{"id":32390,"date":"2016-03-31T19:23:06","date_gmt":"2016-04-01T00:23:06","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-legal\/uncategorized\/christmas-in-may-tax-court-judge-lynn-w-davis-extraordinary.html"},"modified":"2016-08-02T07:52:21","modified_gmt":"2016-08-02T12:52:21","slug":"christmas-in-may-tax-court-judge-lynn-w-davis-extraordinary","status":"publish","type":"corporate","link":"https:\/\/corporate.findlaw.com\/finance\/christmas-in-may-tax-court-judge-lynn-w-davis-extraordinary.html","title":{"rendered":"Christmas in May: Tax Court Judge Lynn W. Davis’ Extraordinary Decision"},"content":{"rendered":"
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While the state must prove criminal guilt \u201cbeyond a reasonable doubt,\u201d the reverse applies to taxpayers, who must prove the taxing authorities\u2019 presumptively correct assessments are wrong. The usual presumption favoring taxing authorities against taxpayers is not only offensive, it has an enormous practical, and usually adverse, impact upon taxpayers, especially those with limited budgets to fight what may be an unfair confiscation of their property. County assessors may passionately argue that efficient tax collection<\/a> would plummet if the presumption in their favor were repealed, as if nothing on earth could be more horrible. Assessors\u2019 fears are likely correct, though it could be similarly argued that it would be much more efficient and less costly if we simply shot accused felons rather try them first.<\/p>\n

Another taxpayer complaint is that tax assessors (such as the Tax Commission\u2019s divisions) are statutorily subordinate to tax adjudicators (the Commissioners themselves) , or are, at least, affiliated and intertwined. Such a system undermines another constitutional concept: \u201cseparation of powers,\u201d where those who promulgate the rules and issue assessments should be different from those who adjudicate them. This is not to impugn the integrity of tax administrators, only to stress the founders\u2019 wisdom in declining to assign incompatible roles to a single branch of government.<\/p>\n

Faced with a decisively \u201cunlevel playing field,\u201d taxpayers in 1993 lobbied the Utah Legislature to pass what is commonly called the \u201cTax Court Act,\u201d now codified at Utah Code Ann. \u00a7 59-1-601. The Act gave taxpayers the right to a \u201ctrial de novo,\u201d following a Tax Commission loss, before an independent District Court. Then disaster struck. In Evans & Sutherland Corp. v. Utah St. Tax Comm.<\/a><\/i>, 953 P.2d 435 (Utah 1997), the Utah Supreme Court invalidated the \u201ctrial de novo\u201d aspect of the Act, holding that it violated article XIII, \u00a7 11 of the Utah Constitution by vesting District Courts with powers constitutionally delegated to the Tax Commission.<\/p>\n

In perhaps an unprecedented move, the Utah Legislature in 1998 reversed Evans & Sutherland<\/i> to pass SJR 13, which was a joint resolution proposing an amendment to article XIII, \u00a7 11. SJR 13 provided:<\/p>\n

Notwithstanding the powers granted to the State Tax Commission in this Constitution, the Legislature may authorize any court established under Article VIII to adjudicate, review, reconsider, or redetermine any matter decided they the State Tax Commission or by a County Board of Equalization relating to revenue and taxation as provided by statute.<\/p>\n<\/blockquote>\n

On November 5, 1998, 74.5% of Utah voters passed Proposition 6, which embodied the concepts of SJR 13. Two legislators (Representative John Valentine and Senator Howard Stephenson) who sponsored SB 62 wrote the arguments for Proposition 6 in the Voter Information Pamphlet:<\/p>\n

"a vote for Proposition 6 will help ensure fair and equitable taxation in Utah by reestablishing a tax court in the state and providing a more taxpayer-favorable place to appeal a tax assessment<\/a> ."<\/p>\n<\/blockquote>\n

As the sponsors envisioned the reinstated Tax Court Act;<\/p>\n

\u201ctax court judges will be able to hear all evidence in a case, and make a ruling based solely on the facts and law, without paying deference to the tax assessing body.\u201d Voter Information Pamphlet, 1998 General Election, Proposition 6.<\/p>\n<\/blockquote>\n

Despite the Tax Court Act, lawyers for the Tax Commission have aggressively sought to limit District Court jurisdiction to adjudicate tax cases. To this day, Tax Commission lawyers argue that appeals to District Court for a \u201ctrial de novo,\u201d following a Tax Commission formal hearing, are limited to what the Tax Commission actually heard. To them, there can be no new issues. The Tax Commission has also resisted having any original tax cases filed in District Court (thus bypassing the Tax Commission entirely), even for those cases the Tax Commission has no jurisdiction to decide, such as constitutional challenges to the legality of state tax laws and\/or their application.<\/p>\n

Enter Judge Lynn W. Davis of the Fourth District Court, one of the six statewide \u201cTax Court\u201d judges. On May 20, 2003, Judge Davis issued an extremely significant decision: \u201cRuling Respecting the Legal Effect of<\/i> Bluth v. Utah State Tax Commission<\/i>\u201d in a case captioned Alliant Techsystems, Inc. v. Salt Lake County and The Utah State Tax Commission<\/i>, No. 990402607. Alliant<\/i> involves the taxpayer\u2019s claim that Salt Lake County\u2019s assessments are too high (which must first be heard and decided by the Tax Commission); and the taxpayer\u2019s claim that any assessment of an unapportioned privilege tax on its use of government property is unconstitutional (which the Tax Commission cannot decide).<\/p>\n

