This article first appeared in the January 5, 2015 edition of State Tax Notes.
Though sweeping legislation designed to ameliorate shortcomings in Mississippi's tax system exposed by Equifax Inc. v. Department of Revenue went into effect January 1, practitioners say there is still a great need for more transparency.
A combination of strict confidentiality provisions for all tax dispute determinations, the department's refusal to publish private letter rulings, and deference afforded to department determinations impede taxpayer efforts to comply with the law.
At the core of the problem in Mississippi is a lack of certainty for taxpayers caused by a lack of clear guidance.
Scott Waller of the Mississippi Economic Council (MEC) told Tax Analysts that the common complaint he hears from practitioners and taxpayers in the state is that because "there are so many things out there that are not published that [the department is] using as a basis for making decisions, it is very difficult for [taxpayers] to know what is going on."
What the taxpayer community wants, Waller added, is to make sure "there is certainty within the system -- that if someone is following a certain rule a certain way, then they should not be penalized for it if there is something out there that they do not have access to."
Leonard Van Slyke Jr. of Brunini, Grantham, Grower & Hewes PLLC echoed this sentiment. "If you have an issue that the Department of Revenue is taking a particular position, unless you or someone in your firm happened to have represented a taxpayer with the same issue, you would not have any way to know what position they had been taking or whether the issue had gone to the board of review in the past," he said.
Overall, said John Fletcher of Jones Walker LLP, there is a general inability for Mississippi practitioners to find guidance on or supporting what the department's policies and positions are on the state's tax laws.
Guidance for Taxpayers
The Mississippi DOR does provide some guidance for taxpayers aside from tax statutes and the department's officially promulgated regulations.
The department publishes on its website some informal general guidance for taxpayers concerning entities required to file with the state, filing procedures, and interest and penalty provisions. However, these online frequently asked questions are preceded by a disclaimer that the answers are not intended to serve as official, binding guidance and that changes in the law or department notices and announcements could affect the accuracy of the information provided.
The department also issues online notices and technical bulletins. These include guidance for applying accelerated depreciation rules, participating in voluntary disclosure agreement programs, and applying credits and NOLs when filing combined returns.
However, none of this guidance was issued later than 2009. Indeed, the department website says, "The DOR strives to provide quality information, but makes no claims, promises, or guarantees about the accuracy, completeness, timeliness, or adequacy of the information contained in or linked to this website."
Taxpayers can also receive oral and e-mailed advice from the department relating to specific questions. Taxpayers may receive oral advice during audits, conferences, or other hearings, but, the department says, "Any such answer, advice, or direction given orally by a DOR employee is advisory only and not binding on the DOR." This stipulation applies for any guidance received via fax or e-mail.
The only binding guidance issued by the department comes in the form of letter rulings and declaratory opinions. According to the department, a letter ruling is written, informal guidance to provide taxpayers with private advice regarding their particular facts and circumstances.
While letter rulings are considered by the department to be informal guidance, the department told Tax Analysts that they are considered binding unless there is a change in law or a taxpayer's factual circumstances. The department added that it issues an average of 400 letter rulings each year and issued 454 letter rulings in the past fiscal year alone.
The department also reserves the right to retract any letter ruling it determines was incorrect, but it does provide that the effect of any retraction is prospective only.
Letter rulings are not made publicly available, even in redacted form. According to department spokeswoman Kathy Waterbury, there are no budgetary constraints on the department that prevent it from redacting and making the rulings public. Instead she said, "After redacting that information, there would be nothing of substance to glean from the letter."
The department also issues declaratory opinions. However, according to Waterbury, only six declaratory opinions have been issued since 2006. Van Slyke has been licensed to practice law in Mississippi for over 40 years but said he was unaware of the availability of declaratory opinions.
Much like a letter ruling, a declaratory opinion is issued by the department in response to taxpayer inquiries and is binding on the department to only the person who requested the opinion. Waterbury said that these opinions do not expire and cannot be retracted by the department unless it is found that the underlying information was false.
Any taxpayer seeking this type of ruling must sign a confidentiality waiver so the department can disclose its opinion, but the department does not publish them. The only way to obtain copies of these opinions is through public records requests.
While this type of ruling is considered to be public information, according to an online department description, an opinion "is not applicable to persons similarly situated to the person requesting the opinion or to the successor or purchaser of a business or operation that is the subject of the declaratory opinion."
