Administrative Procedures OKLAHOMA TAX COMMISSION

1. Administrative ProceduresOKLAHOMA TAX COMMISSION Kathryn Bass Chief Deputy General Counsel

2. Oklahoma Tax Commission

3. OTC Divisions omitted divisions HR, IT, MS

4. Legal Division(General Counsel’s Office) • Protests (administrative) • Litigation (state and federal court) • Bankruptcy • Foreclosures/Quiet Title • Collections • Personnel Cases • Opinions/Letter Rulings • Partial Lien Releases • Innocent Spouse

5. Tax Codes: Title 68 of Oklahoma Statutes Uniform Tax Procedure Code: 68 O.S. §§ 201 – 263 (hearing procedures in APA, 75 O.S. § 250 et seq. do not apply to OTC) Tax Commission rules are in Ch. 710 of the Okla. Administrative Code (OAC)* OTC Rules of Practice and Procedure 710:1-5-1 through 710:1-5-200 *OTC website www.tax.ok.gov OKLAHOMA TAX LAWS

6. ASSESSMENTS § 221(A) authorizes OTC to audit and issue proposed tax assessments in cases of: (1) failure to file report and (2) where tax disclosed by report is less than tax disclosed by OTC examination § 224 authorizes jeopardy assessments under certain circumstances; they are issued by OTC order, rather than as a proposed assessment; order is appealable

7. Sales Income Withholding Mixed Beverage Franchise Estate Gross Production Cigarette Tobacco Motor Fuel Vehicle Excise Aircraft Excise Documentary Stamp Ad Valorem Other Miscellaneous Oklahoma Taxes

8. AdministrativeHearings (most common) • protest to estate tax assessment §815 • protest to denial of tax refund claim §227 (except income tax) 3. protest to denial of income tax refund claim §207 • protest to tax assessment §221 (except estate tax) 5. hearing on interception of income tax refund to satisfy outstanding tax liability

9. Administrative Hearings (miscellaneous) • protest to denial of manufacturer’s exemption certificate § 207 • protest to denial of ad valorem exemption • title revocation hearing • boat dealer license hearing • cancellation of tax permit or license § 212

10. Protest Steps I (prior to pre-hearing) • Taxpayer is audited and issued an assessment • Taxpayer files protest to assessment • Auditors review and make any adjustments that may be necessary • ALJ dockets case, sends taxpayer copy of procedural rules • OTC attorney is assigned to represent Division

11. Protest Steps II (before ALJ) • Pre-hearing conference; scheduling order issued • Discovery • Hearing • ALJ issues Findings, Conclusions, and Recommendations • Petition for Rehearing or Reconsideration before ALJ

12. Protest Steps III (before OTC) • Petition for En Banc before OTC Commissioners • Commissioners adopt Findings • Right to appeal OTC Order to Oklahoma Supreme Court

13. Protest letter components • amount of deficiency • each error alleged to have been committed by OTC • argument and legal authority • statement of relief sought • verification that statements are true • signed by taxpayer or taxpayer’s agent

14. Time limits for protests • within 60 days after mailing of the proposed assessment • OTC may extend the time for filing not to exceed an additional 90 days

15. Time limits for claims for refund (68 O.S. §227) • claims must be filed within 3 years from date of payment • if claim is denied, taxpayer may file a demand for hearing within 30 days of the mailing date of the notice of denial • OTC must set date of hearing which is not later than 60 days from the date the demand for hearing was mailed • §227 does not apply to income tax or to estate tax (income tax claim for refund hearings are held under § 207)

16. § 226 Procedures • In addition to right to protest under § 221, within 30 days of assessment, taxpayer may pay tax and give notice of intent to file suit for recovery of such tax (suit must be filed in district court within 1 year) • only available in cases where taxes are claimed to be an unlawful burden on interstate commerce of violative of any Congressional Act or provisions of the Federal Constitution

17. Representation Taxpayer may represent himself or herself or may be represented by: • an attorney • an accountant • an enrolled agent • a representative who has been approved by the Commission to represent the taxpayer

18. Proceedings confidential • Taxpayer records are confidential under § 205 (note exceptions, including amounts due by any taxpayer where a tax warrant has been filed; annual list containing names and address of all income tax payers; information as to issuance or revocation of any tax permit or license) • Taxpayer may waive confidentiality

19. Pre-hearing Conference 710:1-5-28. General provisions • attempt to resolve case • discuss facts • identify legal issues • present discovery requests • propose procedural schedule

20. After Pre-hearing conference • ALJ issues pre-hearing order with scheduling dates • If taxpayer fails to appear at pre-hearing, but has requested a hearing in writing, ALJ schedules a hearing • If taxpayer fails to appear, but has not requested a hearing, Division will file a Verified Response to Protest; • if taxpayer responds to the Verified Response and requests a hearing, ALJ sets for hearing • if taxpayer responds and does not request a hearing, ALJ issues Findings based on written submissions • if taxpayer does not respond, ALJ issues Findings based on protest and Verified Response

21. PRE-HEARING PROCEDURES • ALJ issues notice of date and time of hearing and due date of briefs or positions letters in support of position • Discovery (interrogatories, requests for production of documents, depositions) • Subpoenas issued by Secretary of Tax Commission

22. Rules of Evidence710:1-5-34 • OTC follows rules of evidence as applied in non-jury, civil cases in district court, “except when it is necessary to ascertain facts not reasonably susceptible of proof under those rules.” • “In that event, evidence not admissible under the Rules of Evidence may be admitted, if it is of a type commonly relied on by reasonably prudent persons in the conduct of their affairs.”

