First Regular Session Sixty-ninth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 13-0324.02 Esther van Mourik x4215HOUSE BILL 13-1140 HOUSE SPONSORSHIP Stephens, SENATE SPONSORSHIP (None), House Committees Senate Committees Finance Appropriations A BILL FOR AN ACT Concerning the establishment of the Colorado independent tax appeal court. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) The bill creates the Colorado independent tax appeal court and delineates its powers, duties, and responsibilities. On and after January 1, 2015, the tax appeal court is responsible for the independent review of most of the final determinations of the executive director of the department of revenue. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. In Colorado Revised Statutes, add part 4 to article 21 of title 39 as follows: PART 4 COLORADO INDEPENDENT TAX APPEAL COURT 39-21-401. Legislative declaration. (1) The general assembly declares that to increase public confidence in the fairness of the state tax system, Colorado should provide an independent agency with tax expertise to resolve disputes between the department of revenue and taxpayers prior to requiring the payment of the amounts in issue or the posting of a bond, but after the taxpayer has had a full opportunity to attempt settlement with the department based, among other things, on the hazards of litigation. (2) The general assembly further declares that by establishing an independent tax appeal court within the executive branch, this part 4 provides taxpayers with a means of resolving controversies that ensures both the appearance and the reality of due process and fundamental fairness. (3) The general assembly further declares that the purpose of this part 4 is to foster the settlement or other resolution of tax disputes to the extent possible and, in cases in which litigation is necessary, to provide the people of Colorado with a fair, independent, prepayment procedure to determine a dispute with the department. The general assembly further declares that this part 4 should be liberally construed to further this intent. 39-21-402. Definitions. As used in this part 4, unless the context otherwise requires: (1) "Tax appeal court" means the Colorado independent tax appeal court established in this part 4. (2) "Taxpayer" means a person who has received a notice of final determination, a notice of denial of refund claim, a protestable notice of deficiency, a claim denial, or a protestable notice of penalty liability within the tax appeal court's jurisdiction. "Taxpayer" includes a person: (a) Who is challenging the state's jurisdiction over the person; and (b) Who has standing to challenge the validity or applicability of the tax. 39-21-403. Colorado independent tax appeal court established. (1) The Colorado independent tax appeal court, or tax appeal court, is hereby established. The tax appeal court shall have the powers and duties enumerated in this part 4, together with such others conferred upon it by law. The tax appeal court shall be separate from and independent of the authority of the department and its executive director. (2) The tax appeal court shall be created and exist on and after January 1, 2015, but the judges thereof may be appointed prior thereto and may then take any action that is necessary to enable the judges to exercise the duties, functions, and powers given the tax appeal court under this part 4 on and after January 1, 2015. (3) Except as otherwise limited by this part 4, the tax appeal court has all of the powers necessary or convenient to carry out the purposes and provisions of this part 4, including without limitation each of the following: (a) To have a seal, and to alter that seal at pleasure, and to use it by causing it or a facsimile to be affixed or impressed or reproduced in any other manner; (b) To accept and expend appropriations; (c) To obtain and employ personnel as required in this part 4, including any additional personnel necessary to fulfill the tax appeal court's purposes, and to make expenditures for personnel within appropriations for that purpose; (d) To maintain offices at such places as required under this part 4, and elsewhere as the tax appeal court may determine; and (e) To engage in any activity or operation that is incidental to and in furtherance of efficient operation to accomplish the tax appeal court's purposes. 39-21-404. Number of judges - appointment - term - removal. (1) The tax appeal court shall consist of at least one full-time judge. If there is more than one judge, each judge shall exercise the powers of the tax appeal court. (2) The judges of the tax appeal court shall be appointed by the governor, with the advice and consent of the senate, for a term of ten years. If the tax appeal court has more than one judge, the judges initially appointed shall be given terms of different lengths not exceeding ten years, so that all judges' terms do not expire in the same year. (3) Each judge of the tax appeal court shall receive an annual salary no less than that provided for district court judges under state law, which salary shall not be diminished during the judge's term of appointment. (4) Once appointed and confirmed, each judge shall continue in office until his or her term expires and until a successor has been appointed and confirmed. (5) A vacancy in the tax appeal court occurring otherwise than by expiration of term shall be filled for the unexpired term in the same manner as an original appointment. (6) If more than one judge is appointed, the governor shall designate one of the members as chief judge. The chief judge shall be the executive of the tax appeal court, shall have sole charge of the administration of the tax appeal court, and shall apportion among the judges all causes, matters, and proceedings coming before the tax