Small words can make big differences. For instance, when a court ignores an “or” and replaces it with an “of”, bad things can happen. A recent ruling by the Washington State Board of Tax Appeals (“the Board”) which guts Washington’s statutory provisions safeguarding the confidentiality of taxpayer returns and information shows why knowing the difference between “or” and “of” and demonstrating a basic level of reading proficiency should be required before anyone can interpret laws as a judge or bureaucrat.
Taxpayers in Washington should now know that because the Board could not distinguish between “or” and “of”, the confidentiality of their tax returns and information are less protected and more vulnerable to disclosure than the applicable statute had promised.
The tax information of any business is generally indicative of the financial condition, scope, success or failure of the tax payer’s business activities. Most businesses thus consider the information they give the government in connection with the calculation of their tax obligations to be highly sensitive and confidential.
Governments generally recognize and respect their tax payers’ need to preserve the privacy and confidentiality of the tax information their taxpayers give in complying with their tax obligations. Among other things, it’s thought that the promise of confidentiality by the state helps to generate more open and complete disclosure by tax payers.
In Washington for instance, RCW 82.32.330 prohibits any state agency, including the Department of Revenue, from disclosing a tax payer’s return or tax information. The statute broadly defines protected “tax information” to include:
- “. . .[A] taxpayer’s identity”;
- “[T]he nature, source, or amount of the taxpayer’s income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability deficiencies, overassessments, or tax payments”;
- “[W]hether the taxpayer’s return was, is being, or will be examined or subject to other investigation or processing”;
- “[A] part of a written determination that is not designated as a precedent and disclosed pursuant to RCW 82.32.410 or a background file document relating to a final determination”; and,
- “[O]ther data received by, recorded by, prepared by, furnished to, or collected by the department of revenue with respect to the determination of the existence or possible existence of liability, or the amount thereof, of a person under the laws of this state for a tax, penalty, interest, fine, forfeiture, or other imposition or offense”.
RCW 82.32.330(2) declares that all of this information is “confidential and privileged”. While the statute does contain several precisely enumerated exceptions, primarily for purposes of law enforcement or compiling statistical data by other government agencies, the prohibited scope of disclosure is broad and explicit.
Any employee of the Washington Department of Revenue who discloses a tax payer’s return or tax information in violation of the statute thereby commits a misdemeanor, must forfeit their job, and “. . . is incapable of holding any public office or employment [in Washington] for a period of two years thereafter.” RCW 82.32.330(6).
THE STATUTE SAYS “OR” BUT THE BOARD SAYS “OF”
In an order issued August 20, 2015 in Macy’s Northwest Inc. v. State of Washington Department of Revenue, Dkt. #13-060, the Board ordered the Department of Revenue to produce various items of tax information including information “. . . pertaining to confidential settlement agreements the Department has entered into with third parties” in violation of the statutory prohibition on such disclosure. (A copy of that Order is here.) To reach its conclusion the Board cited the passage in RCW 82.32.330(1)(c) that “. . . data, material, or documents that do not disclose information related to a specific or identifiable taxpayer do not constitute tax information under this section.” Order Granting Appellant’s Motion to Compel, p. 3. (emphasis in original)
The quoted passage from the statute obviously means that information from a taxpayer is privileged, confidential and not subject to disclosure if it is “. . . information related to a specific or identifiable taxpayer. . . .” This language plainly means that tax information related to a specific taxpayer must be treated as privileged and confidential regardless of whether that specific taxpayer could be identified. The information being sought concerning confidential settlement agreements was plainly within the ambit of the statutory privilege.
The Board, however, ignoring the disjunctive “or”, explicitly read this passage as meaning that tax information for a specific taxpayer should be disclosed if that taxpayer was not identified explicitly in the course of the disclosure. Consequently it ordered the Department to produce the requested information while simply identifying the specific taxpayers by numbers, letters or some other supposedly neutral method.
In denying the Department of Revenue’s Motion for Reconsideration the Board confirmed its own misreading of the statutory language. In its Order denying that Motion the Board misquoted the critical wording of RCW 82.32.330(1)(c) in claiming that the words, “. . . in particular, the phrase ‘specific of identifiable taxpayer’ — is clear and convincing.” (emphasis added) Order Denying Department’s Motion for Reconsideration of Order, p. 2. (A copy of that Order is here.)
In short, the Board’s inability to read and apply the statute as written significantly weakened that statute and deprived Washington taxpayers of the confidentiality which the statute by its terms had promised. Perhaps more ironically, it also put Department of Revenue employees in the position of having to risk either contempt for refusing to comply with the Board’s order compelling production or losing their jobs and committing a misdemeanor in violation of RCW 82.32.330(6).