Opinion
Opinion By: Gregory D. Stumbo, Attorney General; James M. Ringo, Assistant Attorney General
Open Records Decision
The question presented in this appeal is whether the Department of Revenue's (Department) denial of Timothy J. Eifler's open records request for a copy of a "list of vendors, containing names, addresses and permit numbers of persons currently holding sales and use tax Direct Pay Authorizations ("DPAs")," constituted a violation of the Open Records Act. For the reasons that follow, we conclude that the Department properly denied access to the requested records under authority of KRS 61.878(1)(l) and KRS 131.190(1) and KRS 131.081(15).
By letter dated December 1, 2003, Mr. Eifler submitted his request, quoted above, to the Revenue Cabinet (now Department of Revenue). In support of his request, he presented the following argument:
In support of this request, we note that Section 4 of Revenue Regulation 103 KAR 31:030 requires all holders of DPAs to furnish their vendors with a copy of their direct pay authorizations. Thus, the Cabinet's own regulations make this information a matter of public record. As a matter of public record, it is not protected from disclosure by KRS 131.190(1).
Further, disclosure of this information is necessary for the proper application and enforcement of the sales and use tax law. If a DPA holder fails to provide a vendor a certificate, the holder has no method to independently confirm that the transaction is not subject to tax. This is particularly true where the Cabinet later audits a vendor and the vendor does not have a DPA holder's certificate on file.
All DPA holders are required to report and remit the sales or use tax on all taxable purchases of tangible personal property that would have been remitted by the holder's retailer "if the direct pay authorization had not been granted." Revenue Form 51A112 (Application for Direct Pay Authorization) similarly incorporates this language immediately above the signature line. Pursuant to KRS 139.400, it is presumed that tangible personal property sold by any person for delivery in Kentucky is sold for storage, use or other consumption in Kentucky until the contrary is established. That statute further provides that the burden of proving that such property is not subject to tax rests with the seller unless the seller obtains a direct pay authorization from the buyer. KRS 139.400(3).
Making this list available allows vendors to confirm the validity of direct pay authorizations claimed by customers. It also ensures that tax will not be assessed twice on the same transaction - i.e., once to the vendor and again to the holder of a direct pay authorization. Because DPAs are a matter of public record, the Cabinet should provide a copy of the list.
By letter dated January 13, 2004, Celia M. Dunlap, Attorney, Department of Revenue, relying on KRS 61.878(1)(a) and KRS 61.878(1)(l), in tandem with KRS 131.190(1) and KRS 131.081(15), denied Mr. Eifler's request, advising him that as a matter of law, the Revenue Cabinet could not provide him with the information he requested and clearly the names, addresses and permit numbers were confidential taxpayer information. Regarding the date of her response, Ms. Dunlap recounted their previous discussions, in which Mr. Eifler had advised her not to act upon the request until she heard from him. She indicated that he had contacted her on January 12, 2004 advising that he was activating his request for the Department to provide him with the requested information. As a result, the Department provided its January 13, 2004 response.
On February 2, 2004, Mr. Eifler initiated the instant appeal. He noted that the Department's discussion regarding the timing of its response to his request was correct and its response was timely. He stated that he was appealing the Department's refusal to allow him to inspect the records and that his letter of December 1, 2003 to the Department fully explained the basis for his right to inspect the records.
After receipt of notification of the appeal and a copy of the letter of appeal, Ms. Dunlap provided this office with a response to the issues raised in the appeal. Elaborating on her initial response, Ms. Dunlap advised, in relevant part:
The Revenue Department is under strict statutory mandates to protect confidential taxpayer information. KRS 131.190 , KRS 131.081. Civil and criminal penalties can be imposed upon the agency and its employees for divulging confidential taxpayer information. KRS 131.990.
Confidential taxpayer information has consistently been interpreted by the Revenue Department to include the filing status of a taxpayer, taxpayer's name and taxpayer's address. Strict compliance with the provisions of KRS 131.190 are a priority with this agency. Annually employees are required to sign an acknowledgement reaffirming their duty to preserve the confidentiality of taxpayer information.
The provisions of KRS 131.190 must not in any way [be] compromised as the tax system relies heavily on voluntary compliance. Voluntary compliance is jeopardized if taxpayers have to worry that their tax information can be obtained without permission by third parties.
