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July 31, 2012
Tax Analysts Investigation: Kentucky's Release of Guidance for Taxpayers Hampered by "Significant Transparency Problems"

Problems Relate to Release of Final Rulings, Other Written Guidance

FALLS CHURCH, VA — The Kentucky Revenue Department’s refusal to release tax policy documents like final rulings and other written guidance, and its informal approach to issuing such guidance, has created significant transparency problems in the state, Tax Analysts has found.

Like many other states, Kentucky issues written guidance to taxpayers who request answers to how laws or regulations relate to their situations, legal editor Jennifer Carr writes in her piece for this week’s State Tax Notes, a magazine published by the nonprofit Tax Analysts.

Most states issue formal, written guidance — commonly called letter rulings — and publish redacted versions of the guidance for all taxpayers. A few states keep their letter rulings secret, usually citing taxpayer privacy or a lack of legislative authority to publish them.

Kentucky, however, appears to be the only state that offers written guidance fairly informally and with limited legal authority. The guidance isn’t binding, but taxpayers take it seriously.

Not only does the department shield its guidance from public scrutiny by keeping it confidential, it also apparently has not devised any formal internal controls to track its informal guidance and to ensure that it's consistent with the law or with previously issued guidance.

"The [Revenue Department] and the state’s taxpayers," Carr writes, "would be better served by a more formalized procedure for issuing and disclosing guidance, which would remove ambiguities and level the playing field so that all taxpayers would have access to the . . . rulings and other written guidance."

Read Carr's article.

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