In Finance & Administration Cabinet v. Sommer, No. 2015-CA-001128 (Ky. App. Jan. 13, 2017), the Kentucky Court of Appeals held that the Kentucky Department of Revenue (“Department”) must publish its final rulings after redacting them for confidential taxpayer information. The decision, which will greatly increase the transparency of Department policies, procedures, and positions, directs the Department to join the ranks of other states like Indiana, who already publish rulings on taxpayer appeals.
The case is a result of an open records request made by an attorney who sought final rulings issued by the Department or the Finance and Administration Cabinet (“Cabinet”) from January 1, 2004 through February 23, 2012, the date of the open records request. At first, the Cabinet agreed to release the rulings, but changed course and withheld rulings that had not been ultimately appealed to the Kentucky Board of Tax Appeals (“KBTA”). The Cabinet also refused to release the rulings on the grounds of taxpayer confidentiality, claiming it would be impossible to redact the rulings in such a way that would protect taxpayer information. The Kentucky Office of the Attorney General upheld that decision.
The case was appealed to the Franklin Circuit Court. The court reviewed the rulings in camera and determined that they could be made public while protecting confidential taxpayer information and the redaction process would not be overly burdensome. The Department appealed on the issue of whether they had to publish rulings that were not ultimately appealed to the KBTA.
The Court of Appeals held that the Department had to publish all the final rulings, explaining that the rulings “contain great bodies of information related to the reasoning and analysis of the [Department] with respect to its task in administration of court tax laws.” The Court noted that in its view, the information could be made public while protecting taxpayer privacy interests through redaction.
Published final rulings will be a great benefit to Kentucky taxpayers who seek to understand the Department’s formal position on certain issues. Published final rulings can also encourage the Department to ensure similarly-situated taxpayers are treated uniformly. With more information regarding the Department’s positions, taxpayers can become better educated about Kentucky’s tax system, which could further compliance.
Of course, transparency must be appropriately balanced with measures to protect the privacy guaranteed to taxpayers by the Kentucky Taxpayers’ Bill of Rights, which prohibits disclosure of any “information pertaining to the returns, reports, or the affairs of a person’s business” to another person. The Department would need to redact any information that could run afoul of this mandate.