Direct Pay Authorization status arises out of and is directly related to a taxpayer's filing status. It dictates how a taxpayer is to complete the sales tax return and what taxes are to [be] remitted. The status is available to those manufacturers, industrial processors, transportation companies, and distribution facilities (103 KAR 31:030). Rather than pay sales tax directly to the retailer, the taxpayer agrees to assume responsibility for remitting sales tax on appropriate purchases directly to the Revenue Department. As part of agreeing to assume responsibility for payment of sales tax, the taxpayer must provide a written and signed acknowledgement to the retailer at the time of the initial purchase. That written statement is then maintained on file by the retailer for any and all subsequent purchases.
The retailer must obtain a copy of the direct pay authorization letter from the purchaser at the time of the sale, or the retailer assumes legal responsibility for the payment of any sales tax on those purchases made by the taxpayer.
The following is a rendition of the factual background that has given rise to this Open Records Request and resulting appeal. A client represented by the requesting party is a retailer and was audited by the Revenue Department. Unfortunately, the retailer accepted the word of a taxpayer or taxpayers that they had Direct Pay Authorization status. During the course of the audit the retailer learned that the representation or representations were incorrect. As a result, the retailer was assessed sales tax on those purchases for which sales tax was collected. That retailer now wants to obtain a list of all current taxpayers with Direct Pay Authorization status, including names and addresses. The requesting party has not identified the retailer who is being audited.
We are asked to determine whether the Department's denial of the requested information was consistent with the Open Records Act. For the reasons that follow, we conclude that the Department properly denied access to the requested records under authority of KRS 61.878(1)(l) and KRS 131.190(1) and KRS 131.081(15). We find that KRS 131.190 prohibits the disclosure of the records requested, and therefore do not address the applicability of the other exceptions cited to the records withheld.
KRS 61.878(1)(l) authorizes the nondisclosure of:
Public records or information the disclosure of which is prohibited or restricted or otherwise made confidential by enactment of the General Assembly.
Subsection (l) incorporates the confidentiality provisions of KRS 131.190 and KRS 131.081(15). KRS 131.190 provides in relevant part:
[n]o present or former secretary or employee of the Revenue Cabinet, . . . member of a county board of assessment appeals, property valuation administrator or employee thereof, or any other person, shall divulge any information acquired by him of the affairs of any person, or information regarding the tax schedules, returns or reports required to be filed with the cabinet or other proper officer, or any information produced by a hearing or investigation, insofar as the information may have to do with the affairs of the person's business.
Furthermore, the Kentucky Taxpayers' Bill of Rights emphatically states:
[t]axpayers shall have the right to privacy with regard to the information provided on their Kentucky tax returns and reports, including any information or documents attached thereto.
KRS 131.081(15) .
In 98-ORD-120, we affirmed the Revenue Cabinet denial of a request to disclose the names and addresses of taxpayers who had been issued Kentucky pollution control tax exemption certificates under authority of KRS 131.190(1). In that decision at p.6, we stated:
Moreover, the Cabinet takes the position that disclosing the names and addresses of taxpayers who have been issued the tax exemption certificates to third parties would also be divulging information of the affairs of those taxpayers. The Cabinet explained that, as a matter of practice, it neither confirms nor denies whether a taxpayer has even applied for a pollution control tax exemption, because to do so would effectively be divulging information of the taxpayer's business affairs.
In 98-ORD-78, we stated that, as a rule of general application, this office will defer to the public agency in its interpretation of confidentiality provisions which are binding upon it. In that opinion, we deferred to the Revenue Cabinet in its interpretation of KRS 131.190(1) and affirmed its denial of a request to inspect maps, filed with tax returns, which contained information such as names of owners, boundaries, locations of seams, and amounts of coal severed and remaining on the property as a reserve. See, also e.g., 94-ORD-76 (deferring to Cabinet for Human Resources in its interpretation of KRS 620.050(4); 97-ORD-33 (deferring to Corrections Cabinet in its interpretation of KRS 197.025).
In the instant appeal, it is the Revenue Cabinet's interpretation that to disclose names and addresses of taxpayers who have applied for or have received the tax exemption certificates to third parties would be divulging information of the business affairs of those taxpayers in violation of the confidentiality provisions of KRS 131.190(1). Thus, in the absence of any legal authority which is contrary to this position, we affirm the Cabinet's denial of [the requester's] request.
