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August 8, 2012
Should Taxpayer Privacy Be Violated to Encourage Tax Policy Discussion?

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by Cara Griffith

Cara GriffithA bill pending in the California State Legislature would require the state to publish a list of the 1,500 largest corporate taxpayers per tax year. The list would include not only the taxpayer's name but also its tax liability and apportionment information. The bill's proponents allege that the information required by AB 2439 would provide the Legislature with the ability to determine the effect of elective single-sales-factor apportionment on the state budget. The Legislature is, after all, charged with evaluating the state's tax system. Opponents argue that disclosing taxpayer information is not required for an objective analysis of state tax policy and that taxpayer privacy should be of the utmost importance in a voluntary tax system.

In the end, which side wins will depend on how legislators answer a question raised in the analysis of the bill: Is taxpayer privacy protection more important than making public information to determine how much some corporations pay in tax?

The Bill

AB 2439 would require the Franchise Tax Board to annually "publish a list of the 1,500 largest corporate taxpayers per taxable year, including each taxpayer's tax liability and income apportionment information."1 The list would be published on the FTB's website and would include the name and tax liability of each taxpayer, as well as whether the taxpayer elected to use single-sales-factor apportionment. Determination of which taxpayers should be on the list will be based on the taxpayers' original, timely filed returns.

Tax liability is defined in the proposed legislation as "the amount of tax owed as a result of taxes imposed under Part 11 (commencing with Section 23001), after the application of any credits and excluding overpayments, estimated tax payments, withholding, and any other amounts paid." The list would disclose the amount each corporation paid to the state for the tax year that closed two years before the request. The FTB would update the list to reflect changes in a taxpayer's tax liability.


The sponsor of the bill, Assembly member Mike Eng (D), says the bill's primary purpose is to increase the corporation tax system's transparency and accountability. His office said that AB 2439 "asks for one simple data point, which is very close to data which is already publicly reported in the SEC 10-K, for publicly-traded corporations."2 Federal securities laws require publicly traded companies to file periodic reports disclosing a variety of information. For example, domestic issuers must file annual reports on Form 10-K. Also, quarterly reports must be filed on Form 10-Q, and current reports on Form 8-K (for specified events). Form 10-K is designed to provide a comprehensive overview of a company's business and financial condition. Form 10-K includes audited financial statements.

In California, however, Revenue and Taxation Code section 19542 prohibits the FTB or any officer or employee of the state from disclosing or making "known in any manner information as to the amount of income or any particulars (including the business affairs of a corporation) set forth or disclosed" in an FTB return. An exception to that rule is that legislators may review tax returns if necessary. Rev. & Tax. Code section 19546 provides that:

    Upon request of a committee appointed by either the Assembly or the Senate, or both, any information may be furnished to the committee, but it is a misdemeanor for the committee or any member, clerk, or other officer or employee thereof to disclose in any manner any particulars of the information so furnished except to law enforcement officers for the purpose of aiding the detection or prosecution of crimes committed in violation of this part.

Proponents argue that reporting state tax liability in a similar fashion to what is done on the federal Form 10-K will improve the discussion of state corporate tax reform and potential changes in the law. Eng's office said:

    Combined with other publicly-available data, this information will be very helpful in analyzing the impact of recent major changes in the corporation tax system. In order to have an informed discussion of on-going tax reform and to evaluate future proposed policies, it is important to know who pays and who has benefitted from the recent tax changes and what the impacts may be of changing the system during this difficult budget climate.3

In essence, the more information the FTB has and the more taxpayer names it has, the more effectively the Legislature can make substantive changes to tax policy that will result in more tax revenue. The advocacy group California's 1% argues that the "simple disclosure will provide a meaningful way for ordinary citizens to know whether or not these companies pay their fair share. AB 2439 will ensure that publicly traded corporations will report the amount they pay in state taxes to the State Controller, who will make this information publicly available." Because state corporate tax revenue has been on the decline since 1980 as a percentage of total revenue, the group says, the bill "will give the public the ability to hold banks and corporations accountable."


