Decision opening tax files praised
Posted on Thursday, December 27, 2007
A Dallas-based tax consulting firm contends that the Arkansas Supreme Court ruling it won to open certain tax documents to the public will lead to more accountability among state tax collectors.
The state Department of Finance and Administration officials, however, said the ruling may help tax consultants but it won’t lead to more accountability by the state because there wasn’t a problem with a lack of accountability in the first place.
Ryan & Co., which does business across the country, sued to open tax opinions issued by the department for taxpayers with legal questions regarding their taxes. The department refused, saying the opinions were confidential.
But the Supreme Court, in an opinion written by Chief Justice Jim Hannah, unanimously ruled in September that the opinions should be open under the Arkansas Freedom of Information Act, with certain information about the taxpayers edited out.
Ryan founder G. Brint Ryan said opening the tax opinions will help ensure that the department issues fair and consistent opinions.
“It now places an additional burden on the department in that they [must be ] absolutely consistent in their rulings,” Ryan said. “That’s one reason they really didn’t like that case. They weren’t sure if they had been consistent. I’m not sure they had policies internally. There are multiple people throughout the agency that prepare these opinions. You can get wide variations. We expect there is inconsistency.” But, Ryan said, his company had found no examples where the department had been inconsistent in dispensing opinions on tax issues.
Assistant Revenue Commissioner John Theis, who has worked at the department for 26 years, maintains that his agency has been fair.
“Trying to be as consistent as we can to give consistent advice has always been of utmost importance to us,” Theis said. “The problem with the opinions is that they are unique to the facts provided by each individual taxpayer. A requirement for every attorney that writes an opinion is to go back and check all old opinions to make sure the opinions are consistent and if it is inconsistent to make sure there is a factual basis for doing it differently.” He acknowledged that occasionally the department makes errors with the opinions but “we immediately try to correct the errors.” The Department of Finance and Administration is not the only agency in state govern- ment that issues opinions. The attorney general also issues them in response to requests from various officials. The attorney general’s opinions are advisory only and are made public in the normal course of business. But it leaves the tax issues to the opining of the Department of Finance and Administration.
Theis said the department has nine attorneys who issue a combined 1, 000 to 1, 200 tax opinions a year. The department does this for any taxpayer — individual or business — who requests advice on a legal issue regarding tax payment on any type of tax. This includes sales tax, income tax, the manufacturing exemption for the sales tax, severance tax, alcoholic beverage tax, and others.
The department has done this since the 1940 s, and the reason it does so is to provide the taxpayer with audit protection, he said.
Taxpayers can rely on the opinions for three years and can’t be assessed back taxes if they follow the advice in the opinion. If during that three-year period, an auditor disagrees with the opinion and convinces the agency’s legal department that the first opinion was wrong, and a new opinion is released, the new opinion is what the taxpayer must follow, Theis said.
But Theis emphasized that’s never happened more than five or six times in a year.
Ryan sued to open tax opinion records after the department rejected its Freedom of Information Act request. Ryan sought the opinions but asked that the taxpayer identification be edited out.
Pulaski County Circuit Judge Tim Fox sided with the department that the records were confidential. He ruled that editing the opinions would constitute a creation of a “new record” and that state law doesn’t require agencies to create a record to respond to public records requests.
But in its appeal Ryan alleged that the Freedom of Information Act provides that “any reasonably segregable portion of a public record shall be provided after deletion of exempt information,” citing Arkansas Code Annotated 25-19-105.
The Supreme Court agreed.
“The legal opinions can be disclosed once confidential information is redacted or any information that identifies a taxpayer or other individual or entity,” the court’s ruling said.
Fox also agreed with the department’s contention that the “legal opinions are confidential and privileged in total,” citing Arkansas Code Annotated 26-18-303.
That law says that the director of the Department of Finance and Administration must take “all steps” to keep confidential “all records and files required by state tax law to be filed with the director.” The Supreme Court rejected Fox’s reasoning on this because the tax opinions “are not required by any state law to be kept or filed with the director.” Ryan has more than 700 employees doing work in all 50 states. The company’s Arkansas operations are handled out of Dallas or Nashville, Tenn.
The company represents large corporations such as Wal-Mart, Goodyear, Raytheon, Kroger and Chevron.
“We want to make sure our clients pay what they owe and nothing more,” Ryan said.
He said tax opinions help his business see how the state has handled tax issues in the past that involve similar issues his clients are facing.
“You see a fact pattern,” he said. “You don’t have to guess.” He said most larger states release the opinions with taxpayer information edited out, and smaller states, such as Arkansas, haven’t done so.
Theis said the problem with editing out the name of the taxpayer is that some people would be able to figure out the identities of the taxpayer, anyway. He said that’s because Arkansas is a small state, and some opinions will include information that will enable some people with knowledge of particular businesses to deduce who the opinion was written for.
Since the Supreme Court ruling was issued, Theis said, the department sends notice to any taxpayer seeking an opinion that the opinion may be disclosed to the public and gives requesters a chance to change their minds about seeking the opinion.
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