Roxanne Bland is State Tax Notes’ contributing editor. Before joining Tax Analysts, Bland spent 17 years with the Multistate Tax Commission, where she worked with state revenue agency representatives to draft model legislation pertaining to sales and use taxation and corporate income, analyzed and reported on proposed federal legislative initiatives affecting state taxation, worked with legislative consultants and representatives from other state organizations on international issues affecting states, and assisted member state representatives in federal lobbying efforts. Before that, she was an attorney with the Federation of Tax Administrators for over seven years.
In this installment of The SALT Box, Bland discusses the open records laws established by the federal government, the 50 states, and the District of Columbia. Transparent governments are critical in building the public’s trust in government and keeping taxpayers informed of tax agency interpretations of the revenue laws, Bland writes. However, Kentucky’s tax agency has clouded the spirit of government transparency by shielding the agency’s records from public disclosure through legislation, which Bland finds a dubious move that will alienate taxpayers from the democratic process.
“Sunlight is said to be the best of disinfectants,” wrote Louis Brandeis in an article in Harper’s Weekly magazine.1 This summarizes the philosophy of transparency-in-government advocates who believe that democracy is best served when people can hold the government accountable. Yet to do so the public must be armed with the right information held in the hands of government, and the way to get that information, transparency advocates say, is through a combination of new technologies, publicly accessible data, and fresh activism. Through this combination, “the totalitarian utopia of people spying for the government,” as exemplified by works such as Brave New World by Aldous Huxley or 1984 by George Orwell, is replaced by the “progressive utopia of people spying on the government.”2 Indeed, in the post-ideological age, transparency has become what one commentator calls the “political religion” of civic activists.3
This certainly seems to be true in the United States. Aside from the federal government, all 50 states and the District of Columbia have sunshine laws, also known as open or public record laws or Freedom of Information Acts, all of which control public access to government records. Sunshine laws apply to the executive, legislative, and judicial branches of government, though these laws vary from state to state. In many states, sunshine laws are broad and disclose all records to the public except those specifically exempted. Other states’ laws are narrower in scope. Minnesota exempts the judiciary from the state’s open records law; public access to court records is governed by the rules of the Minnesota Supreme Court.4 Texas and Missouri require legislative records be open to public inspection,5 while Illinois exempts legislative records such as working papers, drafts, and opinions.6 In many states, including Connecticut, the records of public universities are almost wholly subject to disclosure, including emails and records constituting university business, even if created on a home computer.7 Other states, like Delaware, exempt university records from disclosure except for budgetary information produced by a university’s board of regents.8 Still, others partially exempt university records.9 Open records laws apply to agencies of state and local governments as well as other public bodies defined by law. Agencies subject to open records laws include tax agencies.
As might be expected, state public disclosure laws are rife with exemptions at each level of government. These exemptions are not necessarily indicative of nefarious activity. By their nature, some government records are not fit for public consumption. For example, in Oregon and New Jersey, records pertaining to a criminal investigation or victim’s record are exempt from disclosure.10 Connecticut exempts government records that, if released, would constitute an invasion of personal privacy, such as medical and similar files.11 Maine exempts security information that protects individuals, infrastructure, and telecommunications networks.12 In Texas, information generally not subject to disclosure includes: sales tax,13 franchise tax,14 audits,15 driver’s license, vehicle identification numbers,16 credit, debit, charge card, and access device numbers,17 and Social Security numbers. However, variations notwithstanding, there is one universal records exemption: the 41 income tax states and the District of Columbia prohibit the disclosure of individual and business income tax return information. The prohibition applies to both employees whose job duties do not require them to have access to such information, as well as, under certain circumstances, employees with permitted access. The penalties for employee disclosure of a taxpayer’s income tax information are significant. Many states classify a violation of the anti-disclosure law as a felony, and violators are subject to steep fines and possibly criminal prosecution.
In Kentucky, Transparency Isn’t So Transparent
In recent weeks, Kentucky is under the spotlight for failing to release, in accordance with its Open Records Act, final administrative rulings issued by the revenue agency.18 Kentucky argues that these records, which are binding on the tax agency, are not subject to public disclosure because of a taxpayer’s privacy interest. While admirable, the state’s position limits a taxpayer’s ability to be informed of the agency’s decisions, reasoning, and analysis, and restricts tax practitioners from effectively representing their clients. On a darker note, without public access to the state’s thinking on various issues, it would be easy for the agency to take a stance in one ruling and a different posture in another ruling, regardless of the facts and issues in both being similar or even identical.
