Governor DeWine signed the Ohio Biennial Budget Bill, Am. Sub. H.B. 33 (the “Budget Bill” or “Bill”) into law on July 3, 2023, and announced his vetoes. The Budget Bill includes many significant policy changes discussed in our previous Buzz. Previously, delivery of tax notices and orders was by certified mail, personal service, or authorized delivery service, or by secure electronic mail if the person consented to such means. This Buzz focuses on the procedural change to allow the sending of tax notices and orders by ordinary mail, which was effective October 3, 2023, and some of the potential issues that arise from this procedural change. This procedural change could create significant risk to taxpayers.
For any tax notice or order previously required to be sent by certified mail or one of the previously authorized methods, the law change allows the Tax Commissioner to instead send the tax notice or order by ordinary mail. The Bill also removes certain recordkeeping requirements a delivery service must meet to be used by the Tax Commissioner to deliver tax notices. Specifically, the change eliminates the requirement that the delivery service record the date on which the document was sent and delivered. The change allowing the Tax Commissioner to send notices or orders by ordinary mail was recommended by the Ohio Department of Taxation (“Department”) to reduce its postage costs because approximately 50% – 60% of its certified mail is returned unsigned.
After the law change, the receipt date for a document served by ordinary mail will be the date of the postmark placed by the postal service. However, unlike certified mail or authorized delivery services the Department does not receive information from the postal system or delivery service stating when the mailing was sent. Additionally, it is less likely that ordinary mail will be returned undeliverable by the postal service.
It is unclear whether the Department has a way of keeping track of the date when tax notices or orders are sent when sent via ordinary mail. Even if such a log is kept by the Department, its accuracy could easily be questioned, particularly given the volume of mail sent by the Department. Without a tracking system used by the delivery provider, the Department would not have a record of the delivery date of ordinary mail.
The procedural change applies to any tax notice or order covered by the Ohio Revised Code, many of which are only appealable within a certain number of days. This would include Notice of Assessments, Final Determinations, etc., sent by the Tax Commissioner. The procedural change would also apply to municipal taxes administered by the Tax Commissioner. The procedural change may be followed by municipalities by virtue of the municipal uniformity provisions in Chapter 718 of the Revised Code, although the municipalities could choose to continue to use certified mail.
Some tax notices and orders are appealable within a certain number of days after the documentation is served upon the taxpayer (e.g., Notices of Assessments). The change to ordinary mail will likely make it harder for the Department and Attorney General to prove when Notice of Assessments and similar tax notices or orders were served and whether or when the limited period for appeal has started to run. Taxpayers will have to be more careful to document when tax notices or orders are received by the taxpayer since no tracking system will be available for ordinary mail.
The new language allowing use of ordinary mail does not address what happens if ordinary mail is undeliverable and returned as such to the Department. The new language does not appear to require that the Department seek alternative means of contacting the taxpayer.
Under the prior and continuing language, tax notices or orders sent via certified mail that are returned, the notice can then be sent via ordinary mail. The continuing language also provides (regardless of how the tax notice or order was originally sent) that once the Tax Commissioner or Attorney General (or a designee such as special counsel) makes an initial contact with the person to whom the notice or ordinary is directed, that person may protest an assessment by filing a petition for reassessment within 60 days after the initial contact.
The new provisions could conceivably create a scenario where a tax notice is sent via ordinary mail and returned, or simply not delivered and not returned. Since the statute does not require that the Tax Commissioner pursue other avenues for notice, if the notice was of a tax assessment, the assessment would probably then be certified to the Attorney General’s office. If the Attorney General or special counsel can make contact with the taxpayer via alternative means, the statute appears to allow the taxpayer to appeal within 60 days of that initial contact and potentially sustain a valid appeal so long as the taxpayer can prove that the initial notice was not properly delivered via ordinary mail. This scenario would mean there would be a lot more appeals related to older matters since it usually takes a long period of time for matters to be certified and contact made.
The existing statute does assign the burden of proving an incorrect address on the taxpayer. But the other side of that issue is that, by using ordinary mail without a tracker, the Department or Attorney General cannot prove the delivery of the notice and probably doesn’t have proof of the postmark date. The Department or Attorney General could argue that the date on the tax notice should be used but the Tax Commissioner regularly assigns later dates to account for mailing. Further, the mailing date is often different than the date on the tax notice because the document is generated at a different location than where mailing occurs. In other words, the procedural change could make it harder for the Department or Attorney General to prove that service occurred.
Tax Commissioner Feedback
One of the current goals of the Department is to provide a “bank like” experience where taxpayers can view all of their tax information online. This type of system is currently available for individual income taxes. For other taxpayers and taxes, the Ohio Business Gateway (“OBG”) is available until the new system is in place. Ultimately, the goal is for these tax notices and orders to be available via that online system.
Further, the Tax Commissioner has indicated that they won’t yet send a Final Determination from the Appeals Division via ordinary mail. Final Determinations are generally appealable to the Ohio Board of Tax Appeals, a tribunal. The Department has indicated that the volume of Final Determinations is significantly less so the cost to send them via certified mail is also less significant.
At least one high level person at the Department has indicated that on the tax notices sent via ordinary mail and where a taxpayer challenges service, the Department isn’t generally going to argue about whether service was proper. Instead, the Department will resend the assessment providing 60 days for the response described above. It is unclear whether the entire Department will follow this policy and whether the policy will be documented in an information release, rule, or other form.
Areas of Consideration and Concern
- In the past, a copy of a mailed Notice of Assessment was not provided to any tax representatives (because a Notice of Assessment was only sent certified mail to the taxpayer). It is unclear whether that practice will continue if the Notices of Assessment are sent via ordinary mail. It is also unclear whether a taxpayer or tax representative can request that the tax representative receive a second copy of a Notice of Assessment but (if so) it could be a good practice to request copies be sent to both parties.
- Another concern is that taxpayers may miss filing deadlines because they do not recognize the importance of an assessment that is sent by ordinary mail. Certified mail is a step-above ordinary mail and calls to the taxpayer’s attention that it has received an important government notice.
- Regular mail is simply unreliable. Our Firm recommends that taxpayers never send tax returns or payments by regular mail, but instead use certified mail which shows the returns or payments were sent and received.
- Our Firm has had clients receive “fake” collection and similar notices from nefarious sources that are able to obtain public information when a tax notice is not timely appealed. It will be harder for taxpayers to distinguish between valid tax notices and orders and fake orders sent via ordinary mail.
- Appeals of Notices of Assessment and refund denials are reviewed by the Appeals Division of the Department. Because of the case backload at that division, appeals can take multiple years before they are resolved or a hearing held. Where a hearing was not requested and/or already held, a taxpayer may not receive notice that a tax notice or other order may be coming. Note, as described above, the Department currently expects to continue to issue Final Determinations, which are issued by the Appeals Division, via certified mail.
Taxpayers or businesses should carefully review their current practices. If you would like to review the change and work through best practices or discuss a service issue, please contact Debora McGraw or another one of our tax professionals.