An important proposal is before the North Carolina legislature. The bill (SB 481) would force the North Carolina Department of Revenue to release all private letter rulings issued over the past six years. There is nothing more critical to fair tax administration than transparency. Indeed, there is nothing more critical to democracy than transparency. As a Tax Analysts guy, I am particularly interested in transparency. That's at the core of our organization's mission. We believe that tax laws should be open to public scrutiny. From its beginnings, Tax Analysts has fought for this ideal. You can thank Tax Analysts for your ability to read every private letter ruling issued by the IRS.
Private letter rulings are a threat to state transparency. A taxpayer can write the state revenue department and receive a ruling on a particular tax issue and then rely on that ruling. That is powerful. The taxpayer can order its affairs without the risk of running afoul of the tax laws. Private letter rulings are essentially the law as it applies to the taxpayer.
But when those rulings are unavailable to the public, they are very dangerous. They become what we at Tax Analysts call secret law. The problem should be obvious. How do we know if the ruling complies with the statute and regulations or court precedent? How do we know if similarly situated taxpayers receive the same type of treatment? How do we know that there are no shenanigans taking place? Overt corruption is rare, but the possibility exists that a revenue employee might provide a favorable ruling in return for a job offer. Secret law is anathema to a democratic society. It's no way to run a government.
In addition to requiring the DOR to disclose all private letter rulings over the last six years, the proposal in North Carolina would require the department to release -- on its website -- all prospective rulings within 90 days of issuance.
The DOR issues a lot of rulings. Since 2010 it has issued 493, most of which have concerned sales and use taxes. Perhaps because I'm eternally optimistic, I don't believe that the folks at the North Carolina DOR are engaging in nefarious conduct. Nor do I think they're incompetent in interpreting the revenue laws. But I really don't know. Neither do you. And neither does anyone else. But secretly informing private parties of the law is an abomination. And every ruling should be made public.
We should commend Sen. Tamara Barringer (R), who is behind the transparency effort.