Reed Smith Client Alerts

On June 7, 2021 Governor Abbott signed two bills, effective September 1, 2021, that should increase taxpayer opportunities for prompt and favorable resolution of audit and refund disputes.

Authors: Danielle Ahlrich

Playing Without Paying

HB 2080 permits taxpayers who have exhausted their administrative remedy to challenge a deficiency determination in district court without having to pay the disputed amounts under protest. The issues in the district court suit would be limited to the grounds of error contained in the taxpayer’s motion for rehearing, but they would be subject to de novo review. During the pendency of the suit, the Comptroller would be enjoined from collecting disputed amounts, but may assert tax liens. Any disputed amount upheld in a final judgment will accrue penalty and interest, and the Comptroller is entitled to damages if the court determines that all or part of the enjoined collection amounts were disputed solely for delay. This new “no pay-to-play” path to district court applies to suits disputing amounts that become due and payable after September 1, 2021.

Many taxpayers had hoped for a path to challenge audit assessments in district court that did not require a protest payment or completion of the administrative hearing process, which is often unfavorable to taxpayers, as detailed below. Texas was not willing to go that far. Instead, under HB 2080, taxpayers who could not previously afford to pay an assessment under protest now have a path to de novo court review that is not dependent upon their financial health (arguably an open courts violation), and taxpayers who can afford to pay under protest may seek judicial relief without having their funds deposited into the state’s coffers to accrue minimal interest during the litigation. The bill’s legislative history stated a desire to provide an alternative to Texas’s traditional protest suit, which requires pre-payment of the assessment in full and is “onerous for both taxpayers and the state.” HB 2080 seeks “to ease the burden on taxpayers and ensure that all Texans, regardless of means, are able to access the taxpayer suit processes by establishing a new type of taxpayer protest suit that does not require prior payment of the amount in protest.”1

Refund Bypass

SB 903 improves the jurisdictional path for refund claims pending or filed on or after September 1, 2021, by permitting taxpayers to bypass the administrative hearing process presently required for a valid refund suit in district court.

Under the new statute, taxpayers claiming a refund may file a notice of intent to bypass the administrative hearing within 60 days of the Comptroller’s denial of its refund claim to curtail the administrative process and proceed directly to district court. The notice of hearing must be in writing and assert the material facts and specific legal bases on which a refund is claimed. In response, the Comptroller may require a conference with the taxpayer to clarify any fact or legal issue in dispute and to discuss the availability of additional documentation that may assist in resolving outstanding issues. Following the conference or the Comptroller’s waiver of the conference, the taxpayer may file suit in district court. The statute requires a taxpayer to pick a path (administrative hearing or district court) early in the refund process because a notice of intent to bypass waives the taxpayer’s right to an administrative hearing.