Tennessee Personal Property Audits Unfair to Taxpayers
Tennessee assessors maintain a continuing program for auditing taxpayers' tangible personal property accounts. The Tennessee Division of Assessments randomly selects taxpayer accounts for audit. This procedure raises one question. If the selection process is indeed random and local assessors perform the audits, the purpose for the State Division's involvement in the selection process is questionable.
The real problem is much more serious. If an assessor's audit indicates that property has escaped taxation, or if property in the assessor's opinion was undervalued, the assessor may go back for a permitted number of years and increase the assessment. This, of course, results in increased back taxes for the audited taxpayer.
The failure in this process is that the assessor has no authority to decrease an assessment. If the audit shows that property was assessed in error or was excessively valued then the assessment stays the same. On the other hand if the audit shows the property was undervalued, then the assessment goes up. This means that the process only works one way. What a predicament for the taxpayers!
Our firm solved this problem once. We drafted and successfully lobbied for passage of legislation which permitted a taxpayer to file an amended return. It's hard to believe that at one time a taxpayer couldn't even amend a previously filed personal property schedule in order to correct errors made by the taxpayer. If an error was made, there was no way for the taxpayer to have it corrected.
Once the amended schedule law was passed, if an assessor's audit indicated that a taxpayer had overpaid personal property taxes, the taxpayer could file an amended schedule. Since the assessor's own audit indicated an excessive assessment, the assessor was forced to accept the amended schedule and the overpaid taxes were refunded.
Later, the assessors convinced the Legislature to enact new legislation to extend the time that an assessor may take in order to complete an audit. The new legislation provided a new timeframe that began when the notice was sent to the taxpayer that the assessor intended to make an audit and ended when the audit results were issued. The deadline for the assessor to implement increases in back assessments was extended for that same period of time. The previous deadline for assessors to make back assessments was the same as the taxpayer's amended schedule deadline. Because of the equal dates, the taxpayer could always file an amended schedule for refunds if the audit showed over-payment.
Now, because of the audit time tolling law, the assessors sometimes take so much extra time to complete the audits that the deadline for a taxpayer to file an amended schedule passes by. The taxpayer then cannot correct an excessive assessment indicated by the assessor's own audit because the results came out past the taxpayer’s deadline.
This puts the taxpayer back into the situation as before where audits allow assessments to go up, but not go down.
Our firm has once again drafted legislation and is lobbying for its passage to solve this problem for the taxpayers. The legislation will allow the deadline for the taxpayers filing amended schedules to be equal to the same amount of time that the assessor is allowed in making back assessments from audit results. Therefore, the taxpayer will have time to file an amended schedule to receive refunds of overpaid taxes if the audit results so indicate.
Another method we are exploring in order to level the playing field is to permit errors in tangible personal property assessments to be corrected under the errors corrections law. At the present time neither the assessor nor the taxpayer may correct a personal property assessment error under this statute. Correctable errors are limited to only real estate assessments. While the taxpayer may file an amended schedule, if the assessor makes an error, it may not be corrected at all unless the taxpayer discovers the error or it is discovered through a random audit.
We will be reporting on this issue as it progresses in the Legislature.