appeal court. The individual designated as chief judge shall serve in that capacity at the pleasure of the governor. (7) The governor may remove a judge, after notice and an opportunity to be heard, for neglect of duty, inability to perform duties, malfeasance in office, or other good cause, with the advice and consent of the senate. (8) Whenever the tax appeal court trial docket or business becomes congested or any judge of the tax appeal court is absent, is disqualified, or for any other reason is unable to perform his or her duties as judge, and it appears to the governor that it is advisable that the services of an additional judge or judges be provided, the governor may appoint a judge, or judges, pro tempore of the tax appeal court. Any person appointed judge pro tempore of the tax appeal court shall have the qualifications set forth in section 39-21-405 and shall be entitled to serve for a period no longer than six months. (9) A judge may disqualify himself or herself on his or her own motion in any matter, and may be disqualified for any of the causes specified in the Colorado code of judicial conduct. 39-21-405. Judges - qualifications - prohibition against other gainful employment. (1) A judge appointed to the tax appeal court shall be a citizen of the United States and, during the period of his or her service, a resident of Colorado. No person shall be appointed as a judge unless at the time of appointment the individual has substantial knowledge of the tax law and substantial experience making the record in a tax case suitable for judicial review. (2) Before entering upon the duties of office, each judge shall take and subscribe to an oath or affirmation that he or she will faithfully discharge the duties of the office, and such oath shall be filed in the office of the secretary of state. (3) Each judge shall devote his or her full time during business hours to the duties of his or her office. A judge shall not engage in any other gainful employment or business, nor hold another office or position of profit in a government of this state, any other state or the United States. Notwithstanding the foregoing provisions, a judge may own passive interests in business entities and earn income from incidental teaching or scholarly activities. 39-21-406. Principal office - locations - facilities. (1) The tax appeal court's principal office shall be located in Denver, Colorado. (2) The tax appeal court shall conduct hearings at its principal office. The tax appeal court may also hold hearings at any place within the state, with a view toward securing to taxpayers a reasonable opportunity to appear before the tax appeal court with as little inconvenience and expense as practicable. (3) The principal office of the tax appeal court shall be located in a building that is separate and apart from the building in which the department is located. When the tax appeal court holds hearings outside of its principal office, it shall do so in a location that is physically separated from facilities regularly occupied by the department. (4) The state shall provide hearing rooms, chambers, and offices for the tax appeal court at its principal office and shall arrange for hearing rooms, chambers, and offices or other appropriate facilities when hearings are held elsewhere. 39-21-407. Appointment of clerk and reporter - expenditures of the tax appeal court. (1) The tax appeal court shall appoint a clerk and a court reporter, and may appoint such other employees and make such other expenditures, including expenditures for library, publications, and equipment, as are necessary to permit it to efficiently execute its functions. (2) The court reporter shall function as if appointed by a judge of the district court, except where such provisions are in conflict with this part 4. (3) No employee of the tax appeal court shall act as attorney, representative, or accountant for others in a matter involving any tax imposed or levied by this state. (4) An employee of the tax appeal court may be removed by the chief judge, after notice and an opportunity to be heard, for neglect of duty, inability to perform duties, malfeasance in office, or for other good cause. (5) In addition to the services of the court reporter, the tax appeal court may hire private reporters for its proceedings and, in the contract, fix the terms and conditions under which transcripts will be supplied by the contractor to the tax appeal court and to other persons and agencies. 39-21-408. Jurisdiction of the tax appeal court. (1) Except as provided by the constitution of the United States, the state constitution, and notwithstanding any other provision of state law, commencing on and after January 1, 2015, the tax appeal court shall have original jurisdiction over final determinations of the executive director of the department issued pursuant to section 39-21-103, 39-21-104, 39-21-104.5, or 39-21-105. (2) Except as permitted by section 39-21-415, no person shall contest any matter within the jurisdiction of the tax appeal court in any action, suit, or proceeding in the district court or any other court of the state. If a person attempts to do so, then such action, suit, or proceeding shall be dismissed without prejudice. The improper commencement of any action, suit, or proceeding will not extend the time for commencing a proceeding in the tax appeal court. (3) Except in cases involving the denial of a claim for refund and except as provided in section 39-21-111 regarding jeopardy assessments, and notwithstanding section 39-21-105, the taxpayer shall have the right to have his or her case heard by the tax appeal court prior to the payment of any of the amounts asserted as due by the department and prior to the posting of any bond. (4) If, with or after the filing of a timely petition, the taxpayer pays