More than twenty states now require courts to take a fresh look at ambiguous laws rather than deferring to state tax agencies’ regulations and guidance. From Arizona to Florida, Texas, and Wisconsin, this trend creates potential settlement leverage for practitioners in state tax disputes far beyond the courtroom. As Baker McKenzie Partner Niki Ford told Catalyst in a recent Checkpoint News interview, in many states, “including a deference argument in a petition inherently strengthens the taxpayer’s position. Reminding the agency that a reviewing court or tribunal is not required to defer to that agency’s position gives the taxpayer a leg up and they can come at settlement negotiations from a stronger position.” If a measure recently passed by the Georgia legislature becomes law, the state would join the many others requiring “de novo review.”
A Changed Calculus for State Tax Agencies and Practitioners
The practical implications of these laws are immediate. When agencies know their interpretations will not receive special judicial deference, the calculus changes for both sides. Taxpayers can credibly argue that courts will independently evaluate statutory meaning, giving agencies reason to moderate their positions in settlement discussions. While many states allow courts to give “consideration” or “weight” to agency rules and guidance even as their laws prohibit outright deference (binding weight), challenges to agency positions become more viable. The risk-reward analysis may shift in favor of litigating rather than settling on unfavorable terms.
As Ford emphasizes, the key is framing the argument in practical rather than theoretical terms. Auditors and agency counsel understand that litigation outcomes are less predictable when courts exercise independent judgment. Framing the issue as one of outcome risk at trial rather than abstract legal theory gives the argument a cautionary weight for the agency.
In controversy work at the federal level, “hazards of litigation” is a formalized, documented process requiring Appeals Officers to assess the probability that the IRS’s position would not be upheld in court. Many state tax authorities have similar internal or informal policies used by agency attorneys and dispute resolution officials. A state’s repudiation of judicial deference is likely to change this internal calculus in contentious disputes, for practitioners making the right kinds of arguments.
From Delaware to Loper Bright: A Growing Movement
The movement toward eliminating judicial deference to agencies’ interpretations of ambiguous statutes predates the U.S. Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), which overturned the longstanding Chevron deference standard for federal agencies. Delaware’s Supreme Court rejected Chevron-style deference back in 1999, holding in Public Water Supply Co. v. DiPasquale, 735 A.2d 378 (Del. 1999) that statutory interpretation is ultimately the responsibility of courts. Arizona enacted its de novo review requirement in 2018. (Ariz. Rev. Stat. Ann. § 12-910(F).) Florida adopted the approach through a constitutional amendment passed by ballot referendum the same year. (Fla. Constitution Article V § 21.)
Loper Bright accelerated the trend. The Supreme Court ruled that federal courts must exercise independent judgment when interpreting ambiguous statutes, observing that this approach reflects a traditional understanding of the judicial function. While this decision carries precedential weight only in federal law, many states have seized upon its reasoning in the aftermath. Alabama, Kentucky, Louisiana, Missouri, and Texas are among the states that have enacted laws requiring de novo review of agencies’ statutory interpretations since Loper Bright was decided. See Catalyst Topic #1000 State Taxation, Basic Principles, 1001:1009 Judicial Deference to Administrative Agencies’ Interpretations of Law.
Common Features of De Novo Review Laws
These laws tend to have features in common. They require courts to interpret statutes without deference to agency positions. After applying customary tools of interpretation, the court typically must resolve any remaining ambiguity against expanded agency authority. Some states explicitly direct courts to maximize individual liberty in their decision making or resolve doubts consistent with fundamental constitutional rights when ambiguity remains.
States Where Deference Endures
Even in states that have not rejected deference, courts and other tribunals are frequently applying heightened scrutiny. The distinction between formal regulations and informal guidance has become increasingly important, as tribunals display increasing skepticism toward guidance not adopted through formal rulemaking.
