Tax Analysts Blog

Why Is It So Hard to Find Information on the Sharing of Taxpayer Information?

Posted on Sep 4, 2015

In the last month, I’ve spent more time than I’d like to admit trying to figure out how, when, and with whom state tax authorities share confidential taxpayer information and what safeguards are in place to avoid its misuse. What I’ve learned is that very little information is publicly available on the subject. Taxpayers are expected to blindly provide massive amounts of information to tax authorities, but are then not allowed to know the process through which one state or municipality shares information with another.

One reason for the secrecy is that the uniform information sharing agreement used by most states is not made publicly available. The Uniform Exchange of Information Agreement, executed in 1993 by the Federation of Tax Administrators, was intended to replace bilateral information exchange agreements between states and create a legal mechanism that would make the process of sharing information more efficient. All states, except New Mexico, and the Multistate Tax Commission are signatories to the agreement.

The agreement is stored on the FTA’s private website, made available only to state officials. The FTA also maintains a database of state confidentiality statutes as well as the names of state personnel authorized to request and disclose information under the agreement. That database is also stored on the FTA’s private website.

The FTA uniform agreement does not include any reference to confidential taxpayer information. It also does not include state-specific information on the administration of a state’s tax system. Because it is a uniform agreement, it is general in nature. There is nothing in the agreement that should preclude it from being publicly examined, and the public should be interested in the contents.

In fact, several provisions of the agreement should be open for discussion and debate. For example, in Article VI, the agreement states that signatories should share taxpayer information “relative to the probable taxability of any taxpayer in the state of the Signatory agency, when practical.” In other words, anytime information might be useful, it should be shared. The agreement also encourages both bulk exchanges of information and informal requests about the availability of information.

There are other provisions that are also unclear. For example, in Article III, the term “signatory agency” is defined as “any state agency or instrumentality or an agency or instrumentality of the District of Columbia or the city of New York that has executed the agreement, so long as the agreement remains in effect with that agency.” Does this mean that localities and municipalities other than the District and New York City are precluded from using this agreement? And I could go on with other issues raised by the agreement but will reserve those for a longer article.

Whether these types of provisions are necessary for the efficient sharing of taxpayer information between states should be the subject of a vigorous debate, particularly in light of the increasing threat of a cyberattack. Protecting confidential taxpayer information is vitally important. The FTA and state and local tax authorities should be more transparent about how they are sharing information and what they are doing to protect it.

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