all or part of the tax or other amount in issue before the tax appeal court has rendered a decision, the tax appeal court shall treat the taxpayer's petition as a protest of a denial of a claim for refund of the amount so paid. (5) The tax appeal court shall decide questions regarding the constitutionality of the application of a tax statute to the taxpayer and the constitutionality of regulations promulgated by the department, but shall not have the power to declare a statute unconstitutional on its face. A taxpayer desiring to challenge the constitutionality of a statute on its face may, at the taxpayer's election, do so by one of the following methods: (a) Commence a declaratory action in the district court of this state with respect to the constitutional challenge and file a petition in the tax appeal court with respect to the remainder of the matter, which proceeding shall be stayed by the tax appeal court pending final resolution of the constitutional challenge; (b) File a petition with the tax appeal court with respect to issues other than the constitutional challenge, in which the taxpayer preserves the constitutional challenge until the entire matter, including the constitutional challenge and the facts related to the constitutional challenge, is presented to the appellate court; or (c) Commence and simultaneously prosecute a declaratory action in the district court with respect to the constitutional challenge and a proceeding in the tax appeal court with respect to the remainder of the issues. 39-21-409. Pleadings. (1) A taxpayer may commence a proceeding in the tax appeal court by filing a petition protesting the department's determination imposing a liability for tax, penalty, or interest; denying a refund or credit application; canceling, revoking, suspending or denying an application for a license, permit or registration; or taking any other action that gives a person the right to a hearing under the law. The petition shall be filed in the tax appeal court no later than ninety days after receipt of the department's written notice of such determination. (2) The department shall file its answer in the tax appeal court no later than seventy-five days after its receipt of the tax appeal court's notification that the taxpayer has filed a petition in proper form. Upon written request, the tax appeal court may grant up to fifteen additional days to file an answer. The department shall serve a copy on the taxpayer's representative or, if the taxpayer is not represented, on the taxpayer, and shall file proof of such service with the answer. Material facts alleged in the petition, if not expressly admitted or denied in the answer, shall be deemed admitted. If the department fails to answer within the prescribed time, all material facts alleged in the petition shall be deemed admitted. (3) The taxpayer may file a reply in the tax appeal court within thirty days after receipt of the answer. The taxpayer shall serve a copy on the authorized representative of the department and shall file proof of such service with the reply. If the taxpayer fails to reply within the prescribed time, all material facts alleged in the answer shall be deemed denied. When a reply has been filed or, if no reply has been filed, then thirty days after the filing of the answer, the controversy shall be deemed at issue and will be scheduled for hearing. (4) Either party may amend a pleading once without leave at any time before the period for responding to it expires. After such time, a pleading may be amended only with the written consent of the adverse party or with the permission of the tax appeal court. The tax appeal court shall freely consent to amend upon such terms as may be just. Except as otherwise ordered by the tax appeal court, there shall be an answer or reply to an amended pleading if an answer or reply is required to the pleading being amended. Filing of the answer or, if the answer has already been filed, the amended answer, shall be made no later than seventy-five days after filing of the amended petition. Filing of the reply or, if the reply has already been filed, the amended reply, shall be made within thirty days after filing of the amended answer. The taxpayer may not amend a petition after expiration of the time for filing a petition if such amendment would have the effect of conferring jurisdiction on the tax appeal court over a matter that would otherwise not come within its jurisdiction. An amendment of a pleading shall relate back to the time of filing of the original pleading, unless the tax appeal court shall order otherwise either on motion of a party or on the tax appeal court's own initiative. 39-21-410. Fees. (1) Upon filing a petition, the taxpayer shall pay to the clerk a fee in the amount of twenty dollars; except that, in case of a petition filed in the small claims division as provided in section 39-21-414, the fee shall be five dollars. A similar fee shall be paid by other parties making an appearance in the proceeding; except that no fee shall be charged to a government body or government official appearing in a representative capacity. (2) The tax appeal court may fix a fee, not in excess of the fees charged and collected by the clerks of the district courts, for comparing, or for preparing and comparing, a transcript of the record, or for copying any record, entry, or other paper and the comparison and certification thereof. 