Mike Petrik was quoted in a State Tax Notes article discussing transparency in the legislative process regarding state taxation, as well as states’ use and publication of private letter rulings.
According to the article, there are two transparency questions regarding letter rulings—first, whether a state will issue them and, second, whether a state will make them publicly available. Because taxpayers frequently need quick guidance on a particular legal issue, Petrik suggested that states consider offering two levels of rulings subject to different standards.
“In addition to conventional binding rulings, a state revenue department could offer to issue nonbinding rulings to anonymous taxpayers within a short time frame, perhaps even a few weeks,” Petrik said.
Petrik also noted that binding rulings, in contrast, should require greater disclosure and take significantly longer, given the need for more thorough review. “In many cases, taxpayers would likely accept a nonbinding letter ruling if they could get it in a timely fashion…agency guidance is not rendered useless just because it is not binding,” he said.
States cite taxpayer privacy and tax departments’ lack of authority to publish rulings as rationales for not making the rulings publicly available; however, Georgia recently passed a bill stating the commissioner of revenue can publish redacted versions of the private letter rulings with the name address and other identifying details of the taxpayer removed.
To ensure the taxpayer’s identity is not revealed, Petrik suggested that requiring taxpayer approval of the redactions could help alleviate some of those concerns. “States could condition the issuance of a letter ruling on the taxpayer’s acceptance that a redacted version of the ruling will be made publicly available. For example, taxpayers could be given the opportunity to comment on the redactions, but requiring taxpayer approval upfront could speed up the process,” he said.
“If it is difficult for the state, with any degree of confidence, to secure all the relevant facts about the taxpayer’s activity in the taxing state, the tax officials may be reluctant to issue a letter ruling,” Petrik said.