§ 40-2A-13 — Examination of Taxpayer’s Records; Additional Assessments; Disclosure Requirements; Taxpayer Notification

(a) The Department of Revenue, a governing body of a self-administered county or municipality, or an agent of such a municipality or county may not conduct an examination of a taxpayer’s books and records for compliance with applicable sales, use, rental, or lodgings tax laws except in accordance with this section and with the Alabama Taxpayers’ Bill of Rights and Uniform Revenue Procedures Act.
(b) Additional sales, use, rental, or lodgings tax may be assessed by the Department of Revenue, a governing body of a self-administered county or municipality, or an agent of such a municipality or county within any applicable period allowed pursuant to Section 40-2A-7(b), even though a preliminary or final assessment has previously been entered by the Department of Revenue, a governing body of a self-administered county or municipality, or an agent of such a municipality or county against the same taxpayer for the same or a portion of the same tax period. No taxpayer, however, shall be subject to unnecessary examination or investigation, and no more than one examination of a taxpayer’s books and records by each respective taxing entity relating to each type of tax shall be made every three taxable years, unless the taxpayer requests otherwise or unless the commissioner, or the corresponding governing body of a self-administered county or municipality, after investigation, notifies the taxpayer in writing that an additional examination is necessary, together with the basis or bases for the additional examination.
(c) The Department of Revenue and each governing body of a self-administered county or municipality shall promulgate regulations or procedures consistent with those followed by the Internal Revenue Service with respect to second examinations of a taxpayer’s books and records. Provided, however, an examination of a taxpayer’s books and records may be conducted and shall not constitute an unnecessary examination pursuant to this section or the Alabama Taxpayers’ Bill of Rights and Uniform Revenue Procedures Act if the examination is necessary to meet one or more of the following criteria: (i) fulfill an obligation to another state pursuant to a Southeastern Association of Tax Administrators (“SEATA”) exchange of information agreement or to the Multistate Tax Commission; (ii) follow up on leads furnished by the Multistate Tax Commission or pursuant to a SEATA exchange agreement; (iii) verify a direct or joint refund claim and to determine if there is any offsetting tax liability to be credited against or that may exceed the refund claim; (iv) secure a tax return and the tax, penalty, interest, and service charge, if any, due thereon for any reporting period for which the taxpayer has failed to file a return by the due date of the return; (v) collect any tax, penalty, interest, or service charge which the taxpayer has failed to remit within 30 days after receiving notification that the amount is due; (vi) secure a corrected return and the additional tax, penalty, interest, or service charge due thereon, if any, when the taxpayer has failed to file a corrected return and remit any additional amount due thereon within 30 days of receiving a request for a corrected return; (vii) collect any tax due based upon substantial evidence of fraud or tax evasion discovered since the prior examination, and then only if the Department of Revenue or the governing body of the self-administered municipality or county explains to the taxpayer in writing the basis for the alleged fraud or tax evasion; or (viii) follow up on representations by the taxpayer that it is going out of business or the taxpayer has gone out of business.
(d) Any person examining a taxpayer’s books and records on behalf of a self-administered municipality or county shall disclose in writing, upon first contact with the taxpayer, the identity of the self-administered municipalities and counties represented, and provide signed and dated written authorization, or a copy of signed and dated written authorization, from each self-administered municipality and county represented. Also, a copy of the contract between the entity and the self-administered municipality or county, and a statement as to whether the municipality or county has elected out of the tax tribunal shall be provided upon first contact with the taxpayer.
(e) On or before January 15 of each year, beginning in 1999, each private auditing or collecting firm shall disclose in writing to the department, and to the self-administered municipalities and counties it represents as of the date of disclosure, the identity of all municipalities and counties for which it at any time during the preceding calendar year performed examinations of taxpayers’ books and records for compliance with applicable sales, use, rental, or lodgings tax laws or collected sales, use, rental, or lodgings taxes.
(f) A private auditing or collecting firm representing more than one self-administered municipality or more than one self-administered county on the date of the first contact with a taxpayer shall examine the taxpayer’s books and records for all such self-administered municipalities and counties simultaneously. A private auditing or collecting firm or its examiners or other agents may not disclose or encourage others to disclose, either directly or indirectly, to any non-client municipality or county or its agents, the fact that the firm is presently conducting an examination of the taxpayer’s books and records.
(g) If a private auditing or collecting firm is engaged by a self-administered municipality or county not represented by the firm on the date of the first contact with the taxpayer, and is not in violation of subsection (f), the private auditing or collecting firm may conduct an examination of the taxpayer’s books and records on behalf of the newly-represented self-administered municipality or county, but the examination may not commence until at least three years following the date of completion of the previous examination, as certified in writing by the private auditing or collecting firm to the taxpayer, unless one of the grounds for early examination described in subsection (c) exists, or unless the delay would result in the closing of a tax year by virtue of the applicable statute of limitations and the taxpayer fails or refuses, within a reasonable time after written request, to agree in writing to an applicable statute of limitations in favor of the newly-represented self-administered municipality or county.
(h) Whenever the private auditing or collecting firm becomes aware that a taxpayer may be owed a refund by, or may owe tax to, one or more self-administered counties or municipalities represented by the firm, the firm shall promptly notify the taxpayer in writing and, simultaneously, the respective self-administered counties and municipalities, of the reason or reasons for, and the estimated amount of, the refund due or tax owed and shall also advise the taxpayer of the general procedure by which to make a claim for refund or pay the tax. If the private auditing or collecting firm refuses or willfully fails to comply with this subsection, and the taxpayer ultimately receives a refund from or pays a tax to a self-administered county or municipality represented by the firm during the course of an examination of more than one hundred dollars ($100) of taxes for which the firm examined the taxpayer’s books and records, the firm shall forfeit its license granted pursuant to Section 40-12-43.1 for a period of six months, and each examiner who participated in the examination of the taxpayer’s books and records, but did not advise the firm in writing of the possible refund due or tax liability owed at, or prior to completion of, the examination, shall forfeit his or her license granted under Section 40-12-43.1 for a period of six months. At the expiration of the suspension period, any examiner or private auditing or collecting firm desiring to reinstate their license must reapply under the provisions of Section 40-12-43.1.
(i) A final assessment or forced collection action based upon an audit conducted by a private auditing or collecting firm shall not be issued and applicable to a taxpayer until signed by a public official or employee designated by the self-administered county or municipality. This document shall not be subject to Section 36-12-40.
(j) A self-administered county or municipality, which has chosen to opt-out of participation in the Alabama Tax Tribunal as per Section 40-2B-2, shall retain the services of an independent hearing or appeals officer who is not affiliated with the private auditing or collecting firm to conduct any hearings held pursuant to Section 40-2B-2.

Legislative History

(Act 98-191, p. 297, §5; Act 2016-406, §1.)