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Michigan Legislature Eliminates “Pay-to-Play” Requirement For State Tax Controversies

June 17, 2015

Today, Governor Snyder signed Senate Bill 100 (Public Act 79 of 2015), which permits taxpayers to appeal a tax assessment to the Court of Claims without first having to pay the tax, interest and penalties that have been assessed. This aligns tax litigation to other forms of commercial litigation where there is no prepayment.  
Taxpayer advocates have long pushed for this change. Current law provides that a taxpayer who wishes to appeal a state tax assessment may either file a petition with the Michigan Tax Tribunal within 35 days of the assessment notice or file a complaint with the Court of Claims within 90 days. While both venues provide an appeal as of right to the Court of Appeals, the venues are very different. The Tax Tribunal is an administrative forum where court rules do not apply, and the triers of fact are not necessarily lawyers. The Court of Claims is housed within the judicial branch, with elected judges. However, if a taxpayer chooses to proceed in the Court of Claims, the taxpayer had been required to pay the tax, penalties and interest, under appeal, and claim a refund as part of the appeal. This “pay-to-play” requirement restricted access to the court to those with the ability to pay, creating a burden for taxpayers with virtuous appeals. It also acted as a trap for the unwary, and caused some taxpayers to lose their appeals rights completely. In a recent case, a taxpayer’s case was dismissed for lack of jurisdiction because of the failure to pay the interest that had accrued between the date the last tax bill was issued and the date the tax was paid and the appeal filed.
Senate Bill 100 also makes appeals to the Tax Tribunal easier by allowing an appeal to be filed within 60 days of the date of the assessment, as opposed to the 35 day deadline in current law.
If you have any questions about this or any other SALT matter, please contact one of our State and Local Tax attorneys or professionals.