Tax proposal could level playing field

(April 28, 2008) State lawmakers have an excellent opportunity to ensure a level playing field in Connecticut tax policy by clarifying a key legal standard.

SB-702, a bill that was unanimously approved by the Finance Committee, clarifies that the standard of proof on a taxpayer in a tax appeal is a preponderance of the evidence. Although no cases have been decided on this point, the Connecticut Tax Court in several recent cases has said that the burden of proof in a tax appeal is “clear and convincing evidence.” The clear and convincing standard is much higher than the preponderance of the evidence standard used in most civil cases.

In Connecticut, the standard of clear and convincing evidence typically is used only in cases involving civil fraud or other instances in which a very high degree of certainty is required.

Taxpayers shouldn’t have to meet a higher standard in appealing a tax department ruling unless fraud or other criminal conduct is alleged. Without that kind of allegation, a taxpayer should be able to prove his or her case by a preponderance of the evidence. Subjecting all tax appeals to a higher standard higher would tilt the scales unfairly against taxpayers.

SB-702 is a reasonable measure that doesn’t change, but clarifies the correct standard in Connecticut. While some are saying that SB-702 might have a significant fiscal impact on the state, that’s not the case.

Preponderance of the evidence has always been the standard and even though the tax court has referenced the standard recently, the Department of Revenue Services has not won a single case based on the standard since it first emerged in 2003.

The state Department of Revenue Services has significant authority to make assessments. In most cases, a taxpayer already must prove that a deficiency assessment is incorrect—which provides ample protection of the state’s interest and would not be changed by the proposed legislation.

The preponderance of the evidence standard strikes the appropriate balance between the needs of the state and the right of the taxpayer and would not change the state’s revenues. Therefore, the preponderance of evidence standard should be clarified now.

For more information, contact CBIA’s Bonnie Stewart at 860-244-1925 or bonnie.stewart@cbia.com.