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September 5, 2014
Kentucky Judge Orders DOR to Release Administrative Rulings
by Jennifer Carr

Full Text Published by Tax Analysts®

This document originially appeared in the September 3, 2014 edition of State Tax Today.

A Kentucky circuit court judge has ordered the Department of Revenue to release redacted copies of its final rulings under the state's Open Records Act.

In his opinion in Sommer v. Finance and Administration Cabinet, which was brought by attorney Mark Sommer of Frost Brown Todd, Louisville, and later joined by Tax Analysts, Franklin Circuit Court Judge Phillip Shepherd concluded that it was "abundantly clear" that the DOR could "comply with its obligations under the Open Records Act to disclose to the public the substance of its final administrative rulings . . . without unduly infringing on the privacy rights of taxpayers, or violating the general confidentiality statute."

Christopher Bergin, president and publisher of Tax Analysts, said, "The court has sent not only a clear message to the Kentucky Department of Revenue on the importance of transparency in tax administration but to other states as well. The purpose of confidentiality is not to shield the state from public scrutiny regarding the application of the laws."

Sommer said the judge's order "sets the standard for what transparency in SALT matters should really be all about."

"Taxpayers have a fundamental right to know what their government is doing and how it is interpreting or administering the tax laws," he said. "It really is as simple as that."

The DOR had argued that the confidentiality statute prevented it from disclosing the rulings or would require their redaction to the point they would not be helpful to taxpayers. The department further asserted that the burden of preparing the 700 existing rulings for publication weighed strongly in favor of their being withheld. According to Cornish Hitchcock of Hitchcock Law Firm PLLC, which represented Tax Analysts, Kentucky is one of a small number of states that does not release this type of information.

Shepherd wrote in the August 26 opinion that resolving the legal issue required balancing the privacy interests of taxpayers against the public's right to be informed about department operations. He concluded that weighing the relevant factors fell squarely on public disclosure of the rulings, without which "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."

"The decision is an important victory over 'secret law' that affects taxpayers without their knowledge," Hitchcock said. "The department's rulings are definitive statements of the agency's interpretation of Kentucky tax law, and they can be cited against taxpayers even when taxpayers don't know that they exist."

Shepherd further concluded that the taxpayer confidentiality statute on which the DOR relied "applies only to information that the state compels the taxpayer to produce." (Emphasis in original.) While a taxpayer that appeals its assessment to the DOR still has a "reasonable expectation of privacy regarding personal information," there is no "basis to shield the Department from public scrutiny and accountability for its rulings."

Jennifer Barber, also of Frost Brown Todd, who represented Sommer, said, "Taxpayer confidentiality is a shield for taxpayers, not a sword for the Department of Revenue. We are pleased the Court recognized this by ruling that the Department of Revenue cannot use taxpayer confidentiality as a blanket waiver against Open Records requests."

As of press time the DOR had not responded to requests for comment on the decision.

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