Summary of the 2014 Mississippi Taxpayer Fairness Act

by Butler Snow LLP
Contact

This omnibus tax legislation, House Bill No. 799, was signed into law by Governor Phil Bryant on April 11, 2014, after passing the House of Representatives by a unanimous vote 121-0, and by a Senate vote of 40-9.  This document provides a summary of the new law (the “Act”) and lists most of the Mississippi Code sections that were amended or added. 

Allocation & Apportionment and Forced Combinations

  • The Act added language to clarify that the business income of multistate companies is to be allocated and apportioned pursuant to regulations prescribed by the Mississippi Department of Revenue (“DOR”).  This seemingly minor change will make it clear that DOR cannot merely rely on its informal policies and past practice in this area.  Rather, it must go through the formal process of adopting a regulation addressing allocation or apportionment before it will be binding on multistate companies.  (Code § 27-7-23(c)(2)(A)) 
  • Multistate companies and certain financial institutions may request, or DOR may require, an alternative apportionment method if the apportionment and allocation provisions and regulations do not fairly represent the taxpayer’s Mississippi business activity.  This special alternative apportionment authority is only intended to be used in “limited and unique, nonrecurring circumstances.”  The party seeking to make the change must show by a preponderance of evidence that the proposed alternative apportionment method fairly represents the taxpayer’s business activity.  Thus, this changes the burden of proof standard that the Mississippi Supreme Court sanctioned in the much discussed case of Equifax, Inc. et al v. Miss. Dep’t of Revenue, 125 So.2d 36 (Miss. 2013).  In Equifax, the Court held that the taxpayer had the burden of proving not only that DOR’s use of alternative apportionment was wrong, but that it was also “arbitrary and capricious.”  (Code § 27-7-23(c)(2)(C); § 27-7-24(4)(d) for financial institutions) 
  • The Act requires DOR to (a) establish by preponderance of the evidence that corporations should be required to file a “forced combined” income tax return, and (b) adopt regulations identifying the specific criteria that support the requirement to file such a return due to the improper shifting of taxable income.  (Code § 27-7-37(2)(a)(ii) & (iii)) 

Provisions Affecting Administrative and Judicial Appeals 

  • The Act eliminates the mandatory posting of a surety bond in the amount of one-half of the amount in controversy in order to perfect an appeal of a Board of Tax Appeals (the “BTA”) order to chancery court (the so-called “pay to play” provision).  (Prior law provided that alternatively, prior to petitioning the court, the taxpayer could pay the full amount of the assessment under protest).  Thus, after this change becomes effective taxpayers will be able to go to court without having to first post any kind of bond or security unless the following exception applies.  (Code § 27-77-7(3)) 
  • The Act provides that after the taxpayer’s petition or cross-appeal is filed in court, if DOR believes its ability to collect the assessment is jeopardized by the filing or that the appeal was made for the purpose of delaying payment of the assessment, it can move the chancery court to require a bond.  If the court agrees that a bond is appropriate, the ordered bond amount must be posted within 60 days of the court’s order.  If a taxpayer desires to avoid the accrual of additional penalties and interest while the case is pending, he may, prior to filing the petition, pay the assessment ordered by the BTA under protest and seek a refund in his appeal.  (Code § 27-77-7(3)) 
  • The chancery court standard of review provisions were substantially modified by the Act in order to codify the legislative intent that the court try the case as a true de novo proceeding by undertaking a full evidentiary judicial hearing.  The Legislative leadership approved these changes with the expressed intention of overruling the contrary holding in the Equifax case.  Accordingly, the Act clarifies that the court shall hear all factual and legal issues raised by the taxpayer pertinent to the case.  More importantly, the Act provides that the court shall give no deference to the decision below of DOR, the Board of Review or the BTA.  However, the court shall give deference to DOR’s interpretation and application of the statutes to the extent reflected in duly enacted regulations and other officially adopted publications.  Another key passage specifies that the court is “expressly prohibited” from trying tax cases using the limited standard of review under which the court can only consider the record made before the BTA (essentially prohibiting use of an “arbitrary and capricious” or “abuse of discretion” standard).  (Code § 27-77-7(5)) 
  • The Act clarifies that the chancery court has full authority to decide tax credit and tax incentive questions, issues involving other actions of DOR pertinent to the case, and to make penalty and interest determinations.  Also, if a taxpayer appeals the chancery court’s order, any bond or other security that had been required by the court is to remain in place until a final decision is rendered in the case.  (Code § 27-77-7(5)) 
  • The Act clarifies that a taxpayer who is denied tax credits or incentives (such as Advantage Jobs Incentive Payments) may appeal DOR’s action to the Board of Review.  (Code § 27-77-5(1))
  • The Act provides that if the Board of Review fails to issue an order within 6 months, the taxpayer can consider this a denial of the relief requested and appeal the case to the BTA.  This is optional for the taxpayer, not mandatory, and does not prejudice a taxpayer’s right to otherwise file an appeal with the BTA if the Board of Review issues an adverse order later than 6 months after its hearing.  (Code § 27-77-5(4))
  • With respect to BTA hearings, the Act clarifies that the BTA should hear all issues raised by the taxpayer which address the substantive and procedural propriety of DOR’s actions.  The upshot of the language is to provide that the BTA is to make an independent decision and to give no deference to the Board of Review.  However, the Act specifically states that the BTA shall give deference to DOR’s interpretation and application of the statutes to the extent reflected in regulations and other official publications.  Clarifying language was added to note that the BTA’s jurisdiction includes authority to impose penalties and interest to the extent it deems appropriate.  (Code § 27-77-5(6)(a) & (b))
  • New language provides that if the BTA order reflects an overpayment and DOR has not appealed the order, DOR shall, within 60 days from the date the order was mailed, refund or credit the overpayment to the taxpayer.  (Code § 27-77-5(7))
  • The Act provides that if the BTA fails to issue an order within 9 months, the taxpayer can consider this a denial of the relief requested and appeal the case to chancery court.  This is optional for the taxpayer, not mandatory, and does not prejudice a taxpayer’s right to otherwise file an appeal with the court if the BTA issues an adverse order later than 9 months after its hearing.  (Code § 27-77-5(6)(e))
  • In connection with the withdrawal of appeals, language was added to provide that the action from which the appeal was taken does not become final when the issue is whether a taxpayer’s actions or inactions constituted a failure by the taxpayer to prosecute his appeal.  (Code § 27-77-5(8))
  • The Act clarifies that when in a chancery court action a taxpayer seeks a refund or credit relating to any tax other than individual or corporate income tax or franchise tax, he must state in his petition or answer, as the case may be, that he alone bore the burden of the tax sought to be refunded or credited--i.e., the tax was not collected from another party.  (This must also be proven at trial).  However, this statement does not have to be made if the case involves a claim for incentives based on payroll withholding or other incentives, rebates or other economic benefits that are calculated based on taxes withheld or paid.  (Code § 27-77-7(1); § 27-77-7(5))
  • Language was added to provide that failure of the taxpayer to timely pay any uncontested tax shall not bar him from obtaining relief with respect to any contested tax in an appeal, nor will it result in the taxpayer’s appeal being dismissed or delayed, or judgment automatically being entered in favor of DOR.  (Code § 27-77-7(3))