39-21-411. Discovery and stipulation. (1) The parties to a proceeding shall make every effort to achieve discovery by informal consultation or communication before invoking the discovery mechanisms authorized by this section. (2) The parties to a proceeding shall stipulate all relevant and nonprivileged matters to the fullest extent to which complete or qualified agreement can or fairly should be reached. Neither the existence nor the use of the discovery mechanisms authorized by this section shall excuse failure to comply with this provision. (3) (a) Subject to reasonable limitations prescribed by the tax appeal court, a party may obtain discovery by: (I) Written interrogatories; (II) Requests for the production of returns, books, papers, documents, correspondence, or other evidence; (III) Depositions of parties, nonparty witnesses, and experts; or (IV) Requests for admissions. (b) The tax appeal court may provide for other forms of discovery. (4) The judge or the clerk of the tax appeal court, on the request of any party to the proceeding, shall issue subpoenas requiring the attendance of witnesses and giving of testimony and subpoenas duces tecum requiring the production of evidence or things. (5) A judge may grant an employee of the tax appeal court the authority to administer oaths. (6) Any witness subpoenaed or whose deposition is taken shall receive the same fees and mileage as a witness in a district court of this state. (7) The tax appeal court may enforce its orders on discovery and other procedural issues, among other means, by deciding issues wholly or partly against the offending party. 39-21-412. Hearings. (1) Proceedings before the tax appeal court shall be tried de novo and, to the extent permissible under the constitution, without a jury. (2) Except as set forth in this part 4 or otherwise precluded by law, the tax appeal court shall take evidence, conduct hearings, and issue final and interlocutory decisions. (3) Hearings shall be open to the public and shall be conducted in accordance with such rules of practice and procedure as the tax appeal court may promulgate. Notwithstanding the foregoing, if a party shows good cause to protect certain information from being disclosed to the public, either party may make a motion for a protective order or an order closing part or all of the hearing to the public. (4) The tax appeal court shall not be bound by the rules of evidence applicable to civil cases in the state's district courts. The tax appeal court shall admit relevant evidence, including hearsay, if it is probative of a material fact in controversy. The tax appeal court shall exclude irrelevant and unduly repetitious evidence. Notwithstanding the foregoing, the rules of privilege recognized by law shall apply. (5) Testimony may be given only on oath or affirmation. (6) The petition and other pleadings in the proceeding shall be deemed to conform to the proof presented at the hearing, unless a party satisfies the tax appeal court that presentation of the evidence would unfairly prejudice the party in maintaining its position on the merits or unless deeming the taxpayer's petition to conform to the proof would confer jurisdiction on the tax appeal court over a matter that would not otherwise come within its jurisdiction. (7) In the case of an issue of fact, the taxpayer shall have the burden of persuasion by a preponderance of the evidence in the record; except that the department shall have the burden of persuasion in the case of an assertion of fraud and in other cases provided by law. (8) Proceedings before the tax appeal court, except those before the small claims division as provided in section 39-21-414, shall be officially reported. The state shall pay the expense of reporting from the appropriation for the tax appeal court. 39-21-413. Decisions. (1) The tax appeal court shall render its decision in writing, including therein a concise statement of the facts found and the conclusions of law reached. The tax appeal court's decision shall grant such relief, invoke such remedies, and issue such orders as it deems appropriate to carry out its decision. (2) The tax appeal court shall render its decision no later than six months after submission of the last brief filed subsequent to completion of the hearing or, if briefs are not submitted, then no later than six months after completion of the hearing. The tax appeal court may extend the six-month period for good cause, up to three additional months. (3) If the tax appeal court fails to render a decision within the prescribed period, either party may commence a proceeding in the district court to compel the issuance of such decision. (4) The tax appeal court's decision regarding matters in controversy shall be final, unless any party to the matter timely appeals the decision as provided in section 39-21-415. (5) The tax appeal court's decision shall have the same effect, and shall be enforced in the same manner, as a judgment of a district court of the state. (6) The tax appeal court's interpretation of a taxing statute subject to contest in a case shall be followed by the tax appeal court in subsequent cases involving the same statute, and its application of a statute to the facts of a case shall be followed by the tax appeal court in subsequent cases involving similar facts, unless the tax appeal court's interpretation or application conflicts with that of an appellate court or the tax appeal court provides satisfactory reasons for reversing prior precedent. 