The controversy stems from 2012, when a Kentucky attorney filed an open records request with the Kentucky Finance and Administration Cabinet and the Department of Revenue, seeking several hundred final administrative rulings to the Kentucky Board of Tax Appeals, some of which had not yet been appealed by the taxpayers. The state denied the request. The attorney appealed the denial to the attorney general’s office, which sided with the state. The attorney filed suit in circuit court, and Tax Analysts intervened after the state denied its request for the same type of documents.19
Kentucky cited statutory authority in support of its position, which provides that some records may not be produced if there is an expectation of privacy on the part of the taxpayer.20 The department further argued that redacting the taxpayer’s name and amounts owed was insufficient to protect the taxpayer’s identity. Moreover, the state said, the facts describing the taxpayer’s financial affairs in the final administrative rulings were protected by statute.21 Even the legal issues applicable to the facts needed to be redacted, the department argued, because of the possibility that the taxpayer could be identified in this manner, too. The attorney countered, arguing that tax agencies in other states have no difficulty publishing final rulings in redacted format. The privacy statutes cited by the state, he argued, were enacted to protect the taxpayers and are not a shield to be used by the state against taxpayers. In 2014 the court ruled against the state, requiring it to disclose the requested documents.
The court asserted that under the state’s open records statute, the burden of proof is on the agency withholding the requested information to prove that the information is exempt from disclosure. In deciding a case such as this, the court added, it must weigh the public interest supporting the open records law against the legislative interest in protecting the privacy of a taxpayer or a taxpayer’s business. In Kentucky, the court said, government records are presumed subject to disclosure unless expressly exempted by statute. Such exemptions, the court continued, are to be construed in favor of open examination. If a public record contains exempt and nonexempt information, the exempt information must be redacted from the nonexempt information, the court explained. In the attorney general’s office, the court observed, the trend has strongly been in favor of openness, and it pointed to several instances in other tax contexts in which taxpayer privacy concerns did not appear to sway the attorney general against the release of some types of taxpayer information, including the names of the taxpayers and the amounts of tax paid. Indeed, the court said, although not binding on courts, the attorney general’s interpretation on Kentucky’s open records law has been adopted in the case law.
Turning to the contested final administrative rulings, the court found no basis justifying the revenue agency’s refusal to release the final rulings in cases appealed to the Kentucky Board of Tax Appeals. By statute and administrative regulation, once a final ruling has been appealed, it becomes part of the public record. The agency argued it does not keep track of final rulings that have been appealed, but the court found this reasoning “beyond incredible.” A finding that final rulings are subject to disclosure, the court said, might prod the tax agency into developing a system of identifying and tracking cases that have been appealed. As for the rulings that had not been appealed, Kentucky law provides that the revenue agency has a duty to protect confidential information through redactions. However, the court made short shrift of the agency’s contention that these documents would have to be redacted to the point of uselessness. In examining the rulings submitted under seal, the court found no reason why most of the information should be kept confidential. Whether to disclose or not to disclose government tax records, the court said, is a balancing test between the public’s interest and the individual taxpayer’s interest. The agency, however, puts too much weight on taxpayer privacy. Taxpayers contesting an assessment through the usual administrative channels partially waive their right to confidentiality, and as long as a taxpayer’s personal identifying or other confidential information is properly redacted, final rulings should be produced. The court also observed, “without disclosure of 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.” This possibility outweighs a taxpayer’s privacy interest, especially when identifying information is required to be redacted, the court said. The circuit court ordered the tax agency to disclose the requested records, and for the final rulings not yet appealed, provide the records with the taxpayer-identifying information redacted.
In January 2017 the state court of appeals affirmed the lower court’s decision, which was in turn upheld by the state supreme court in November 2018. However, new developments in March saw the Kentucky General Assembly overturn the state supreme court’s ruling requiring the tax agency to disclose its final letter rulings by passing H.B. 354, a wide-ranging tax measure that expressly exempts from public inspection “any information [concerning] the affairs of any person, or information regarding the tax schedules, returns, or reports required to be filed with the department or other proper officer, or any information produced by a hearing or investigation, insofar as the information may have to do with the affairs of a person’s business.”22 The bill was signed into law by Gov. Matt Bevin (R) March 26.
