In our quest for clarity in the maze of continual multistate tax challenges and developments, we search our tax research databases, we contact colleagues, and yet, sometimes, we still don't know what to do. One option is to get a "letter ruling" or "private letter ruling."
I want to provide you with information on each state's letter ruling process. Then we will explore 'how' to write a letter ruling.
Note: "When" to write a letter ruling is a judgment call based on the facts surrounding your case, and the specific state's process and other rulings the state has issued.
I plan on writing about each state's letter ruling process in future blog posts. Today, I am focusing on Tennessee's letter ruling process since I recently moved to Tennessee.
According to Tennessee law, a letter ruling is an interpretation and application of the tax law as it relates to a specific set of facts furnished to the Department by the taxpayer. Assuming the facts are correctly represented by the taxpayer requesting the letter ruling, the Department is bound to follow its decision with respect to that taxpayer. The taxpayer’s identity must be disclosed to the Department in its letter ruling request.
Revenue rulings are statements regarding the substantive application of law and statements of procedure that affect the rights and duties of taxpayers and other members of the public. Revenue rulings are advisory in nature and are not legally binding on the Department. The taxpayer’s identity is not required for a nonbinding revenue ruling.
When exceptional circumstances require immediate consideration of an issue, a taxpayer can request an expedited letter ruling or revenue ruling by expressly making such request in writing and submitting an expedited ruling fee of $10,000 with the request. When an expedited ruling is requested, the Commissioner of Revenue will either issue a ruling within sixty days from the date of the request or deny the request and return the fee to the requesting party within seven days from the date of the request.
The fee for the issuance of a letter ruling or revenue ruling is $500.
The fee for the issuance of an expedited ruling is $10,000.
To request a ruling, the taxpayer (or the taxpayer’s representative) should send a letter to the Commissioner of Revenue, 500 Deaderick Street, Nashville, TN 37242.
The letter should include the following:
- The taxpayer’s (or representative’s) contact information, including mailing address and telephone number;
- A check for the applicable fee;
- A fully completed Power of Attorney, if required (see below);
- The taxpayer’s question or questions;
- A description of all relevant facts;
- A copy of any pertinent sample invoices, contracts or the like (which may be provided in redacted form); and
- If appropriate, pictures of the equipment, products, or other items that are the subject of the ruling request.
- The letter may also include the taxpayer’s analysis of the law; however, this is not required.
Power of Attorney
The Department places extremely high importance on maintaining taxpayer confidentiality. In many cases, the taxpayer requesting a letter ruling wishes for the Department to communicate with its outside representative, such as a CPA or attorney. In such instances, the taxpayer must sign a Power of Attorney, which is available on the Department's website.
The Power of Attorney must list all outside representatives with whom the Department is permitted to communicate about the letter ruling request. A Power of Attorney is not required if the only people with whom the Department will communicate are the individual taxpayer, or the owners and employees of the taxpayer company.
The Process: From Request to Issued Ruling
Each ruling request is assigned to a Department attorney when received. The attorney will contact the taxpayer (or representative) to request any additional necessary information and to clarify any questions the attorney may have. The attorney works closely with the Department's General Counsel to research and prepare a preliminary draft of the ruling. When completed, the preliminary draft is sent to various divisions within the Department for review. The attorney may further revise the draft ruling, based upon comments received from the reviewers. Once the review and revision process is complete, the final version of the ruling is sent to the Commissioner's office. At least one Deputy Commissioner reviews the ruling before it is given to the Commissioner. In appropriate cases, the Commissioner will meet with the Deputy Commissioners and the Department's legal staff to discuss the ruling. After thorough consideration, the Commissioner will issue the ruling to the taxpayer.
Rulings on the Department of Revenue's Website
It is the policy of the Department that all letter rulings and revenue rulings that are instructive to other taxpayers, and that are not detrimental to the State’s Economic Development efforts, will be made available to the general public on the Department's Web site. All rulings will be redacted to remove identifying taxpayer information before being made public. The taxpayer will have the opportunity to review and comment on the proposed redacted version before it is made public. The Department will consider requests that rulings not be published based on a taxpayer's belief that confidentially cannot be accomplished in a redacted version of the ruling. Any request for non-publication, even in redacted form, should be made in the ruling request and must include a detailed explanation as to why the ruling should not be made public.
Duplicative Ruling Requests
If a tax ruling has been previously issued on a specific topic, the Department is not likely to issue another ruling on the same topic unless the taxpayer can show that its facts are materially different from the facts that serve as the basis for the issued ruling, or that there has been a substantive change in the law. If a taxpayer submits a ruling request that is duplicative of previously issued guidance, the Department will likely respond by informal letter and provide a copy of the applicable previously issued tax ruling, in addition to returning the taxpayer's ruling fee.
Revocation of a ruling
Rulings may be revoked or modified by the Commissioner at any time. The revocation or modification of a letter ruling will be effective retroactively unless the following conditions are met, in which case the revocation will be prospective only:
- The taxpayer must not have misstated or omitted material facts involved in the transaction;
- Facts that develop later must not be materially different from the facts upon which the ruling was based;
- The applicable law must not have been changed or amended;
- The ruling must have been issued originally with respect to a prospective or proposed transaction; and
- The taxpayer directly involved must have acted in good faith in relying upon the ruling and a retroactive revocation of the ruling must inure to his detriment.
Statutory Authority Tenn. Code Ann. Section 67-1-109 gives the Commissioner the power to issue revenue and letter rulings at his discretion.