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Tuesday, May 15, 2012

Transparency in State Taxation, Part 2

Tax AnalystsCara Griffith, Amy Hamilton & Jennifer Carr (all of Tax Analysts), Transparency in State Taxation, Part 2: Legislative Process and Letter Rulings, 64 State Tax Notes 331 (Apr. 30, 2012):

In part one of this series on transparency in state taxation, we looked at how states use discretionary authority and how, in circumstances in which they are able to use that authority, they provide guidance to taxpayers. We concluded that state revenue officials have been increasingly willing in the past few years to use their discretionary authority to adjust taxpayers’ incomes. Although that practice is potentially troublesome for taxpayers, when revenue officials provide adequate guidance on their use of that authority, taxpayers will be reassured because they can anticipate the consequences of a specific transaction or position.

In part two of this series, we begin by examining transparency in the state legislative process. Having an open forum for debate on tax legislation is vital to a transparent system. The trend in several states to push through legislation that was negotiated and debated by a select few state officials is troubling. We then turn to states’ use and publication of private letter rulings. Although many states attempt to both issue and publicly release letter rulings, some do not. Also, some states are unable to issue letter rulings in a timely fashion. Delay diminishes the usefulness of letter rulings.

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