23. Certification of issues • A party who objects to a ruling of the Administrative Law Judge may request and obtain certification of the issue to the Commission for a decision prior to ALJ’s issuance of Findings, Conclusions, and Recommendations • Certification must contain signatures of taxpayer’s representative, tax division attorney, and ALJ

24. Administrative Law Judges Two ALJs; Must be licensed attorney • conduct hearings • examine witnesses • rule on motions • rule on admissibility of evidence • continue or recess any hearing • control the record • make recommendations to Tax Commission

25. Conduct of hearing • preliminary motions, if any • opening statements • call and examine witnesses (ALJ entitled to question any party or any witness) • offer documentary evidence • cross examine opposing witnesses (in discretion of ALJ, cross may cover matters relevant to issue even though not covered in direct examination) • make closing arguments (taxpayer entitled to open and conclude) • Parties may submit Proposed Findings, Conclusions, and Recommendations

26. Burden of Proof • Taxpayer has burden of proof (preponderance of evidence) to show in what respect the action of the OTC is incorrect • exception – where OTC brings action to revoke a permit

27. Submission of Case On Briefs • if taxpayer does not request hearing or parties agree hearing is not necessary, ALJ may base Findings on briefs submitted by parties (and stipulations)

28. Dismissal • Voluntary dismissal (taxpayer may dismiss protest or tax division may withdraw assessment any time prior to the entry of a final order by OTC) • Dismissal for mootness (case presents no actual controversy or issues have ceased to exist) • Dismissal for lack of jurisdiction (not filed within the time provided by statute)

29. Findings, Conclusions, and Recommendations • includes statement of facts, issues and contentions, conclusions based on findings of fact and applicable law, and recommendation to the Tax Commission • Tax Commission issues final order

30. Options after ALJ Findings issued • motion for rehearing before ALJ • applications for en banc hearing before Commissioners; application must specify each ground upon which the party alleges the Findings to be erroneous • if granted, case heard by Commissioners; Commissioners set date and time of hearing, briefs submitted at least 14 days prior to hearing, Commission sets time limits for oral arguments

31. OTC issues order • OTC may vacate, modify, or affirm, in part or whole, the recommendations of the ALJ • OTC order appealable to Oklahoma Supreme Court

32. Actions requiring approval of Commissioners* • Findings and Recommendations of ALJ • waivers of penalty and interest §220** • requests for abatement under §221(e) • requests for abatement under §219.1 • requests for settlement under §219 • innocent spouse relief under §2361 *meet every Tues. & Thurs. **over $10,000 requires D.Ct. approval

33. 221(e) abatement • if taxpayer fails to file protest within 60 day period, assessment becomes final • however, within one year of the date the assessment becomes final, taxpayer may request the OTC to adjust or abatement the assessment • taxpayer must demonstrate, by a preponderance of the evidence that the assessment or some portion thereof is clearly erroneous • order denying a request for abatement is not appealable

34. 221(e) procedures Initial Review • Division which issued proposed assessment determines whether the request was timely filed and whether the assessment was clearly erroneous • If Division agrees assessment erroneous, Division director issues abatement letter

35. 221(e) Review of Initial Determination • If Division does not agree to abatement the assessment, Division notifies taxpayer of decision • Taxpayer may make a written request for a review of the Division’s determination to the OTC General Counsel’s Office • Assigned attorney reviews the evidence in support of taxpayer’s request and prepares a fact sheet for presentation to the Commission at a regularly scheduled meeting (recommending either approval or denial of request) • Taxpayer may appear and present arguments at meeting, but no other hearing is provided

36. §219.1 Abatement/Settlement Taxes may be abated if Commission finds by clear and convincing evidence: • collection would result in taxpayer filing bankruptcy • taxpayer is insolvent (beyond control of taxpayer) • tax liability is attributable to actions of a person other than taxpayer (inequitable to hold liable) • nonpayment of trust fund taxes, taxes were not collected from customer and taxpayer had good faith belief collection was not required

37. §219.1 settlement factors* • whether taxpayer made good faith effort to comply with tax laws • whether taxpayer benefited from nonpayment of the tax • involvement of taxpayer in economic activities from which tax liability originated *Application for Settlement of Tax Liability is on OTC website www.tax.ok.gov

38. §219.1 abatement agreements • must be approved by unanimous vote of OTC • decision to deny abatement not appealable • if taxes abated are greater than $10,000, agreement must be approved by judge of the district court of Oklahoma County • no appointed or elected official is eligible for this relief

39. §219 settlements (compromises where amounts in dispute) • Where amount of tax due is in controversy and liability has not been finally established, OTC may enter agreement to compound, settle, or compromise any controversy relating to amount of taxes due • agreements to settle controversies do not require district court approval

40. Innocent Spouse Relief68 O.S. § 2361 • if joint return has been filed by married taxpayers • liability is attributable to income of non-requesting spouse and would be inequitable to hold the requesting spouse liable • IRS determination binding on OTC

41. Innocent spouse relief – IRS determination (§ 2361) • The determination made by the Tax Commission shall be the same as the determination made by the IRS provided tax years and circumstances are the same • If IRS has not made a determination, the OTC shall apply the factors that would have been applied by IRS

42. §207 Hearings • general power of Commission to conduct hearings, issues subpoenas for witnesses and production of records • person desiring hearing files an application setting forth: tax, amount, error, argument and legal authority, relief, witnesses, verification (this section applies to claims for refund of income tax, Sowders v. OTC, 527 P.2d 852; also applies to hearings on protest to denial of manufacturer’s exemption certificate)

43. Tax liens • filed in office of the county clerk; evidence of state’s lien on any interest in any real or personal property of the taxpayer • prior to other claims or encumbrances on property except those of a mortgagee whose rights have attached prior to date of filing of tax lien • Partial release: OAC 710:1-3-80