On August 28, 2012, Illinois Governor Pat Quinn signed into law the Illinois Tax Tribunal Act of 2012 (Act), which creates an independent tax tribunal to which taxpayers may take their disputes with state tax authorities. When the Tribunal begins operating on July 1, 2013, Illinois will join the majority of states which have either judicial branch tax courts or tax tribunals independent of the state's Department of Revenue (Department).

Background

Under the current system, Illinois taxpayer appeals are heard within the Department of Revenue; the Office of Administrative Hearings is not independent. Taxpayers may appeal the decision to the circuit court, though taxpayers must prepay the tax in order to appeal to the circuit court directly.

Under the Act, an Illinois taxpayer will be able to commence a proceeding before the Tribunal by filing a protest against certain Department determinations where the amount at issue exceeds $15,000, exclusive of penalties and interest. Taxpayers and the Department will be entitled to judicial review of the Tribunal's decision by the Illinois Appellate Court.

Jurisdiction

The Tribunal will have original jurisdiction over all determinations of the Department reflected on Notices of Deficiency, Notices of Tax Liability, Notices of Claim Denial and Notices of Penalty Liability issued for any Illinois tax other than property tax. Except in limited circumstances, a taxpayer may not contest a matter within the Tribunal's jurisdiction in any other action, suit or proceeding in any other Illinois court.

The Tribunal's jurisdiction does not extend to the review of:

  • Any property tax assessment;
  • Any decisions relating to the issuance or denial of an exemption ruling for any entity claiming exemption from property tax or any state tax administered by the Department;
  • A notice of proposed tax liability, notice of proposed deficiency, or any other notice of proposed assessment or notice of intent to take some action;
  • Any action or determination of the Department regarding tax liabilities that have become finalized by law, including the issuance of liens, levies and revocations, suspensions or denials of licenses or certificates of registration or any other collection activities;
  • Any proceedings of the Department's informal administrative appeals function; and
  • Any challenge to an administrative subpoena issued by the Department.

The Tribunal does have the authority to decide questions regarding the constitutionality of statutes and rules adopted by the Department as applied to the taxpayer, but will not have the power to declare a statute or rule unconstitutional on its face. Taxpayers seeking to facially challenge the constitutionality of a tax statute may present the challenge to the Tribunal for the sole purpose of making a record for review by the Appellate Court. Failure to raise a constitutional issue before the Tribunal does not preclude the taxpayer from raising those issues to the Appellate Court.

Procedure

Although procedural rules for the Tribunal will be promulgated, the Act provides several specific procedural guidelines for the Tribunal.

Proceedings before the Tribunal will be tried de novo, meaning that the underlying determination by the Department will not be given deference; however, in the case of an issue of fact, the taxpayer has the burden of proof by preponderance of the evidence. The Tribunal may take evidence, conduct hearings, rule on motions and issue final decisions. The Trial Rules regarding discovery and pre-trial practice apply to Tribunal proceedings. Although the public will not have access to tax return documents, Tribunal hearings will be open to the public and the pleadings will be publicly available, unless the taxpayer petitions to close the hearings or seal the pleadings.

Appearances at Tribunal proceedings can be made by the taxpayer or by an attorney admitted to practice in Illinois, but not an accountant or consultant. The Tribunal has the authority to allow an attorney licensed in another state to represent a taxpayer before the Tribunal.

Conclusions

States have increasingly created independent tax tribunals as a method of providing taxpayers an impartial arbiter. The Act was enacted to "increase public confidence in the fairness of the State tax system" and to "provide an independent administrative tribunal with tax expertise to resolve tax disputes between the Department of Revenue and taxpayers prior to requiring the taxpayer to pay the amounts in issue." The Illinois legislature recognized one of the primary issues with non-independent panels when it provided that the Act would be "a means of resolving controversies that ensures both the appearance and the reality of due process and fundamental fairness."

Calls for independent, experienced tax judges, published precedential decisions and avoiding so-called "pay-to-play" have led many states to create independent tax tribunals in recent years. In 2012 alone, Illinois, Georgia and Alabama passed legislation establishing independent adjudicatory bodies. As these bodies continue to proliferate, taxpayers will benefit from the fundamental fairness and efficiency created by independent tribunals.