Practitioners Corner: Taxpayers Dancing in the Dark

Guest contributors Chris Martin and Emily Miller of Grant Thornton1 argue that Minnesota should join the majority of other states in implementing a private letter ruling program to improve transparency and guidance in the application of Minnesota tax law.

Anyone who has spent time reading Minnesota’s tax statutes soon finds themselves directed from one citation to another.  Throughout the law, there are cross-references, undefined terms, and references to the Internal Revenue Code.  Even then, the guidance found may be uncertain at best.  In a time when the Minnesota Department of Revenue (“Department”) is issuing fewer revenue notices and promulgating no rules, guidance to effectively dance through the state’s tax code is crucial to an efficient use of a taxpayer’s and the state’s limited resources.

One light that would help illuminate the darkness is a private letter ruling (“PLR”) program.  Minnesota is one of the few states without a PLR program, which would provide guidance to taxpayers, tax and non-tax attorneys, non-Minnesota tax practitioners, and pro se individuals who are otherwise dancing in the dark, doing their best to predict how the Department may interpret and apply uncertain tax positions.

The PLR: Shining a Light into Murky Areas of Tax Compliance

Good public policy requires state tax laws and rules to provide transparency, accessibility, fairness, efficiency, and certainty for taxpayers and tax practitioners.  There are a variety of initiatives that the Legislature and the Department could implement to improve these objectives.  One initiative that would provide more transparency is a robust “taxpayer bill of rights.”  Over the years, the issues taxpayers face have evolved but the policies and procedures in which a taxpayer may address those matters have stagnated, resulting in an ever darkening space between taxpayers and the Department.

The Department’s mission statement is “[w]orking together to fund Minnesota’s future” and its vision is that “[e]veryone reports, pays, and receives the right amount: no more, no less.”  These statements have the potential to impart good public policy; however, in practice the Department has hindered transparency and certainty through a dramatic decrease in the issuance of substantive guidance and revenue notices within the past ten years.2  The Department’s latest Rule was published in July 2011.

These principles of good public policy are important and have been at the forefront of legislators’ minds.  In March 2016, the Minnesota House Taxes Committee heard testimony on H.F. 2876, which, among other provisions, would require the Department to provide a PLR program.3

A PLR is a written communication from the Internal Revenue Service, a state’s department of revenue, commissioner, or other state official on how the issuing party’s tax law would be applied in response to a specific taxpayer’s inquiry.4  The request for a PLR must be specific to a factual situation.  Generally, hypotheticals or alternative transaction scenarios are not permissible requests.  To request a PLR, the taxpayer must include all the material facts including, but not limited to, all interested parties, the business reason for the transaction, and any additional pertinent information related to the underlying issue.  Some states charge a few hundred dollars for a PLR and as much as $10,000 for an expedited PLR,5 however most states issue PLRs without charge.

As many as 38 states have some type of PLR program.6  Depending on the state, letter rulings may be revoked after a specified period of time, typically five or ten years.  When an issuing department responds to inquiries with similar fact situations, the department should maintain consistent treatment and application of the tax law, prior revenue notices, PLRs, and case law to ensure fairness.

The advice and interpretation from the issuing department is binding on the issuing department only as it applies to the taxpayer who submitted the inquiry requesting the ruling.  Once the PLR has been sent to the taxpayer, the department may publish the redacted PLR as guidance for similarly situated taxpayers.7  Generally, any information or fact that would identify the taxpayer (i.e., taxpayer name, taxpayer address, any confidential return information, or specific trade secret information) would be redacted in the published version.8  Published PLRs, even in their redacted form, provide meaningful guidance to other taxpayers because they include insight as to how the issuing department interprets and applies the law on uncertain tax positions.  If the taxpayer requesting the PLR is facing an uncertain tax position, there are likely other taxpayers dealing with a similar, if not the same, question.

An effective PLR program can promote principles that bring about good tax policy: transparency, accessibility, fairness, efficiency, and certainty.  Published PLRs would reveal the Department’s position on issues in a transparent way and would be accessible to all taxpayers.  A PLR program in Minnesota would ensure more consistent and fairer application of the Minnesota tax code to similarly situated taxpayers as the public would have access to previously issued PLRs.  An analysis of the Department’s interpretation of the tax law provides visibility into the Department’s policies, which may help taxpayers avoid the audit process, administrative appeals, and/or filing in Tax Court.  This results in more efficient use of taxpayer and government resources.  The program could also provide certainty because taxpayers are able to predict how the Department would apply the state tax code to a particular fact pattern.  Depending on the specific inquiry, PLRs have the potential to provide guidance, albeit not binding, to an extensive demographic of taxpayers.

