Watson Working for Tax-Ruling Transparency

Hixson Republican Bo Watson backed off state legislation this year that would bring transparency to so-called “private letter rulings” — written statements issued to taxpayers from tax-collection agencies — because he was satisfied with efforts by the Tennessee Department of Revenue commissioner to do it on his own.

But even Sen. Watson remains uncertain if the effort for more openness is workable, because of privacy issues related to the rulings.

Private letter rulings have become a point of attention in the state this year because of the ongoing controversy over Amazon.com and its exemption from collecting sales taxes. Speculation has risen that Amazon may be benefiting from a letter ruling from the state, but such information has never been made public.

In fact, Watson said his dealings with Commissioner of Revenue Richard Roberts on making letter rulings more public have had “zero” to do with Amazon in particular. He — and apparently Roberts — just want more openness on the letter rulings issued by the department. An effort to reach Roberts on Wednesday was unsuccessful.

The Knoxville News-Sentinel reported Wednesday night that the Department of Revenue has initiated a shift in policy from the previous administration. The report said the department has issued 40 letter rulings this year and that 17 redacted versions will be made public, with another 15 still under review and eight kept secret.

Watson, the new speaker pro tem of the Senate, this week described some of the difficult issues surrounding letter rulings apart from the Amazon controversy. But he also spoke about his thoughts on the Amazon issue. The company is establishing two distribution centers in the Chattanooga area, one in Hamilton County and one in Bradley County. Watson’s district is part of Hamilton County. A third Amazon center is planned for Lebanon.

Watson said conversations have gone well with Roberts in trying to open up the letter rulings.

“Revenue has been working with me very cooperatively in trying to figure out a methodology that we might be able to do that,” Watson said. “The challenge is the privacy issue.”

There are two types of private letter rulings. One addresses a specific tax question as it relates to a specific business. Then there are letter rulings where a specific company asks a question but the answer has general application.

“So you want the public to be advised of those letter rulings that have general application,” Watson said. “How do you achieve that without revealing the source of the letter ruling?”

Watson’s SB0902 would require that a copy of any revenue ruling or letter ruling issued on or after Jan. 1, 2008 be made available for public inspection in accordance with current public records law. It calls for posting the ruling on the department Web site within 15 days of the date of the ruling, and it calls for the commissioner to redact from the ruling anything, like a name or address, that may identify the taxpayer who requested the ruling.

Watson said he introduced the bill because businesses had had frustrations with the administration of Gov. Phil Bredesen, whose term ended this January.

“They would go in with a tax situation and find out that there had been a letter ruling about it, but they didn’t know anything about the letter ruling. So it frustrated their business process,” Watson said. “So anyway, I introduced a bill to make private letter rulings more public.

“The challenge is that much of the information has to be redacted because obviously a business’s tax information is their private proprietary information if they ask a specific tax question. If the tax question has general applicability, how do you get that answer out to the public without revealing the source of the question?”

Simple deduction comes into play, he said.

“If a large company asks a question and you describe them as a large company with X number of employees, people will figure out who asked the question,” Watson said. “The commissioner, in our conversation, said, ‘Look, we’re going to be much better about issuing the response to these letter rulings than perhaps in the past.'”

Watson said Roberts believes the department can make changes without necessarily having a law to do it. Watson is going to sit back and see how it goes. If the department is unable to achieve the goal, then Watson said he would at least pursue debate on the issue.

Sen. Randy McNally, R-Oak Ridge, chairman of the Senate Finance Ways and Means Committee, this week said he appreciates efforts in the administration of Gov. Bill Haslam to address transparency on letter rulings. McNally has been an active player in the attempt to get Amazon to collect the sales tax.

But the issue of letter rulings is just one facet of the broad tax-collection ramifications surrounding Amazon and other online retailers. Haslam recently said he wants Amazon to collect sales taxes in a way that satisfies Amazon and the state. Haslam has also said he wants the state to honor its original commitment to Amazon, which was made by the Bredesen team.

Watson said he was not surprised by Haslam’s remarks and that that’s what he thought would happen all along. He said he got the impression there would be more discussions from what he heard in legislative hearings on Amazon this year.

When Haslam first made public remarks this month about wanting Amazon to collect the taxes, Watson said he was in San Antonio for the legislative summit of the National Conference of State Legislatures and got a heads-up phone call from Warren Wells of the governor’s staff to let him know about Haslam’s comments.

Lt. Gov. Ron Ramsey, who was at the San Antonio conference, did not get a similar phone call.

“He did not get a call from the governor last week, but they have had ongoing discussions about this issue,” said Adam Kleinheider, a spokesman for Ramsey. “So his comments did not surprise him in any way, and he is 100 percent on board with the governor.”

The NCSL summit included a discussion of e-commerce issues. A similar session was held at the Southern Legislative Conference last month in Memphis.

“As Internet commerce continues to grow, we’re all going to have to recognize that this is a new business model, and states, along with the federal government, are going to have to figure out a way to create tax equity among all the various means of commerce,” Watson said. “I don’t think it’s reached the tipping point where Congress is going to be motivated to act.

“If you’re Amazon, you want tax equity with all the other Internet retailers that may be working under the same model you’re working under — just as the bricks-and-mortar folks want tax equity with the Internet folks.”

Watson said he hasn’t had much contact with retailers since the Legislature adjourned this year, but he has heard from constituents who say a deal is a deal and that original agreements with Amazon should be honored. He said the only contact he has had with Amazon other than the hearings was a five-minute meeting in his office prior to the committee meeting.

Watson said people need to remember that the sales tax still applies to the transaction and the question boils down to who collects the tax, not whether it is owed.

“The state doesn’t aggressively pursue that, and I don’t think we’re going to encourage them on small-ticket items to aggressively pursue that,” Watson said.

Haslam has said Congress needs to settle the issue for the states.

“All states are trying to figure out how to deal with this new marketplace,” Watson said. “The challenge is how do we modernize the law to marry up to the new Internet commercial market that in the last five years has grown exponentially?”

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  • WalkerTEX

    Well done to the Dept. of Revenue for bettering state govt transparency. I hope that this continues, so that unfair deals like the Amazon deal with the previous administration do not continue to go through and if they do, the public knows about them. I understand that a deal is a deal, but the Amazon deal is one that is completely unfair. One person (the Governor) should not be allowed to decide on these deals. Gov’t should not pick winners and losers.

  • Dr.Duh

    This is certainly a step in the right direct. The Amazon deal should have never been handled in secret, in my opinion. The legislature should have been able to rule on this. Certainly opponents could have been better heard.

    I do think that Amazon is not doing the right thing in this case and hope that Gov. Haslam will stand firm and negotiate a fair deal.

  • Jwill

    I am glad that this issue is getting some serious attention. Amazon getting a sales tax exemption over other companies in the state is a major detriment to local stores. Rulings like these should be made public so that everyone can see what exactly happened and how we can move forward to ensure tax fairness in the state of Tennessee.

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