Several notable orders and rulings from California tribunals in recent years exemplify the shifting deference terrain. In the 2024 case of American Catalog Mailers Association (ACMA), a non-profit trade association successfully challenged the Franchise Tax Board’s guidance on Public Law 86-272 on the grounds that the FTB failed to comply with the California Administrative Procedure Act (APA). The San Francisco Superior Court voided the guidance as “underground regulations,” and in denying a subsequent motion to vacate excoriated the FTB’s position as “feckless,” finding that the agency’s motion “verges on the frivolous.” See Ford, Another Deference Blow: In Rebuke, California Court Voids Non-Compliant Tax Regulations, Checkpoint State Tax Update, 02/21/2024.
The same year, California’s Office of Tax Appeals in Southern Minnesota Beet Sugar Cooperative and Subsidiary refused to defer to Franchise Tax Board guidance on apportionment issued 17 years prior, concluding that while the “FTB’s expertise in multistate taxation counsels in favor of a degree of deference to its interpretation,” its position did not “persuasively explain how the relevant statutes or regulations might be interpreted in the manner it proposes.” In Appeal of Microsoft Corporation and Subsidiaries, a subsequent nonprecedential case later that year, the OTA again declined to follow the same guidance. California later enacted legislation in 2024, retroactively codifying the FTB’s guidance position in Cal. Gov’t. Cd. § 11340.9(b), and mandating deference to Franchise Tax Board guidance more broadly, although 2025 California Attorney General opinion clarified that the California Office of Tax Appeals retains authority to decline applying regulations that conflict with governing statutes. See Ford, California Legislature Overturns OTA Decision, Negates APA Requirements, Raising Broader Deference Questions, Checkpoint State Tax Update, 07/30/2024.
In 2024, a New York Division of Tax Appeals administrative law judge (ALJ) issued a determination In the Matter of the Petition of E. & J. Gallo Winery declining to defer Technical Service Bureau Memorandum, a type of guidance routinely issued by the New York State Department of Taxation and Finance that was directly on point. The ALJ found the TSB-M to be “advisory in nature,” and without “legal force or effect.” Rather than disqualifying the taxpayer from its desired status on the basis of the TSB-M, the ALJ conducted his own independent review and analysis of the statute and determined that nothing in the law imposed the requirements set out by the Department’s guidance.
Some states are definitively not on board with the de novo review trend. Hawaii’s Supreme Court explicitly rejected Loper Bright’s reasoning in the 2024 case of Rosehill v. State, ruling that courts generally must defer to agencies’ interpretations of ambiguous laws. The court observed that “in Hawai’i, we defer to those agencies with the na’auao (knowledge/wisdom) on particular subject matters to get complex issues right.” Many other states maintain longstanding nuanced approaches.
Strategic Considerations for Practitioners
For practitioners, several strategic considerations have emerged. In de novo states, it may be advantageous to lead with statutory language and legislative intent. Emphasize that the tribunal must exercise independent judgment. Frame the agency’s interpretation as one possible reading among several. Build a comprehensive record of legislative history, statutory context, and policy considerations supporting your interpretation.
In states that still apply some degree of deference, practitioners should look for ways in which the agency’s interpretation is arguably unreasonable, arbitrary, or inconsistent with the statute. Highlight internal inconsistencies in the agency’s positions, such as when an agency’s interpretation would lead to internally inconsistent results or conflicts with the agency’s treatment of analogous provisions. Identify applications that undermine claims to expertise. When possible, avoid deference entirely by demonstrating that the statute is unambiguous.
Even in states that have not formally changed their standards, raising deference issues highlights litigation risk for the agency and creates settlement leverage. As the landscape continues to evolve, understanding the nuances of each state’s position and knowing how to leverage them strategically has become an essential component of effective state tax controversy work.
Related Checkpoint Resources
For an in-depth consideration overview of states’ shifting deference positions, see Catalyst Topic #1000 State Taxation, Basic Principles, 1001:1009 Judicial Deference to Administrative Agencies’ Interpretations of Law.
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