In support of its position that a taxpayer's DPA status is confidential taxpayer information that is made confidential by KRS 131.190(1), the Department, in its response to this office, argued in relevant part:
First and foremost, the Direct Pay Authorization status of a taxpayer is considered confidential taxpayer information pursuant to KRS 131.190 and KRS 131.081. Whether or not an entity possesses that status is confidential information between either the department and the entity, or the entity and the retailer. Further, a permit number is considered confidential pursuant to the statute. And clearly, a taxpayer's address is confidential.
?
There were other methods available to the requesting party to obtain this information. At the time of the sales transaction, if the purchaser had made a representation to the retailer that they had Direct Pay Authorization status, but did not provide the necessary documentation, the retailer should have contacted the Revenue Department and inquired of the purchaser's direct pay authorization status. The Revenue Department would have advised the retailer if the purchaser had Direct Pay Authorization status. There would not have been a confidentiality issue as representations concerning the status made by the purchaser were merely being verified by the agency.
As noted by the Department above, the fact of whether or not an entity possesses DPA status is confidential information between either the department and the entity, or the entity and the retailer. It further argues that a taxpayer's permit number and address is also confidential information protected under KRS 131.190(1).
Direct pay authorization is directly related to a taxpayer's status. It is an arrangement between the Department and the taxpayer, in which the taxpayer pays the sales or use tax directly to the Department. The DPA arrangement and agreement controls how the taxpayer completes his sales or use tax return. The taxpayer is required to provide all vendors, with which direct pay will be utilized, with a copy of Revenue Form 51A110, "Direct Pay Authorization. " 103 KAR 31.030, Section 4(1).
As explained by the Department, if a taxpayer/company has approached a vendor, but has not provided a copy of the DPA certificate, the vendor can contact the Department to confirm the DPA status. The Department argues that because that DPA taxpayer initiated the contact with the vendor and advised as to the DPA status, the DPA taxpayer's confidentiality is not at issue, and the Department is merely verifying the DPA representation and the DPA status. We agree. KRS 131.190(1) is a prohibition against the head of the Department or its employees from divulging "any information acquired by him of the affairs of any person, or information regarding the tax schedules, returns or reports required to be filed with the cabinet . . . insofar as the information may have to do with the affairs of the person's business."
Disclosure by the Department or any of its employees of information revealing taxpayers' DPA status, permit numbers and addresses would be divulging information of the business affairs of those taxpayers in violation of the confidentiality provisions of KRS 131.190(1). 1 98-ORD-120. Accordingly, we conclude the Department's denial of Mr. Eifler's request for a copy of a "list of vendors, containing names, addresses and permit numbers of persons currently holding sales and use tax Direct Pay Authorizations, " under authority of KRS 131.190(1) was proper and did not constitute a violation of the Open Records Act.
A party aggrieved by this decision may appeal it by initiating action in the appropriate circuit court pursuant to KRS 61.880(5) and KRS 61.882. Pursuant to KRS 61.880(3) , the Attorney General should be notified of any action in circuit court, but should not be named as a party in that action or in any subsequent proceedings.
Timothy J. EiflerOgden Newell & Welch PLLC1700 ONC Plaza500 West Jefferson StreetLouisville, KY 40202-2874
Celia M. DunlapKentucky Department of RevenueOffice of the SecretaryP.O. Box 930Frankfort, KY 40602-0930
Debra Eucker KeelenGeneral CounselKentucky Department of Revenue200 Fair Oaks, Bldg. 2Frankfort, KY 40620
Footnotes
Footnotes
1 Additionally, to qualify for DPA status, among other information required to be provided to the Department, a DPA taxpayer shall "hold a valid Kentucky retail sales and use tax permit," 103 KAR 31.030, Section 2(2); have "a record of timely payment of taxes administered by the cabinet, " 103 KAR 31.030, Section 2(3); have been "engaged in business in Kentucky in excess of twenty-four (24) months," 103 KAR 31.030, Section 2(6)(a); and have "purchased tangible personal property of at least ten (10) million dollars for use in his Kentucky operations in the preceding calendar year, as applicable." 103 KAR 31.030, Section 2(6)(b). This would be information of the "affairs of the person's business." KRS 131.190.