Beyond its formal and informal guidance, the Mississippi DOR also produces scores of opinions through its audit appeals process. However, the opinions and decisions resulting from these appeals processes are barred from the public. Also, any trial court decisions issued are difficult to search through, leaving a relatively small number of appeals court decisions as the only effective judicial or quasi-judicial tax guidance.
Mississippi has a two-tier tax appeals process before taxpayers must proceed to court.
First, the department has an internal review board composed of three department staff members independent of the audit department. The review board considers taxpayer challenges to assessments and issues written orders after its hearings informing taxpayers of its decisions.
These orders, however, are not publicly available. Waterbury said this is because, like letter rulings, "there is too much taxpayer-specific information that could violate taxpayer confidentiality if released." If the department issued redacted versions, she added, there would be little useful information left.
The second layer of administrative appeal in Mississippi is the Board of Tax Appeals. The BTA is an independent quasi-judicial entity composed of three appointed members. It hears challenges to the department's board of review orders and issues its own written decisions.
These decisions are appealable to the Mississippi Chancery Court but are not public record. Mississippi law, in code section 27-77-15(1), expressly forbids the BTA from sharing its decisions with anyone other than the parties involved in the proceedings and expressly exempts the decisions from the state's public records and open meetings laws.
As a result, the department has access to copies of all of the BTA's opinions while taxpayers do not.
Van Slyke said that in his view, once a case gets to the BTA, "I don't understand why the taxpayer's name has to be kept private. That is a forum where formal decisions are made." However, he added, that is a legislative issue rather than something controlled by the department or BTA.
As to why the Mississippi Legislature barred the publication of BTA opinions, Fletcher said the department typically cites resource limitations. However, he said, part of the policy rationale driving secrecy is because the Legislature, the BTA, and the department want the administrative process to be informal and less expensive than court proceedings, allowing taxpayers to easily appear pro se.
"The fear seems to be if those decisions are made public, even on a redacted basis, it may have a chilling effect on taxpayers seeking an appeal of an assessment," he said.
Fletcher added, "They should be able to craft an openness policy that protects taxpayer identifying information but still gives the public the ability to determine what issues have been addressed, distinguish those situations from their clients' situations, and get a little more openness as to what the department's official policy is."
Van Slyke said that not knowing BTA or review board decisions is a terrible problem not just from the practitioner standpoint of advising clients on the law but also because it could be causing taxpayers unnecessary expense.
"If a taxpayer knows the department and the board of review are consistently taking a position and he is not committed to going to court, it would be good for him to know on the front end that he will lose administratively," he said.
The lack of being able to see letter rulings, administrative decisions, and BTA decisions undermines the ability of taxpayers and practitioners to determine litigation risk and whether it is worth pursuing a position after audit -- especially for small companies and individuals for whom litigation costs are important, Van Slyke said.
While both Van Slyke and Fletcher said practitioners have faith in the BTA as a fair and independent judicial entity that is not a rubber stamp of the department's positions, the state's prohibition on publishing its opinions is a major problem for taxpayers.
"The problem for taxpayers is that it makes it very difficult to determine what the department's policy or position is going to be in their particular fact situation without seeking a letter ruling and disclosing all of their transactions and details," Fletcher said.
By not letting taxpayers know what opinions motivate the department's decisions and what guidance informs its stance on various tax positions and provisions of law, there is always the fear that the department may treat taxpayers inconsistently, Fletcher said. "But unless you have personally represented two taxpayers where the department has taken different positions, it is hard to tell whether and to what extent that happens," he said. However, Fletcher added, "In my experience, I have seen some instances where that is the case -- at least at the audit stage."
Waller said that HB 799 , which went into effect January 1 and was primarily designed to address concerns raised by Equifax, attempts to address some of the problems with transparency. The bill, in part, provides that "the Board of Tax Appeals shall give no deference to the decision of the Board of Review, but shall give deference to the department's interpretation and application of the statutes as reflected in duly enacted regulations and other officially adopted publications."
Waller said this provision was added in an effort to say that if the department is basing its position on something that is not a statute, regulation, or officially published guidance, then it cannot be afforded deference when a taxpayer cannot have been expected to see it.
He said that provision is probably not as far as some of the MEC's members wanted to go, but it at least broaches the issue that taxpayers cannot know what is expected of them if it is not published.
The question, however, is how the provision will be interpreted by the courts, Waller said. If transparency and improper deference to the department's unpublished positions continue to be an issue, he said, it will be something for the MEC to address. However, he said, there are no plans to address transparency during this legislative session.