A recent article in State Tax Notes details some transparency concerns at the Mississippi Department of Revenue that are (unfortunately) somewhat commonplace. For example, the department does not publish letter rulings, which can be useful in helping taxpayers understand the risk associated with a particular transaction. In general, taxpayers want to go into matters with eyes wide open, so the ability to use letter rulings as a guide is important.
In the article, Scott Waller of the Mississippi Economic Council articulated that concern, noting that taxpayers have difficulty knowing what is going on at the DOR because it's basing its decisions on information that isn't published. The taxpayer community wants to make sure that “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,” Waller declared.
But what really struck me in the article is that the Mississippi DOR does not publish opinions and decisions resulting from its audit appeals process, even though it may rely on those opinions and decisions. This includes both decisions issued by an internal review board and opinions handed down by the Mississippi Board of Tax Appeals (BTA), an independent quasi-judicial entity. Not publishing administrative-level tax opinions may sound mundane, but in Mississippi, it stacks the deck against the taxpayer.
Assume a taxpayer is before the BTA challenging its corporate and franchise income tax assessment. The taxpayer’s counsel has done research but can’t examine any letter rulings, review board opinions, or BTA decisions, and has only a limited ability to find trial court opinions. Nonetheless, counsel concludes the taxpayer’s position can be substantiated and moves forward. Unfortunately, the department has a secret weapon: all the letter rulings, review board opinions, BTA decisions, and trial court opinions that have been issued but not made public. Based on those, the department has precedent to show its position is correct, and the taxpayer loses. To add insult to injury, the department doesn’t have to reveal whether it's relying on a single opinion or a series of opinions on the same issue. Had the taxpayer and counsel been privy to the same precedent as the department, it's unlikely the audit would have ended up before the BTA.
Practitioners in Mississippi seem confident in the BTA's impartiality, but have expressed concern and said the prohibition on publishing opinions is a major problem. First, it makes it nearly impossible to assess litigation risk. Second, it permits the department to treat similarly situated taxpayers differently. Whether or not the department is doing so, the fear is there, and practitioners admitted that inconsistencies happen.
Mississippi needs to take a hard look at its policy of not permitting the publication of opinions and decisions from audit-level appeals, as well as letter rulings. A transparent state tax system ensures that taxpayers, tax administrators, and the legislature understand what the law is, how it will affect taxpayers, and how it will be enforced. Tax administration and enforcement are inherently adversarial. Both taxpayers and the states benefit from an open dialogue and information exchange.