Alabama Tax Tribunal – Long Road to Tax Fairness

On the surface, not much has changed in Suite 301 of the Business Center of Alabama building in Montgomery. The office is in the same place. The personnel are the same. But the name has changed from Administrative Law Division of the Alabama Department of Revenue to the Alabama Tax Tribunal.

A lot of work went into that name change. It took a legislative act to do it by creating a new state agency under the executive branch. 

The legislation started as the Alabama Taxpayers’ Bill of Rights II, introduced in various forms over the past decade. Last March, the legislation, which morphed into the Alabama Taxpayer Fairness Act, was passed and signed into law by Gov. Robert Bentley. Getting the bill passed took major efforts by state. Sen. Paul Sanford, R-Madison, and former state Rep. Paul DeMarco, R-Homewood.

Under the new system, a tax expert independent of the Alabama Department of Revenue is hearing tax appeals, and taxpayers will not have to pay disputed taxes before their appeal.

In May 2014, Bentley appointed Judge Bill Thompson as the first Chief Judge of the Alabama Tax Tribunal. Since 1983, Thompson served as the first and only Revenue Commissioner-appointed chief administrative law judge with the Department of Revenue. The new Tax Tribunal officially launched Oct. 1, 2014.

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DeMarco, a Birmingham attorney, and Sanford, a Huntsville restaurant owner, say it was worth the effort because the entire state will benefit from the new Alabama Tax Tribunal. 

“It provides a streamlined tax appeals process and a tax system that will be fair all the way from the municipalities to the state level, ” DeMarco says.

Sanford played a key role in drafting the act, which created the Alabama Tax Appeals Commission and independent Tax Tribunal.

“When I first got involved, the proposed legislation was 100 pages. I went through it line by line, highlighted, underlined, deleted and added information, ” Sanford says. “I spent more than 100 hours on it, and I have a big, three-ring binder that details all of it.”

The original version, he says, was cumbersome and intimidating for citizens and small businesses owners because it proposed a more formalized process rather than the casual atmosphere that had always existed for the tax appeal process. 

“Most people don’t know, but the average amount that goes before the tax appeals process is under $10, 000, ” Sanford says. “And what we had crafted, the original legislation, was a monstrous 100-page document that I felt was geared more to larger businesses and multi-jurisdictional areas with legal departments.”

He says the earlier drafts also mandated that a citizen or business owner seek legal or CPA advice for an appeal.

“That costs $150 to $200 an hour in legal or CPA fees, ” Sanford says. “To me, that’s not beneficial to citizens or small business owners.” Now, people can still represent themselves if that’s what they choose.

In the end, Sanford says the legislation, which passed, was based on a model crafted by the American Bar Association.

“We scaled it back to create a more taxpayer-friendly situation for our state, ” Sanford says. “It will have long-term impact on businesses.”

Rosemary Elebash, Alabama State Director of the National Federation of Independent Businesses (NFIB), calls the final act a compromise.

“To me, there was nothing wrong with the process before, ” Elebash says. “We didn’t have any complaints from our business owners.”

The Department of Revenue fought the move from the start. Another opponent was the Alabama Education Association, which says the move created another layer of bureaucracy and another item to fund in the state budget.

Bruce Ely, a tax attorney with Birmingham firm Bradley Arant Boult Cummings  and a principal author of the original legislation through the Alabama State Bar Association, says one of the main drivers of the legislation was the appearance of a potential conflict of interest when judges are paid by the agency that has a stake in the outcome of tax cases.

Sen. Paul Sanford, R-Madison, a Huntsville restaurant owner, led efforts to pare down Taxpayers’ Bill of Rights measures that would have been costly to small businesses.

Judge Thompson agreed.

“That doesn’t mean there was ever any indication that the Department of Revenue has ever abused its power in any way and Judge Thompson is very highly respected, ” Ely says. “This effort was about removing any perception of a potential conflict to citizens and businesses or industry looking to relocate in Alabama.

“Our competitor states have used it against us, ” he added.

Alabama also was in the increasing minority of states lacking an independent tax appeals tribunal. 

Alabama received a D grade on the State Tax Administration Scorecard issued in December 2013 by the Council On State Taxation (COST).