Interest & Penalty Provisions 

  • The Act gradually reduces the interest rate on assessments and refunds from 12% to 6% annually.  The reduction begins January 1, 2015 and is phased in over a five year period. 
  • The Act prohibits the imposition of penalties in alternative apportionment situations unless the taxpayer had no reasonable basis for its method or ignored existing law or regulations.  This provision makes it more difficult for DOR to penalize taxpayers like Equifax, which filed its returns according to an apportionment method specifically permitted under existing law and regulations but was nevertheless penalized for underpayment.  (Code § 27-7-23(c)(2)(D); § 27-7-24(5) for financial institutions)) 
  • Similarly, the Act prohibits DOR from assessing penalties in forced combination situations, except under specific circumstances.  (Code § 27-7-37(2)(a)(iv)) 
  • The Act makes the addition of interest discretionary with DOR rather than mandatory in the following situations: 
    • When the taxpayer voluntarily amends a Mississippi return and pays any additional tax based on a change made by the IRS to the taxpayer’s federal return.  (Code § 27-7-51(4))
    • In cases of income tax underpayments described in Code § 27-7-53(a)
    • In cases of sales tax deficiencies or delinquencies  (Code § 27-65-39)
    • In cases of franchise tax deficiencies or delinquencies (Code § 27-13-23(3)(a))
    • Note: Code § 27-7-51(2) already provides this discretion in certain income tax contexts.
  • The Act also provides that where all or part of an assessment pursuant to a BTA order is upheld by the chancery court, the addition of interest at the statutory rate is discretionary with the court rather than mandatory.  (Code § 27-7-51(5)) 
  • The Act makes the assessment of the following penalties discretionary with DOR rather than mandatory as under current law:
    • The 50% intentional disregard/fraud penalty (the “50% penalty”) in the sales tax law.  (Code § 27-65-39)
    • Franchise tax failure to file and failure to pay penalties.  (Code § 27-13-23(4 & (5)).
    • Note: Code §§ 27-7-51(3), 27-7-53(4) & 27-7-53(5) already provide this discretion in the income tax context.
  • The Act provides that penalties for failure to (a) file income or franchise tax returns, and (b) pay income or franchise tax are only assessed on the net amount owed rather than the gross liability shown on the return.  This clarifies that the taxpayer gets the benefit of any estimated taxes that have been previously paid or any amount of credit which applies against the liability.  (Code § 27-7-53(4) & (5); § 27-13-23(4) & (5))
  • The Act amends the franchise tax law to provide that any interest is calculated only on the tax deficiency or delinquency amount.  (Code § 27-13-23(3)(a))
  • In the sales tax law, the Act provides that neither the 50% penalty nor interest will be assessed if the taxpayer’s negligence or failure to comply was due to reasonable cause.  Moreover, a taxpayer’s disregard of informal or unofficial instructions given by a DOR auditor cannot be the basis for the 50% penalty.  (Code § 27-65-39)
  • Existing law imposes an additional 300% penalty in cases where the taxpayer/seller collects trust fund monies on behalf of the State, but fails to remit such funds.  The Act provides that this 300% penalty may not be imposed based on a presumption of collection from the purchaser.  Instead, DOR must prove by a preponderance of the evidence that the taxpayer actually collected the trust fund monies and knowingly and intentionally failed to remit them.  (Code § 27-65-31)

