The Local Taypayers Bill of Rights

Most people view tax season as “over” on April 15. However, in reality, a taxpayer’s issues with the taxing authority may only just begin on that date.

No one looks forward to a tax dispute with local taxing authorities, but it is comforting to know that there are certain legal protections that a taxpayer enjoys under the “Local Taxpayer Bill of Rights”. The LTBR, which went into effect January 1, 1999, provides for a variety of procedural protections, limited relief from penalties and interest, and a limit on the number of years in which the taxing authority can look back to collect allegedly unpaid taxes. The LTBR applies to most of the taxes that a local taxing authority imposes on the citizens, businesses and employees located in that taxing authority. Among the taxes affected by the LTBR are any per capita tax assessed by the local taxing authority, any occupation or occupational assessment tax imposed by the local taxing authority, any earned income or gross receipts tax imposed by the local taxing authority, and any business privilege tax or amusement tax imposed by that taxing authority. Generally, the LTBR does not apply to real estate taxes, which have their own, sometimes complicated, assessment and appeals process. Nor, obviously, does the LTBR extend to non-local taxing authorities such as the State or the Federal Government.

So what exactly does this law do? First, if the taxing authority decides to audit you or investigate you for back taxes, the taxing authority must give you at least 30 calendar days, along with other reasonable time extensions, to respond to its request for information. Secondly, during that period the taxing authority can take no legal action against the taxpayer.

As to the scope of the investigation or audit, the taxing authority is initially limited to looking back only 3 years. This investigation can be broadened if the local taxing authority determines that income was under reported or that a tax return was not filed at all, but at least initially the investigation is limited to 3 years.

If the taxing authority determines that the taxpayer owes tax, it must provide a notice of the basis of the underpayment which includes the tax periods at issue, the amount of the underpayment, the legal basis for the tax, and an itemization of the alleged flaws in a return of a taxpayer. The LTBR also provides for an administrative appeal process whereby an aggrieved taxpayer who receives a notice of underpayment can appeal that decision to either the board governing the taxing authority or a hearing officer appointed by the taxing authority.

Apart from setting forth definite procedures, the LTBR also grants certain concrete protections to the taxpayer. For example, if a taxing authority has given any advice in writing that a particular tax does not need to be paid by a taxpayer or that a particular activity conducted by a taxpayer is not taxable, and the taxing authority later determines that it is, the LTBR protects the taxpayer from any interest or penalty arising from the taxing authority’s mistake. The LTBR also provides a taxpayer with a fairly lenient “limitations” period in which to file a petition for a refund if the taxpayer think that it has paid too much. Generally, the petition must be filed within 3 years after the due date for payment of the tax, or within 1 year after the actual payment of the tax, whichever is later. On the other hand if the taxing authority initiates the dispute by providing a new “assessment” the taxpayer has 90 days from the date of receiving that assessment to petition it.

As to all matters with regard to taxation the LTBR imposes certain confidentiality restrictions on the taxing authority, with regard to the taxpayer’s financial information. That confidentiality requirement has real teeth, in that the failure to abide by it can result in a possible fine of $2,500 and imprisonment for up to one year.

Finally, if the administrative appeal does not provide the satisfaction that a taxpayer is looking for, the Act provides for an additional appeal to the county Court of Common Pleas. As a practical matter, this may be the first time that a taxpayer has the ability to get a fair hearing with regard to the tax.

— Rod Fluck

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