Tax Analysts Blog

In Search of a Little Guidance

Posted on May 14, 2014

I had the pleasure of speaking at the most recent District of Columbia Bar State and Local Taxes Tax Series luncheon as part of a panel entitled “Meet the SALT Press.” The discussion largely revolved around the transparency of both informal and formal guidance. Transparency is obviously one of my favorite topics. Tax Analysts was created to foster an open and informed debate about taxation. I firmly believe transparency is vital to a dynamic debate on tax issues. Without adequate information, it is impossible to fully understand the law or how it will be enforced.

Since its founding, Tax Analysts has fought to obtain access to key documents in tax policy and administration, including letter rulings and technical advice memoranda issued by the IRS. Tax Analysts has now turned its attention to state tax departments and is engaging with some of them to encourage the release of similar documents on the state level. Taxpayers have been very receptive to Tax Analysts’ efforts. They want guidance and they want clarity. They want to know what the law is and how to follow it, and to trust that it will be consistently enforced.

Guidance isn’t always formal, though. There is a wealth of informal guidance available to tax practitioners. Some guidance can also be gleaned from anecdotal evidence. But while all guidance is valuable, there is a question as to how much weight can be given to informal guidance.

I was joined on the panel by Steven Roll, assistant managing editor at Bloomberg BNA. BBNA recently released its annual “Survey of State Tax Departments.” In it, BBNA “asked many questions aimed at clarifying each state’s position on gray areas of corporate income tax and sales and use tax administration, with an emphasis on nexus policies.”

The survey is a big undertaking, and BBNA should be applauded. The states should also be applauded, as each participated in the survey. But an interesting question arose during the panel discussion: Can practitioners and taxpayers rely on the information provided in the survey?

For example, if Alaska responds that registration to conduct business in the state is not a nexus-creating activity, but then tries to assert nexus against a taxpayer based on its registration in the state, could a taxpayer cite the survey? The answer is a resounding no. Despite having a document that provides a wealth of information, practitioners would be remiss in giving a state’s answer to a survey question substantial weight.

It is tempting to do so, of course. As Steve Kranz, partner with McDermott Will & Emery LLP, said at the panel discussion, some responses in the survey are not supported by law. It is those responses that practitioners and taxpayers are keenly interested in, because they are likely to be about areas of the law in which there is the most uncertainty.

Still, guidance gleaned from survey responses is too informal to be relied on. Given the complexity of most states’ tax laws and issues that arise in a multistate context, it would be nearly impossible for a state to qualify its answer to a survey enough to account for every possible fact pattern.

In the end, when searching for guidance that can be relied on, practitioners and taxpayers must request a letter ruling or other formal guidance in which the state applies its tax law to a specific fact pattern. Unfortunately, in some states, that’s easier said than done.

Read Comments (2)

david brunoriMay 14, 2014

Cara, You highlight a critical issue in state tax administration. The lack of
transparency and guidance in state tax practice is often appalling. The good
news is that Tax Analysts is pursuing these issues. Better news is that the tax
bar, which cares about this issue, seems ready to engage.

travis rechMay 14, 2014

Thank you for continuing to pursue this issue. As most of us know the Internal
Revenue Manual is a terrific publication for dealing equitably with the IRS.
The rules and regs are in black and white and both parties are obligated to
adhere to them and can cite them to the other to defend a position.

The states, when they do publish guidelines or expectations at all, tend to
ignore their rules arbitrarily. It's quite sad that if I was offered the
dilemma of facing a $1,000,000 audit with the IRS or a $10,000 audit with the
State of Alabama, I would take the IRS job.

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