PLR Programs in Other States

More and more legislatures are embracing transparency with taxpayers:

  • In the 2016 legislative session, Maryland passed a bill requiring the Maryland Comptroller’s Office to establish a PLR program.9
  • In North Carolina, the Secretary of the Department of Revenue historically had authority to issue advice to taxpayers that requested guidance; however, the Secretary was not required to publish the advice provided to the taxpayer.  During the 2015-2016 session, the North Carolina legislature passed a law requiring the North Carolina Department of Revenue to publish a redacted version of the advice on the Department’s web site thus making the determinations readily available to all taxpayers.10
  • Illinois has a robust program on issuing PLRs and GILs.11 The Illinois Department of Revenue issues PLRs and GILs on two tax types, income and sales and use.  In the last ten years the Illinois Department of Revenue averaged almost 150 GILs per year and fewer than 12 PLRs per year.12  (See Chart 1.)
  • In Texas, the Texas Comptroller issues letters on its state tax automated research (“STAR”) system.13  The STAR system is similar to a PLR program because it provides a robust online database of responses to taxpayer questions submitted to the Comptroller from the simple to the complicated and nuanced.
  • In New York, the State Department of Taxation and Finance is extremely active in publishing advisory opinions (PLR equivalents) covering various tax types.  Over the last ten years, New York averaged 16 income/franchise tax, 43 sales tax, and six other tax type advisory opinions per year.14

Chart 1: Illinois Department of Revenue: Issued PLRs and GILs

The Minnesota Debate

Currently, the Department is underutilizing its authority to issue revenue notices in order to provide taxpayers guidance on unclear tax positions.  As introduced in 2016, H.F. 2876, Section 1 (“proposed program”) would direct the Minnesota Commissioner of Revenue to establish a PLR program providing guidance to taxpayers as to the treatment of Minnesota tax law regarding specific transactions or factual situations.15  As part of the proposed program, the Department would be able to place limits on the scope of the program similar to how the Illinois Department of Revenue only issues PLRs and GILs on income tax and sales and use tax matters.  The proposed program even provided that the Department could charge a fee to cover the additional costs associated with providing this service, which most state PLR programs do not include.

During testimony on H.F. 2876, the Department made it quite clear that it opposes a PLR program.16  The Department argued that a PLR program would take away from its broad-based services and education programs, i.e. plain language fact sheets, industry guides, and free educational online courses.  For example, during 2015, the Department’s sales and use tax division responded to approximately 60,000 phone calls and 12,000 e-mails.  The Department estimated that of those approximately 12,000 e-mails related to sales and use tax questions, over half contained substantive legal inquiries.  A PLR program that also included GILs would allow the Department to publish redacted versions of some of those 6,000 e-mails that asked substantive legal questions.  It is more than likely that the Department has had to answer the same substantive legal question multiple times.  If a PLR program were in place, the Department would have the authority to answer those questions once so that many taxpayers, not just the individual initiating the e-mail request, may reference and use the guidance.

From the Department’s viewpoint, PLRs provide a narrow application of the law because they are only binding on one particular, typically sophisticated taxpayer.  Moreover, the Department contends PLRs are costly to both the taxpayer and the Department.  The Department is correct that PLRs are only binding on the Department vis-à-vis the single taxpayer requesting the PLR, however there is a broader application.  However, published PLRs would provide guidance to all taxpayers, tax and non-tax practitioners alike, and Minnesota and out-of-state individuals facing similar situations, not just the sophisticated taxpayers that are able to hire outside counsel or accountants.  Published PLRs, even in their redacted form, provide similarly situated taxpayers guidance and insight as to how the Department applies the Minnesota tax code to a particular uncertain transaction.

A PLR program may also help to avert tax litigation.  A PLR on how the Department interprets and applies Minnesota Statute § 290.01, subdivision 19b(6) (2014) and IRS Publication 17 would have been beneficial to the taxpayers who were audited to substantiate their charitable contribution deduction but in the end successfully endured a time-consuming and costly litigation process.17  In another example, a PLR on the application of the definitions of “tangible personal property” v. “real property” as applied to drying systems that Dahmes Stainless, Inc. manufactures and installs could have avoided litigation.18  In each of these examples, the Department’s broad fact sheets, industry guides, and lack of revenue notices potentially underserved the taxpayers, resulting in costly litigation for both taxpayers and the state.

A Diverse Customer Base Demands Different Products

During the testimony on H.F. 2876, the Department volunteered statistics regarding their internal survey of taxpayers who had been through a sales and use tax audit to demonstrate taxpayers’ satisfaction.  Of the taxpayers that responded to the survey:

  • 92 percent felt that they were informed during the audit;
  • 89 percent agreed that auditors provided quality education about sales and use tax laws and how to stay in compliance;
  • 93 percent felt that the auditors used time in the taxpayer’s office wisely; and
  • 95 percent felt that the auditors treated taxpayers fairly during the audit.19

The Department views the results as proof that it is providing “strong customer service” to Minnesota taxpayers.20  None of these statistics address the issue of lack of guidance on more complex and nuanced matters and inconsistent treatment of taxpayers.

