The Texas Comptroller of Public Accounts recently provided information and answers to frequently asked questions about responding to private letter ruling requests, distinguishing these rulings from general information letters.1 The Comptroller provided guidance on how to request a private letter ruling, explained when a ruling will have binding effect, and noted when a ruling will not be issued. Other information provided in the Comptroller's release includes limitations for detrimental reliance relief, procedures for modification or revocation of responses by the Comptroller to rulings, confidentiality of rulings and publication of redacted rulings on the Comptroller's State Tax Automated Research (STAR) system.

Background

Prior to 2013, the Comptroller had not differentiated between written requests for taxability guidance and treated all correspondence (letters and emails) that provided accurate statements of fact for a taxability issue similarly with respect to detrimental reliance for written advice provided by the Comptroller. Many other states differentiate between private letter ruling requests and general information letter requests, and Texas decided to follow these states in the hope of reducing the numerous letter ruling requests being received and to enhance the standards that needed to be met for binding effect.

To implement this new policy, the Comptroller adopted a new administrative rule effective January 28, 2013 concerning private letter rulings and general information letters.2 The change in policy dramatically reduced the number of private letter rulings issued by the Comptroller. In fact, at last year's annual meeting of the Texas Taxpayers & Research Association, Comptroller personnel declared that there had been no private letter rulings issued by the Comptroller in the period from the adoption of the rule in January 2013 through early November 2013.

The Comptroller's Tax Policy Division, which has been historically responsible for responding to correspondence on tax matters split into two separate divisions in September 2013. The new Taxpayer Services Division primarily handles telephone inquiries by tax assistance personnel but also responds to general information letter requests received via email. The purpose of the reorganization was functionality with the remaining members of the Tax Policy Division still being primarily responsible for responding to private letter rulings and the drafting of publications and administrative rules.

The Comptroller has now provided additional information beyond the administrative rule to help clarify policy on responding to private letter ruling requests.3 One major area of concern for taxpayers and the tax practitioner community was the reluctance of Tax Policy to respond if a taxpayer was undergoing audit by the Comptroller. Large taxpayers doing business in Texas are often subject to consecutive audits so that from a practical perspective, they would never be in a position to receive private letter ruling responses. The Comptroller attempts to address this concern by providing frequently asked question (FAQ) information on when Tax Policy will get involved in an audit and help provide assistance to both the taxpayer and the Comptroller auditor when taxability questions arise during an audit.

Requirements for Private Letter Rulings

A private letter ruling request must be in writing, clearly identified as a request for a ruling and include a statement of the ruling requested from the Comptroller.

In order to receive detrimental reliance relief, a private letter ruling request must contain identifying information for the person or entity to whom or which the request relates, including:

  • name and address;
  • Texas taxpayer number, federal employer identification number, and state of formation as applicable; and
  • signature of the person making the request, or of the authorized representative of the person making the request, or of any third party authorized to represent the person before the Comptroller, accompanied by a power of attorney.

The reporting entity of a combined group requesting a ruling relating to revised Texas franchise tax must include identifying information for each member of the combined group that is a party to any transactions described in the ruling request.

A request for a ruling must contain disclosures as to whether or not:

  • the issue is under consideration by the Comptroller in connection with an audit, refund request, hearing, voluntary disclosure agreement or litigation, for the person or entity to whom or which the ruling request relates or to a related person; and
  • a request on the same or a similar issue has been or will be submitted to a taxing jurisdiction of another state.

A request for a ruling must also include:

  • a detailed statement of all relevant facts;
  • a copy of all relevant documents;
  • a statement of authorities supporting the requested ruling and an explanation of the grounds for the ruling; and
  • a statement of authorities contrary to the requested ruling.

Each person requesting a ruling is under an affirmative duty to identify any and all contrary authorities. If the requestor determines there are no contrary authorities, or is unable to locate such authorities, the request must include a statement that the requestor has identified all relevant authorities to the best of the requestor's knowledge. Relevant facts in documents should be detailed in the request and not merely be incorporated by reference in the detailed statement of relevant facts. Finally, the Comptroller can request additional information as needed.

Private Letter Ruling Limitations

The Comptroller can issue a general information letter in response to a request for a ruling that does not meet the requirements for a private letter ruling request and is not required to provide a response to the ruling request. The Comptroller will not issue a private letter ruling if additional information is requested and not provided. The Comptroller will also not issue a ruling if the request relates to an audit examination of any type, a refund request, a voluntary disclosure agreement, an administrative hearing, or litigation before the Comptroller for the same person, or a related person, and for the same or any prior tax period.

A private letter ruling can be relied on by the person who receives it, prospectively from the date of its issuance, with respect only to the particular issue and the person identified in the request for the ruling. Detrimental reliance only applies for the person or entity to whom or which the ruling request relates. For franchise tax, a member of a combined group can rely on a private letter ruling issued to the reporting entity of a combined group to the extent that the ruling relates to that member and that member was identified in the ruling request.

A private letter ruling is not binding on the Comptroller if material facts were omitted or misstated in the request, or if the facts subsequently developed are materially different from the facts on which the ruling was based. A ruling is not binding on the Comptroller on a prospective basis if there has been a change in the applicable laws, rules, or Comptroller decisions; or, a Texas or federal court decision that the Comptroller determines affects the ruling's validity becomes final and non-appealable. Additionally, a ruling is not binding on the Comptroller prospectively if the Comptroller has modified or revoked the ruling.

Commentary

The Comptroller's current policy on private letter ruling requests has impacted the ability of taxpayers to obtain timely and effective written guidance on taxability issues with the protection of detrimental reliance relief for incorrect responses that harm taxpayers who relied on such answers. Hopefully, the Comptroller recognizes the benefits of providing written guidance as a means to promote efficient administration of Texas taxes and voluntary compliance, and begins to release responses to rulings on a more frequent basis. This is especially relevant given the complexities of Texas sales and use tax and franchise tax, and the reality that in many cases, statutes, administrative rules and the Comptroller's publications do not adequately address the tax consequences of taxpayers' fact patterns.

On a positive note, the Comptroller's guidance and FAQ statement provides more certainty on how taxpayers under audit may request guidance from the Comptroller on issues that are either unrelated or related to the audit. The Comptroller will not issue a ruling if the issue relates to the same type of tax as the tax under which the taxpayer is being audited. For those taxpayers that are always under an audit cycle, a private letter ruling may still be requested, and the Comptroller may exercise discretion to respond to the ruling request. Further, the Comptroller has set forth a series of steps under which any taxpayer being audited can seek "taxability guidance," which will not result in the issuance of a private letter ruling (and will not provide detrimental reliance relief). It remains to be seen whether taxpayers decide to enter into what essentially will constitute informal discussions with the Comptroller to come to conclusions that may be used in the scope of an audit.

Footnotes

1 Information is available on the Texas Comptroller's Web site at http://window.state.tx.us/taxinfo/letters31.html.

2 34 TEX. ADMIN. CODE § 3.1.

3 Information is available at http://window.state.tx.us/taxinfo/letters31.html .

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