature created a refund claim superhighway for taxpayers. This was part of Senate Bill 903. Prior to the law change, taxpayers were required to exhaust certain administrative remedies including having their claim heard by the State Office of Administrative Hearings (SOAH) before filing a refund suit in district court. In certain cases, the SOAH process was viewed as a waste of time, for example where the taxpayer’s claim depended on a challenge to a well-established Comptroller position. The new law allows taxpayers to bypass the administrative hearings process, and is available to claims for refund pending or filed on or after September 1, 2021, even if the subject taxes were due before that date.
To invoke this new rocket-to-the-docket procedure, taxpayers must file a written notice within 60 days of the Comptroller’s written denial of the refund claim. The notice must invoke the bypass process, set forth the material facts and specific legal basis for the claim and state the amount of refund sought.
The taxpayer may amend the notice with the Comptroller’s written consent. Further, a codified variance doctrine applies: only material facts and legal bases raised in the notice may be raised in a subsequent refund suit in the district court. There are other procedural aspects of the bypass process including a compulsory conference with the Comptroller to review the facts and legal issues if the Comptroller notices the conference within 30 days of the bypass notice (such conference must occur within 90 days of the bypass notice and cannot further delay the taxpayer’s right to file suit).
Note that taxpayers wishing to avail themselves of the opportunity to resolve their case at the administrative level and have their case considered by the SOAH still have that option. In most cases, it behooves taxpayers to utilize this process and work with the Comptroller’s office to resolve the case in the most cost-efficient manner. Further, the opportunity and process for seeking judicial review of the SOAH’s decision has not changed. Failure to file a bypass notice does not waive or otherwise change a taxpayer’s right to file a refund suit in district court.
Second, the Texas legislature eliminated the pay-to-play requirement for protest suits. This was part of House Bill 2080. Prior to the law change, taxpayers that received adverse administrative decisions on petitions for redetermination were not permitted to challenge the decision in district court unless they first paid in full the tax liability that the Comptroller alleged was owed. There were only narrow exceptions based on inability to pay. Under the new law, a taxpayer may, after completing the administrative redetermination process at the SOAH and filing a motion for rehearing, challenge the Comptroller’s final determination in district court by paying only the undisputed amounts of tax alleged to be due. This new procedure applies to challenges to taxes, penalties, and interest that became due and payable after September 1, 2021.
Of course, penalties and interest may continue to accrue on the disputed amounts that haven’t been paid to the extent the administrative determination is ultimately upheld. Also, as with prior law, the grounds of error set forth in the motion for rehearing define the issues the taxpayer may raise in the suit so a carefully thought-out rehearing motion remains important.
This law change, as well as the rocket-to-the-docket change discussed previously, should provide taxpayers in Texas with expanded access to the courts, and should reduce some complexity in Texas’ intricate web of procedural rules for challenging refund claim denials and deficiency determinations.
Peter A. Lowy, a shareholder in Chamberlain Hrdlicka’s Houston office, is best known for his tax controversy work and deep experience in the energy sector. He also advises corporations and other taxpayers in a broad spectrum of ...