Administrative & Procedural Provisions 

  • The Act provides that the period to pay an assessment or appeal certain action of the DOR (such as denial of a tax incentive), a Board of Review order, or a BTA order, commences from the date such notice or order was mailed (or hand delivered by DOR under certain provisions).  Mail is to be by regular first class mail.  Under prior law, the payment or appeal period generally began from the date of the notice or order.  (Code §§ 27-7-51, 27-7-53, 27-77-5 & 27-77-7(1)) 
  • If a taxpayer does not file an appeal based on DOR’s deemed denial of a refund claim, this inaction will not adversely affect the taxpayer’s right to appeal a subsequent formal denial by DOR.  The Act adds “any other form of claim for refund” to the category of filings that may generate a refund to which interest may be added if the refund is not made within 90 days.  It also provides that the date on which the BTA or a court determines a refund to be due in certain situations triggers the 90 day waiting period.  (Code § 27-7-315)
  • Existing law provides that where the taxpayer fails to file a sales tax return and DOR makes an assessment from any available information, DOR must give written notice to the taxpayer.  The Act requires DOR to give such notice by mail or personal delivery. The Act also expounds on who can receive personal delivery for individuals, partnerships, corporations, limited liability companies, joint ventures, etc.  (Code § 27-65-35)
  • The Act provides that sales tax assessment notices and payment demands must be sent by first class mail or hand delivered.  The Act again expounds on who can receive personal delivery of these communications on behalf of various kinds of taxpayers.  (Code § 27-65-37(2))
  • The Act adds new provisions to address the timeliness of administrative appeals and filings, including electronic filings.  The timeliness of electronic filings will be determined based on the time zone of the recipient.  Also addressed are situations where the due date for any administrative appeal or filing falls on a weekend day, official State holiday or other day on which DOR or the BTA is closed.  (Code § 27-77-5(10))

Effective Date and Transition Rules 

  • The general effective date of the Act, which was a subject of much debate during the drafting process, is from and after January 1, 2015, subject to certain “savings clauses” or transition rules that are fairly confusing and which will probably result in incongruous outcomes for taxpayers across multiple years.
  • First, Section 18 of the Act appears to have intended for the new provisions (other than the changes to the appellate sections and the interest reduction provisions) to be applicable to refund claims, assessments, appeals, suits or causes of action (collectively, “Actions”) which begin or are filed on or after January 1, 2015.  However, the language in this section seems to contain a drafting error by saying that nothing in the Act shall affect or defeat any Actions “for taxes due or accrued under the laws of this state before the date on which this act becomes effective, whether such [Actions] have been begun or filed before the date on which this act becomes effective or are begun or filed thereafter;…”  A possible technical correction to the quoted language to reflect what appears to be the legislative intent could read along these lines:  “[N]othing in Sections 1 through 14 of this act shall affect or defeat any [Actions] for taxes due or accrued under the laws of this state before the date on which this act becomes effective, provided such [Actions] began or were filed before the date on which this act becomes effective;….” 
  • Second, Section 19 of the Act provides that the new appeals language in Sections 15, 16 and 17 will apply to any assessments or claims made on or after January 1, 2015.  This means that with respect to appeals of assessments or claims made through the end of 2014, the prior law (as to burden of proof and standard of review matters) as interpreted by the Mississippi Supreme Court in Equifax will still be applicable.  Thus, a taxpayer under audit by DOR for multiple years and who ends up with assessments made both before and after January 1, 2015, will have to appeal and possibly litigate under two vastly different processes and standards, and could very likely have two different outcomes under similar facts.  It will be interesting to see if DOR will rush to make as many assessments as possible in order to have such cases appealed under the more DOR-friendly Equifax appellate rules.
 

Written by:

Butler Snow LLP
Contact
more
less

Butler Snow LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!