Judge Davis\u2019 Ruling is extraordinary because it clearly delineates for the first time a proper understanding of how tax cases must be decided. In general, taxpayers must \u201cexhaust their administrative remedies\u201d before going to court, meaning the Tax Commission must first hear and rule upon most tax disputes. Theoretically, there are statutory and constitutional exceptions to this general rule, though lawyers for the Tax Commission tend not to concede the application of these exceptions.<\/p>\n

In Bluth v. State Tax Commission<\/i>, 2002 Ut 91, the Utah Supreme Court, from the Tax Commission\u2019s read of the case, sided with the taxing authorities by dismissing a taxpayer lawsuit that challenged the legality of a Tax Commission rule. Bluth<\/i> holds that the Tax Commission must be given first crack at resolving a challenge to its own rules. Hence, taxpayers must \u201cexhaust administrative remedies.\u201d That usually makes eminent sense; yet armed with Bluth<\/i>, the County and the Tax Commission argued in Alliant<\/i> that the District Court has no jurisdiction to hear any case that had not first run the Tax Commission gauntlet, including Alliant\u2019s challenge to the constitutionality of County imposition of a privilege tax on Alliant for its use of property the United States Navy owns and controls. Judge Davis rejected the taxing authorities\u2019 arguments, stating:<\/p>\n

Whatever the Tax Commission ruled in the 1995-1999 valuation cases, or could rule in the 2000 valuation case, on Alliant\u2019s claim that County taxation of NIROP [the federally owned plant] violates state law, the federal law claims (specifically including the civil rights violation under 42 U.S.C. \u00a7 1983), and the claim for injunctive relief on prospective years remain unadjudicated. Neither of these claims challenges the Tax Commission\u2019s promulgation of a rule under the Administrative Rulemaking Act. Bluth\u2019s exhaustion requirement is, accordingly, inapplicable to the NIROP action. The Utah cases the Court of Appeals [in Bluth I] cited, as well as other that permit direct challenges to unlawful taxation, remain applicable.<\/p>\n<\/blockquote>\n

Judge Davis\u2019 ruling came as Christmas in May; its significance can hardly be exaggerated. Those cases in which the legality of a tax is an issue (as distinguished from the application of an admittedly valid tax law) can appropriately be brought as an original action in District Court. To the chagrin of taxing authorities, Judge Davis\u2019 ruling will necessarily save the taxpayer considerable time and expense. Though the Tax Commission must initially adjudicate valuation cases, as it always has, taxpayers need not \u201cexhaust\u201d what ultimately would be a charade in those cases calling for injunctive relief the Board and the Commission can never grant anyway. In his follow-up Findings of Fact and Conclusions of Law in Alliant<\/i>, Judge Davis ruled, even as to matters for which the Tax Commission had original and unquestioned jurisdiction: \u201cThis Court is not bound by the Tax Commission\u2019s decision of rejection of [a] Settlement<\/a> Agreement\u201d between the County and Alliant, which Alliant sought to enforce.<\/p>\n

As a not too subtle reminder, Judge Davis instructed the Tax Commission that its primary job was to fairly adjudicate tax issues, nothing else.<\/p>\n

The legality of taxing Alliant for its use of NIROP property is pending before this Court and the Tax Commission for the year 2000. On the one hand, the Tax Commission should be an impartial adjudicator of issues before it. Yet on the other hand, the Tax Commission chose to intervene as a party defendant in the NIROP action [filed by Alliant] to \u2018contest\u2019 proposed facts in the affidavits Alliant submitted. Since then, the Tax Commission has continuously fought against Alliant in the NIROP action. The incompatibility of the Tax Commission as \u2018impartial adjudicator\u2019 and simultaneous \u2018advocate\u2019 is obvious. . . [L]egal questions, which the Tax Commission cannot answer (or should not answer because the Tax Commission has chosen to compromise its roles), must be resolved in District Court.<\/p>\n

Judge Davis\u2019 ruling has transcendental significance for every Utah taxpayer who believes in the rule of law. The words \u201ctrial de novo\u201d in the Tax Court Act mean precisely what they say \u2013 appeals from the Tax Commission to the District Court will be tried as if they originated there, without deference to the Tax Commission. Equally important, those cases which the Tax Commission has no jurisdiction to adjudicate, such as federal constitutional challenges to assessments, can and should be heard by District Courts.<\/p>\n","protected":false},"excerpt":{"rendered":"

Usually with indignant disbelief, my taxpayer clients often lecture me that constitutional safeguards routinely extended to others, like accused felons and \u201cgarden variety\u201d plaintiffs, find no counterparts in the tax world. I generally feign …<\/p>\n","protected":false},"template":"","meta":{"_acf_changed":false,"_stopmodifiedupdate":true,"_modified_date":"","_cloudinary_featured_overwrite":false},"corporate_categories":[6479,6485,6483],"class_list":["post-32390","corporate","type-corporate","status-publish","hentry","corporate_categories-finance","corporate_categories-finance__tax__state-tax","corporate_categories-finance__tax"],"acf":[],"_links":{"self":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate\/32390","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate"}],"about":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/types\/corporate"}],"wp:attachment":[{"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/media?parent=32390"}],"wp:term":[{"taxonomy":"corporate_categories","embeddable":true,"href":"https:\/\/corporate.findlaw.com\/legal-api\/wp-json\/wp\/v2\/corporate_categories?post=32390"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}