What’s unsettling about this development is the way in which this last-minute provision ended up in the bill. After losing at the supreme court, the revenue agency filed a motion for reconsideration, which to date is still pending. According to Senate President Robert Stivers (R), the agency did not advise the legislature of the provision’s full impact. Legislators were told that the proposed amendment to the state’s Open Records Act was to protect employees from legal liability should confidential information be exposed by accident. Stivers said lawmakers were unaware there was pending litigation directly related to the exemption the agency wanted inserted into the bill: “The way it was explained to us was that there would be occasions, because of some issues that had arisen, where they wanted to make sure their personnel were protected from any kind of criminal liability.”23 Amye Bensenhaver, an authority on the state’s open records and open meeting laws, said it best: “That’s the scary thing about these legislative sessions. They’re so crafty, they get stuff like this stuck into bills when nobody is looking and then passed into laws that nobody gets a chance to read until after the fact.”24
Conclusion
Many believe that for a thriving democracy, transparency is crucial to the public’s ability to hold the government accountable. There are many reasons why transparency is desirable, but perhaps the most important one is that transparency builds the public’s trust in government. Governments have upheld this philosophy by adopting laws that permit the public to inspect a broad range of government records. The federal government, 50 states, and District of Columbia have adopted open records laws, which include tax records, subject to, in most cases, justifiable exceptions. The inclusion of tax records such as final letter rulings within the scope of open records laws is important because taxpayers have a need to understand the tax agency’s interpretations of the revenue laws when structuring their affairs. One state tax agency, however, has clouded the spirit of government transparency by inducing the legislature to enact a provision that effectively shields all of the agency’s records from public disclosure, including those that are the subject of ongoing litigation, as well as those that are not. This dubious move is not only antithetical to the idea of democracy, it fuels the public’s suspicion of those who govern and alienates them from the democratic process.
FOOTNOTES
1 Louis D. Brandeis, “What Publicity Can Do,” Harper’s Weekly, Dec. 20, 1913. Brandeis was confirmed as a justice of the U.S. Supreme Court in 1916 and served until 1939.
2 Ivan Krastev, “Does More Transparency Mean More Trust?” Open Government Partnership (2017).
3 Id.
4 Minnesota Government Data Practices Act, Minn. Stat. section 13.
5 Tex. Gov’t Code section 552; Mo. Rev. Stat. section 610.
6 5 Ill. Comp. Stat. section 140.
7 Conn. Gen. Stat. section 1-200 et seq.
8 Del. Code Ann. tit. 29 sections 10001 through 10007.
9 Records of public universities in Maryland are subject to open disclosure, except for exam materials and academic research, Md. Code Ann. section 10-611 et seq., section 10-618-C (exam materials) and 10-618-D and H (academic research).
10 Or. Rev. Stat. section 192.501; and N.J. Stat. Ann. section 47:1A-1 et seq.
11 See supra note 7.
12 Me. Stat. tit. 1 section 400 et seq.
13 Tex. Tax Code Ann. section 151.027.
14 Id., section 171.206.
15 Id., section 111.006.
16 Tex. Gov’t Code Ann. section 552.130 and Tex. Transp. Code Ann. chapter 730.
17 Id., section 552.136.
18 Ky. Rev. Stat. Ann. section 61.870 et seq.
19 Mark F. Sommer and Tax Analysts v. Finance and Administration Cabinet, Kentucky Department of Revenue, Civil Action No. 13-CI-29 (Cir. Ct. Aug. 26, 2014) (slip op.).
20 Ky. Rev. Stat. Ann. section 61.878(1) and Ky. Rev. Stat. Ann. section 131.190(1)(a).
21 Ky. Rev. Stat. Ann. section 131.190. The state also complained that the attorney’s request was unduly burdensome pursuant to Ky. Rev. Stat. Ann. section 61.872(6).
22 H.B. 354, amending Ky. Rev. Stat. Ann. section 131.190.
23 John Cheves, “Kentucky Lawmakers Secretly Approve a Loophole to Hide Tax Documents From the Public,” Lexington Herald Leader, Mar. 14, 2019.
24 Id.
END FOOTNOTES