Why state tax courts are peachy

Georgia’s creation of a state tax court is important news. It’s a welcome development for companies and indirect tax groups that operate in the Peach State for several reasons.  

Dedicated state tax courts tend to be helmed by judges who possess specialized expertise in tax matters, and this tends to lead to more favorable legal outcomes for taxpayers. The opposite is true when general jurisdiction courts (e.g., division, superior and appeals courts) handle tax-related legal disputes.  

The law firm Eversheds Sutherland publishes a quarterly “SALT Scoreboard” that tallies the outcomes for what it deems to be “significant” taxpayer wins and losses in legal disputes involving corporate income, franchise tax and sales and use taxes. The results are rarely, if ever, favorable to taxpayers. During Q3 of this year, taxpayers prevailed in only 33% (seven out of 21) of these legal disputes. For the year to date, the tally is 30 wins for taxpayers and 65 losses. In disputes involving sales and use taxes this year, taxpayers have so far lost 25 out of 32 cases.  

Keep in mind that the majority of these tax cases are heard in courts of general jurisdiction – not in specialized state tax courts, in which taxpayers typically have much higher success rates (as high as 50% to 65%). Higher success rates are a compelling reason why state tax courts are a better venue for taxpayers to resolve sales and use tax disputes; other advantages include:  

• More detailed and nuanced judicial guidance: Given their depth of tax knowledge and experience, state tax court judges tend to issue more thorough and substantive guidance. Their opinions tend to be more detailed and technically sound from a tax policy perspective while recognizing the interfaces among state, local, and federal taxing jurisdictions.
• Stronger settlement leverage: Given that taxpayers are more likely to prevail in state tax court cases, Department of Revenue administrators tend to give more thought and effort to reaching a settlement with taxpayers rather than allowing the dispute to go to court. In other words, higher taxpayer success rates create a stronger incentive for resolution.
• More likely to manage compliance and business complexity: As tax policy evolves to address e-commerce, marketplace facilitator tax determinations and emerging forms of digital commerce, specialized expertise is needed to understand and rule on disputes related to interstate transactions and difficult nexus issues.  

While Georgia’s adoption of a specialized state tax court is promising news for companies that do business there, it also provides a blueprint for other states to consider following.