Senate Bill S5508A

                                
 
BILL NUMBER: S5508A

SPONSOR: METZGER
 
TITLE OF BILL:  An act to amend the general municipal law, in relation
to prohibiting compensation for service of auditing relating to any tax
on a contingency basis

 
PURPOSE OR GENERAL IDEA OF BILL::

The purpose of the bill is to prohibit municipalities from compensating
private auditors on a contingent fee basis.

 
SUMMARY OF SPECIFIC PROVISIONS::

Section 1 - Amends Article 3 of the general municipal law by adding a
new section 39-A to prohibit municipalities from compensating private
auditors on a contingent fee basis.

Section 2 - Effective date.

 
              

JUSTIFICATION:

Currently, municipalities are allowed to hire private auditors to exam-
ine certain returns and are paid, in some cases, a contingent fee for
their services. State and local jurisdictions have supplemented their
audit activities by engaging independent third-party tax auditors. In
some cases, the third-party auditors are paid via contingent fee
arrangements (i.e., a fee in exchange for a percentage of the increased
taxes, fees or other amounts collected).

The use of third-party tax auditors is commonly used in the area of
unclaimed property or escheated property. State and local jurisdictions
also utilize third-party tax auditors with respect to local property tax
audits, sales and use tax audits, and transfer pricing audits. A contin-
gent fee audit arrangement raises a number of concerns for taxpayers.
This type of arrangement, creates an incentive for the contract auditor
to assess the highest amount of tax and to interpret the statutes and
regulations in an aggressive manner in favor of the jurisdiction. In
addition, the contract auditor does not have an incentive to inform the
taxpayer of potential overpayments, missed deductions, tax credits or
refund claims. Data security is also a concern.

In addition, taxpayers have challenged the use of contract auditors in
judicial proceedings. For example, in the District of Columbia, taxpay-
ers have challenged the ability of contract auditors to use specific
transfer pricing methods at audit.

North Carolina, Arizona, South Carolina and Pennsylvania have enacted
legislation against this practice.

 
PRIOR LEGISLATIVE HISTORY::

New Bill

 
FISCAL IMPLICATIONS::

None

 
EFFECTIVE DATE::
This act shall take effect immediately