COST Recognizes Arkansas as "Most Improved" in Fariness of Tax Administration

The Council on State Taxation (COST) has declared Arkansas the "most improved" state in its triennial survey of the fairness of states' tax administration systems. The state's grade jumped to B+ from 2013's C-, which had listed Arkansas as one of the worst states.

The sea change in Arkansas's tax administration fairness grade results from 2015's Act 896, which made a number of improvements to how the Department of Finance and Administration administers state taxes:

  • The law made limitation periods for assessments by the DFA and refund claims by taxpayers more consistent by eliminating an extended 8-year assessment period upon a taxpayer’s failure to notify the DFA of an adjustment by the IRS, and by permitting taxpayers to claim offsets and refunds during any extended assessment period claimed by the DFA based on substantial understatements of tax or failure to file.
  • It improved transparency by requiring the DFA to post written legal opinions and administrative decisions in redacted form on the DFA’s website for opinions and determinations issued after January 1, 2016.
  • Act 896 eliminated “pay to play” by providing taxpayers the option of filing suit for judicial relief from a final assessment or determination without paying the proposed tax, penalties or interest before filing suit, if filed within 180 days of the date of the final assessment.
  • The legislation clarified the “rule of strict construction” and distinguished between the rule of strict construction and burden of proof of facts, which Arkansas courts have sometimes confused. It amended the standard of proof applied to matters of fact and evidence in controversies regarding the application of a state tax law from clear and convincing evidence to preponderance of the evidence. Act 896 also emphasized elements of fair and reasonable construction and legislative intent that are often overlooked in judicial declarations that “to doubt is to deny.” It also clarified that nonsuit and commencement of new actions is permitted as in other cases at law.
  • Act 896 also changed the due date for corporate returns from March 15 or 2 ½ months following the close of a fiscal year to April 15 or 3 ½ months following the close of a fiscal year, effective for tax years beginning on or after January 1, 2017.
  • The law extended the period businesses may claim rebates of payments of excess local taxes to vendors (taxes in excess of the $2,500 base for local tax purposes in effect prior to 2008) from 6 months to 1 year.

 

 

 

 

 

Act 896 was supported by the Arkansas business community, and particularly the Arkansas State Chamber of Commerce. DDH attorney Mike Parker was highly involved in the drafting of the legislation.


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