There is significant opposition to this bill from corporate taxpayers. First, opponents allege the data that would be provided under the bill would be out of context and therefore could be misleading to the general public. Because a corporation's final tax liability may not be determined for years after its return is filed, the number reported is unlikely to be an accurate or final determination of the corporation's tax liability.

A June 19 letter from a coalition of trade associations argues that providing a single data point -- tax liability -- is meaningless without further context.4 The letter says that many "factors weigh into a taxpayer's final tax liability including current or accumulated losses, credits, acquisitions, disputes, subsequent court decisions, audits, amended returns, etc. For many large multistate taxpayers, their final liability for a specific year may not be resolved for years after their return is actually filed."

In a June 14 letter, Carl Guardino, president and CEO of the Silicone Valley Leadership Group, wrote that "AB 2439 extends well beyond any reasonable guidelines currently established under current compliance requirements created by the Securities and Exchange Commission and the Public Company Accounting Oversight Board (PCAOB)." To protect secrets from competitors, publicly traded companies are generally not required to post sensitive information.

By contrast, wrote Guardino, AB 2439 "stops well short of the legislation's intended purpose of evaluating the effectiveness of the state's single sales apportionment factor and fairness of the California's business tax code." Because the FTB already has the authority to crack down on "tax cheats," lumping all taxpayers into that category would "erode important taxpayer confidentiality without providing" additional significant data beyond what is already available to legislators, he said.

Also, opponents allege that publishing a list of corporations' tax liability is an unnecessary breach of taxpayer confidentiality that will not provide the state with additional insight about specific tax policies. Simply having a corporation's tax liability would also provide little insight into why a corporation chooses to elect single sales factor. The coalition writes that disclosure of individual corporate tax liabilities will not result in an "objective evaluation of single-sales factor" (emphasis in original).

Instead, as the California Chamber of Commerce has concluded, the bill could stigmatize "employers by requiring the Franchise Tax Board to disclose the taxes paid to the state by publicly traded corporations when requested by members of the public." Worse, says the coalition, disclosure of individual corporate taxpayers' tax liabilities could be used as a tool to "facilitate misleading and uninformed public harassment of individual taxpayers."

Names Sell Newspapers

There is no doubt that the commonly used axiom "Names sell newspapers" is true. It's proved time and time again as people flock to read an article in which high-profile sources are quoted. Because the FTB already sees detailed information about corporate taxpayers' tax liability and their apportionment elections, the inclusion of names on the list of the top 1,500 corporate taxpayers is a case of names selling newspapers. The names are intended to be the motivating factor to get people and politicians interested in the subject.

Richard Pomp, Alva P. Loiselle Professor of Law at the University of Connecticut Law School, said, "It is nonsense to think that you don't need the name of the taxpayer." Names are critical to get the public and politicians excited about the matter. It is one thing, said Pomp, to say that x number of corporations are paying no tax each year; it's quite another thing to say that ABC Corp. and XYZ Corp. are paying no tax.

Still, the FTB isn't necessarily jumping on the bandwagon. Brenda Voet of the FTB's Public Affairs Office said that the FTB is already collecting the same information that would be reported as a result of the bill. The FTB is also providing numerous reports on its website analyzing a variety of taxpayer data. For example, the FTB website provides statistics on corporate tax liability by industry, by accounting period, and by state net class. The FTB also provides statistics on apportionment formulas, tax credits, and deductions taken.

Given the amount of available information, it raises the question whether there is a need for additional data (other than the names of the corporations) not already available, and therefore a need for the bill. The California Manufacturers and Technology Association made that argument, saying, "The bill makes confidential taxpayer information available to the public that could be misused to harm California employers without providing any meaningful data that is not already available to legislators." As noted above, a committee of either chamber of the Legislature is permitted to examine individual returns under Rev. & Tax. Code section 19546 if the need arises.

