Tax Analysts Blog

A Win for Transparency

Posted on Sep 10, 2014

The judgment is in, and it’s a win for transparency. We’ve been waiting for a decision from a Kentucky court in a suit Tax Analysts joined to require the Department of Revenue to release redacted copies of its final letter rulings. The suit was brought by Mark Sommer of Frost Brown Todd, who sought redacted versions of the rulings as part of an Open Records Act request.

Sommer and Tax Analysts argued that the rulings should be made readily available but the DOR maintained that Kentucky’s confidentiality statutes require such significant redaction as to render the rulings useless. The DOR also insisted that the benefit from releasing the documents was outweighed by the burden of redacting them for publication.

At oral arguments on December 16, Franklin Circuit Court Judge Philip Shepherd seemed unpersuaded by the DOR’s arguments. He went so far as to acknowledge that the letter rulings have “real and significant consequences for the taxpayer and the public,” and expressed doubt that the burdens of publication were insurmountable.

Shepherd issued a ruling on August 25 and continued with that line of thinking. He rejected the DOR’s claims that redacted versions of its final rulings were protected by the state’s confidentiality statutes and ordered their release. The judge concluded it was “abundantly clear” that the department could “comply with its obligations under the Open Records Act to disclose to the public the substance of its final rulings.”

Shepherd recognized the importance of taxpayer confidentiality laws, but rightly noted that a taxpayer’s right to privacy is not absolute. There is necessarily a balancing test between the taxpayer’s right to privacy and the interest of the public in the fair administration of a tax system. Shepherd wrote, “Without public disclosure of the final rulings, there is no way for the public to know whether the Department has been fair and consistent or whether it has displayed political favoritism to some taxpayers over others. These considerations outweigh any privacy interest that may exist for taxpayers, especially when the names and identifying indicators have been redacted.”

This is not just a win for Sommer and Tax Analysts. It is a win for Kentucky residents and those doing business in the state. A transparent tax system, in which there are no secret tax laws, is a better tax system. It allows taxpayers to clearly understand the laws they are required to comply with, lets tax officials more easily administer the law, and enables both sides to engage in a more informed debate about tax policy.

While this is a positive development in Kentucky, most states freely publish tax rulings from administrative hearing bodies. Shepherd’s opinion does not require the state to publish all final rulings from the department; rather, it means those rulings in Kentucky can be obtained through an Open Records Act request. Kentucky still lags behind those states that make administrative rulings available without the formality of an Open Records Act request. Still, it is a step in the right direction for Kentucky, and Shepherd’s opinion offers a nice discussion of the interaction between taxpayer confidentiality and transparency.

Tax Analysts will continue to advocate for transparency in state tax administration in Kentucky and across the nation.

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