“This change was very important related to the business perception of how the state administers tax, ” says Doug Lindholm,  president and executive director of COST, which is based in Washington, D.C. “It really is a perception thing. If you have a tribunal operating within the Department of Revenue, then no matter how qualified they are, there will always be questions because they report to the head of that department.”

Alabama was a perfect example, he says.

“Judge Thompson, over the years, has shown to be a terrific judge, ” Lindholm says. “But if someone new came in who had to report to and get their job evaluation by the Department of Revenue Commissioner, then you have that perception of what that might mean.”

He says the scorecard is released every three years, but because of significant changes in several states, an interim report was scheduled for release by the end of 2014. He says Alabama was projected to improve from a D to a B, based on a preliminary look at the creation of the Alabama Tax Appeals Commission and state’s new Tax Tribunal.

“That’s a great improvement, ” Lindholm adds.

Ely praises the efforts of DeMarco and Sanford with getting the legislation passed.

Some of the stops and starts with the change included:

In 2012, both houses approved the proposed Taxpayer Bill of Rights II, but Gov. Bentley didn’t sign because there was no provision for selecting judges.

DeMarco reintroduced the revised legislation in 2013. It passed in the House by a 96-2 vote. However, the bill got caught up in the Senate as a result of a stalemate between Democrats and Republicans. Democrats insisted all bills be read on the floor and time ran out before the bill was called for a Senate vote.

In 2014, DeMarco saw the bill pass again in the House, with changes that deleted an expedited revenue ruling provision, along with a $3, 000 filing fee, and it prohibited hiring a second judge until after Oct. 1, 2015 to prevent budget adjustments.

“The significance of the legislation is that it provides for a streamlined tax appeals process, and a tax system that will be fair all the way from the municipalities to the state level, ” DeMarco says.

There will be no additional budget requirements for the office either, since, DeMarco says, the annual appropriation dedicated for the position under the Department of Revenue was reassigned to the Tax Tribunal.

Another key feature of the tax commission, he says, is the ability for taxpayers to appeal assessments of sales, use, rental or lodging taxes from cities and counties to the appeals commission. 

“That is equally important to all taxpayers, ” DeMarco says.

Throughout the state, cities and counties have the right to opt out and continue handling their current tax appeals.

“Only a few opted out, and I see that as a very positive thing for our state, ” Ely says.

Sanford would be happier with no opt-out provision. 

“As a business owner in the City of Huntsville, I don’t like it. It should be consistent throughout the state — and having a city impose a penalty, then act as judge, jury and executioner all at once, it doesn’t seem fair, ” Sanford says. “I think if every city and county opted in, they would all find it easier in the long run. My point is this, are you going to tell me that a city or county has someone on its staff who has more tax experience than a judge?”

Counties that opted out include Bibb County, Madison County, Morgan County, Shelby County and St. Clair County, along with the cities of Birmingham, Gulf Shores, Helena, Huntsville, Leeds, Mountain Brook, Pelham, Ragland and Tuscaloosa.

The Department of Revenue has alerts on its website about the change, directing taxpayers to the newly created office at

How does the agency feel about the change now?

“The Department (of Revenue) is confident that the Alabama Tax Tribunal will provide state taxpayers the same fair and efficient forum for resolving tax disputes that it provided for years when it functioned as our department’s Administrative Law Division, ” says Deputy Revenue Commissioner Joe Garrett. “And most importantly, this benefit, which has been provided for years to state taxpayers, will be extended to city and county taxpayers who can now appeal to the Tribunal.”

Ely says that allowing taxpayers to appeal final assessments issued by cities and counties is a major step toward addressing the frustration of the business community and tax practitioners with differing interpretations of the law and varied appeals procedures offered by the many localities and their private auditing firms. 

DeMarco and Sanford agree.

“I’ve done everything I can to this point, and there will be more to do later, ” Sanford says. “There are still a few other nuances to the process that need to be fixed, but this was a step in the right direction.”

Wendy Reeves and Cary Norton are freelancers for Business Alabama. Reeves is based in Huntsville and Norton in Birmingham.

text by Wendy Reeves • photo by cary norton

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