The coalition likewise said that if lawmakers want an objective and fair analysis on the benefits or costs of single-sales-factor apportionment, or any other state tax policy, "they have expert resources in the FTB and Legislative Analyst's Office who have access to the broad array of data that can provide policy makers with meaningful analysis and evaluate the entire spectrum of taxpayers that may influence whether a tax policy is good or bad for the state as a whole."

Lack of Resources

If enacted, the bill puts the burden on the FTB to compile the list of corporations and ensure that data on the list is up to date. Given how tight resources are in most states, the FTB may not have additional resources to allocate to that task. If required to do so, the FTB would likely have to take resources from other areas to ensure the goals of the bill are accomplished. Arguably, if the FTB is already gathering and analyzing this information in one form, requiring it to gather and analyze the information in a second form is unnecessary. All FTB resources should remain focused on identifying and auditing taxpayers that have improperly reported their tax liability.

Standing Alone

If the bill is enacted, California would be the only state to permit the disclosure of confidential taxpayer information. A few states -- Arkansas, Massachusetts, West Virginia, and Wisconsin -- allow some taxpayer information to be disclosed, but none permits the disclosure of confidential taxpayer information at the level that would be done in California. Given that other states don't allow comparable extensive disclosure, and it is a breach of taxpayer confidentiality, is it really necessary?

Pomp makes a valid point. In a 1994 article, he wrote:

    The issue of how a state taxes, or exempts from tax, corporate activity raises fundamental value judgments about how the costs of government should be distributed. Both large-scale corporate tax avoidance and inefficient tax expenditures mean that a state must have a higher than necessary corporate tax rate, rely more heavily on other taxes with different incidence patterns, or reduce spending for important capital or operating purposes.5

Contrast that, however, with the theory that a voluntary system of compliance relies on authorities respecting taxpayer confidentiality. In October 2000 the Department of Treasury issued a report titled "The Scope and Use of Taxpayer Confidentiality and Disclosure Provisions." Treasury said it "strongly recommends against publishing the names of nonfilers or delinquent taxpayers." The benefits of doing so, it said, "are speculative at best and do not warrant taking the risk of inaccuracies or other adverse consequences that may undermine taxpayer confidence in the tax system."

Ferdinand Hogroian, legislative counsel at the Council On State Taxation, said, "Making confidential taxpayer information public does not advance tax policy discussions." The information that would be provided by AB 2439 is already available to inform policymaking decisions. The idea that it is necessary to make confidential tax return information available to the public to get the public interested "underscores the point that this proposal would not serve to inform the discussion, but rather only fuel uninformed accusations against certain taxpayers," said Hogroian.


Pomp is likely correct that in order to get excited about tax policy, the general public has to see the names of corporations and how much tax they are or are not paying. However, confidential taxpayer information should be protected. The California bill seems like the start of a witch hunt, and an unnecessary one. The FTB already has adequate information on corporate taxpayers and can provide legislators with the analysis necessary for informed tax policy decisions. That should be enough. Legislators and the California electorate should let the FTB focus on enforcing the state's tax code. And taxpayers should focus on properly reporting taxable income and not finding alternative ways to protect confidential information that should already be protected by the state.

* * * * *

Cara Griffith is a legal editor of State Tax Notes.


1 For the current text of the bill see The bill passed in the Senate Governance and Finance Committee on June 28, 2012, but was re-referred to the Senate Committee on Appropriations.

2 Senate Committee Analysis of AB 2439, available at

3 Id.

4 For the letter, see Doc 2012-13103 or 2012 STT 119-3.

5 Richard D. Pomp, "Corporate Tax Policy and the Right to Know: Enhancing Legislative and Public Access," State Tax Notes, Mar. 7, 1994, p. 603, or 94 STN 45-21.


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