§ 40-2A-6 — Government Contract for Examination of Taxpayer’s Records Where Compensation, Etc., Contingent Upon Tax, Interest, Etc., Assessed or Collected; Violation; Costs of Examination

(a) The state or any county or municipal governing authority may not enter into any contract or arrangement for the examination of a taxpayer’s books and records, written or otherwise, with a private auditing or collecting firm, if any part of the compensation or other benefits paid or payable to the private auditing or collecting firm is contingent upon or in any manner related to the amount of tax, license fee, interest, court cost, penalty, or any other item assessed against or collected from the taxpayer. Any such contract or arrangement, if made or entered into, is void and unenforceable. Any assessment or preliminary assessment of taxes, license fees, penalties, court costs, interest, or other items proposed or asserted by, or based upon the recommendation of, a private auditing or collecting firm compensated under any such contract or arrangement shall be void and unenforceable. This provision does not prohibit or restrict the state or any county or municipal governing authority from entering into contracts or arrangements for the collection of any tax, interest, court cost, or penalty when the private auditing or collecting firm has no authority to determine the amount of tax, interest, court cost, or penalty owed the state, county, or municipal governing authority.
(b) The compensation or other benefits paid or payable to any employee or other agent of a private auditing or collecting firm or to any employee or other agent of the state or county or municipal governing authority serving in the capacity of a hearings or appeals officer, including an attorney serving in that capacity, may not be contingent upon, in whole or in part, or otherwise related to in any manner, the amount of tax, license fee, interest, court cost, penalty, or other item assessed against or collected from the taxpayer. Any contract or arrangement based, in whole or in part, on any such contingency is void and unenforceable. Any assessment or preliminary assessment of taxes, license fees, penalties, court cost, interest, or other items proposed or asserted by or upon the recommendation of a private auditing or collecting firm, compensated under any such contract or arrangement, is void and unenforceable.
(c) Any person violating this section, for each violation, shall have committed a Class A misdemeanor. Violators shall also forfeit any certification granted under Section 40-2A-14. Any private auditing or collecting firm that violates subsections (a) or (b) shall forfeit its license issued under Section 40-12-43.1 until such time as it and each of its examiners or other employees or agents involved in the violation meet any remedial requirements prescribed by the board created under Section 40-2A-15. This provision may not, however, preclude employees of a private auditing or collecting firm from participating in a profit-sharing arrangement generally made available to other employees of the firm who are not engaged in examining taxpayers’ books and records, provided that the formula utilized in calculating the profit-sharing allocations is based primarily on the overall profitability of the firm and secondarily on non-monetary criteria such as age or years of service.
(d) Except as otherwise provided in this subsection, the state or any county or municipal governing authority may not assess or attempt to assess a taxpayer for any costs incurred by, or charged to, the state, county, or municipality in connection with performing an examination of the taxpayer’s books and records, including lodging, meals, or mileage charges, and any assessment or proposed assessment of such costs is void and unenforceable. A self-administered county or municipality may, however, assess and collect from the taxpayer the reasonable costs, based on the then current state government employee per diem rates incurred by, or charged to, the county or municipality in connection with performing an examination of the taxpayer’s books and records, if the taxpayer received notice by certified U.S. mail, return receipt requested, at least 30 days prior to the date on which the examination was to commence and the taxpayer either failed or refused to respond or did not propose a reasonable alternative date on which the examination was to commence within 15 days of receipt of notice of the pending examination, or the taxpayer and the self-administered county or municipality agreed in writing as to an alternative date on which the examination was to commence but the taxpayer then failed or refused to permit reasonable access to its books and records on the alternative date. This subsection does not apply to examinations of the books and records of a taxpayer with respect to the insurance premium license tax levied by Chapter 4A, Title 27, or examinations for gasoline or motor fuel taxes if authorized by local law in effect on July 1, 1998.

Legislative History

(Acts 1992, No. 92-186, p. 349, §5A; Act 98-191, p. 297, §3; Act 2016-406, §1.)