39-21-414. Small claims division - establishment - jurisdiction. (1) There is hereby established a small claims division of the tax appeal court. (2) Judges of the tax appeal court shall sit as judges of the small claims division. (3) If the taxpayer timely elects to proceed in the small claims division as specified in subsection (4) of this section, the small claims division shall have jurisdiction over any proceeding with respect to any calendar year for which the net amount of the tax deficiencies and claimed refunds in controversy does not exceed twenty-five thousand dollars, exclusive of interest and penalties. (4) A taxpayer may elect to proceed in the small claims division of the tax appeal court by filing a petition in the form prescribed by the tax appeal court no later than ninety days after the taxpayer's receipt of written notice of the determination that is the subject of the petition. A taxpayer may not revoke an election to proceed in the small claims division. (5) No later than thirty days after receipt of notice that the taxpayer has filed a proper petition to proceed in small claims division, or at such other time as the tax appeal court may order, the department shall file with the tax appeal court an answer similar to that required by section 39-21-409. (6) At any time prior to entry of judgment, a taxpayer may dismiss a proceeding in the small claims division by notifying the clerk of the tax appeal court in writing. Such dismissal shall be with prejudice, and shall not have the effect of revoking the election. (7) Hearings in the small claims division shall be informal, and the judge may receive such evidence as the judge deems appropriate for determination of the case. Testimony shall be given under oath or affirmation. (8) A judgment of the small claims division shall be conclusive upon all parties and may not be appealed. A judgment of the small claims division shall not be considered as precedent in any other case, hearing, or proceeding. (9) Sections 39-21-401 to 39-21-413 and sections 39-21-415 to 39-21-420 apply to proceedings in the small claims division unless made expressly inapplicable thereto or the result would be inconsistent with the provisions of this section. 39-21-415. Appeals. (1) The taxpayer or the department shall be entitled to judicial review of a final decision of the tax appeal court, except a final decision of the small claims division, in accordance with the procedure for filing an action in district court as provided by section 39-21-105, but without regard to the sum involved. The taxpayer or the department may obtain judicial review in the district court of an interlocutory decision of the tax appeal court under the same conditions and as an interlocutory decision of the district court. (2) The record on judicial review shall include the decision of the tax appeal court, the stenographic transcript of the hearing before the tax appeal court, the pleadings, and all exhibits and documents admitted into evidence. (3) Judicial review of a decision of the tax appeal court shall be de novo. 39-21-416. Representation. (1) (a) Appearances in proceedings conducted by the tax appeal court may be by: (I) The taxpayer; (II) An attorney admitted to practice in this state, including an attorney who is a partner or member of, or is employed by, an accounting or other professional services firm; (III) An accountant licensed in this state; or (IV) An enrolled agent authorized to practice before the internal revenue service. (b) (I) The tax appeal court may allow any attorney or accountant authorized to practice or licensed in any other jurisdiction of the United States to appear and represent a taxpayer in proceedings before the tax appeal court for a particular matter. (II) The tax appeal court may promulgate rules and regulations permitting a taxpayer to be represented by an officer, employee, partner, or member. (2) The department shall be represented by an authorized representative in all proceedings before the tax appeal court. 39-21-417. Publication of decisions. Except for decisions issued by the small claims division, the tax appeal court shall index and publish its final decisions in such print or electronic form as it deems best adapted for public convenience. Such publications shall be made permanently available and constitute the official reports of the tax appeal court. 39-21-418. Service of process. (1) Mailing by first class or certified or registered mail, postage prepaid, to the address of the taxpayer given on the taxpayer's petition, or to the address of the taxpayer's representative of record, if any, or to the usual place of business of the department, shall constitute personal service on the other party. The tax appeal court may by rule prescribe that notice by other means shall constitute personal service and may in a particular case order that notice be given to additional persons or by other means. (2) Mailing by registered or certified mail and delivery by a private delivery service approved by the internal revenue service in accordance with section 7502 (f) of the federal "Internal Revenue Code of 1986", as amended, shall be deemed to have occurred, respectively, on the date of mailing and the date of submission to the private delivery service. 39-21-419. Rules and forms. The tax appeal court is authorized to promulgate and adopt all reasonable rules and forms as may be necessary or appropriate to carry out the intent and purposes of this part 4. 39-21-420. Applicability. Any administrative proceeding in which a hearing has commenced prior to January 1, 2015, shall be transferred to the tax appeal court, which shall render the decision in such proceeding unless there is a prior settlement. This part 4 shall not affect any proceeding, prosecution, action, suit, or appeal commenced in the judicial branch before January 1, 2015. SECTION 2. Act subject to petition - effective date - applicability. (1) This act takes effect July 1, 2014; except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within the ninety-day period after final adjournment of the general assembly, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2014 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor. (2) This act applies to: (a) All proceedings commenced in the tax appeal court on or after January 1, 2015; and (b) All administrative proceedings commenced prior to January 1, 2015, that have not been the subject of a final and irrevocable administrative action as of January 1, 2015, to the extent this act can be made applicable thereto.