In contrast, the Minnesota Center for Fiscal Excellence conducted its own (admittedly) unscientific survey (“MCFE survey”) to obtain feedback and perspective from tax practitioners regarding the Department’s administrative practices.21  Based on the MCFE survey, the major concerns practitioners addressed were the Department’s lack of rulemaking, lack of knowledge base, lack of internal consistency within the Department, and lack of communication beyond citing published fact sheets.  The MCFE survey underscores a broader scope of issues than the select items the Department chooses to highlight.  Both of these surveys provide very different pictures of how taxpayers perceive the Department.  The “typical” taxpayer consensus is likely somewhere in between.  Not all taxpayers are being underserved by the Department; however, there are likely more taxpayers being underserved than the Department’s survey would seem to acknowledge.

While a PLR program is but one tool available to a department to promote good tax policy and taxpayer compliance, other tools may be effective as well.  The Minnesota Legislature gave the Department authority to make available revenue notices over 25 years ago.  Unfortunately, there has been a dramatic decrease in the number the Department has issued within the last several years.  (See Chart 2.)  During the 1990’s, the Department had a robust revenue notice program and issued as many as 27 in one year and averaged nearly 20 per year.  In the last ten years, however, the Department has not focused on providing clarity to taxpayers on uncertain tax positions, but rather on revoking and or amending previously issued revenue notices.  In the last five years, the Department has issued a total of only 16 revenue notices that do not merely revoke altogether or revoke and replace previously issued notices.  One reason behind the support for a PLR program is that taxpayers are being under served by the Department through lack of revenue notices.

A complementary initiative to a PLR program would be a robust publication of substantive revenue notices.  The Minnesota Legislature gave the Department authority to publish revenue notices over 25 years ago.22  Unfortunately, there has been a dramatic decrease in the number the Department has issued within the last several years.  (See Chart 2.)  During the 1990’s, the Department had a robust revenue notice program and issued as many as 27 in one year and averaged nearly 20 per year.23  In the last ten years, however, the Department has not focused on providing clarity to taxpayers on uncertain tax positions, but rather on revoking and or amending previously issued revenue notices.  In the last five years, the Department has issued a total of only 16 revenue notices that do more than merely revoke altogether or revoke and replace previously issued notices.  Taxpayers, under-served by the Department through lack of substantive revenue notices, would benefit from more visibility to the Department’s interpretation of the law through revenue notices and a complementary PLR program that addresses taxpayer fact patterns that may not have been addressed by statute or regulation.

Chart 2: Minnesota Department of Revenue: Issued Revenue Notices

Citing a 1991 study, the Department continues to adhere to its policy that the Department’s resources should be allocated to reach the broadest scope of taxpayers.24  The problem is that tax issues facing taxpayers have shifted over the years as the tax code has changed and grown more complex.  Therefore, it is conceivable that the needs of taxpayers have shifted over the years since the Department’s latest study on how it should allocate its resources.  While the broad-based education, fact sheets, and industry guides are needed, necessary and useful, there is a desire among taxpayers to receive more substance and guidance from the Department.  While the Department values “strong customer service”, it may be underserving taxpayers that require more guidance than what broad-based education and plain language facts sheets can provide.

The Department is underserving the taxpayers of Minnesota without a PLR program, similar to the ones in place in over three dozen other states.  PLR programs provide guidance, certainty and transparency to business taxpayers, non-tax attorneys assisting clients with tax issues, tax practitioners, and pro se individuals that are otherwise dancing in the dark speculating how the Department may interpret and apply the tax code.  A PLR program would have a broad application to thousands of taxpayers and does not need to come at the expense of the educational services the Department currently provides.  The Department must do both—broad based education and specific guidance.

Minnesota taxpayers and tax practitioners deserve better guidance in order to ensure that those taxpayers who are paying for Minnesota’s future are well-equipped to do so.

  • 1 Chris Martin, JD is a Senior Manager and Emily Miller, JD is an Associate in the State and Local Tax (SALT) practice with Grant Thornton’s Minneapolis office.
  • 2 On the continuum of authority, revenue rulings are one of the most authoritative publications.  In the order of most authoritative to least authoritative, adopted rules or regulations are the most, followed by revenue notices/revenue rulings, then PLRs, next general informational letters, and finally factsheets, FAQs, and form instructions.  Rules:; Revenue Notices:
  • 3 H.F. 2876. The full bill history is available at; video testimony on H.F. 2876 is available at A fiscal note for H.F. 2876 was requested but never completed.
  • 4 Some states issue written communications that are similar to PLRs, however they are titled differently: Florida issues Technical Assistance Advisements; Maine issues Advisory Rulings; New York issues Advisory Opinions; California issues Chief Counsel Rulings; and New Hampshire and Rhode Island issue Declaratory Rulings.
  • 5 See Tenn. Code Ann. § 67-1-109(f).
  • 6 It is difficult to determine exactly how many states have a PLR program because not all states publish PLRs or provide readily available PLRs without formally requesting copies.
  • 7 Most states that have a PLR program or the equivalent do publish rulings in some manner.  For example, Illinois has research databases dedicated to PLRs and general information letters.  However, Wisconsin’s PLRs are only published in the Wisconsin Department of Revenue’s quarterly Tax Bulletin.
  • 8 New York does not redact its Advisory Opinions.
  • 9 Maryland General Assembly S.B. 843 (2016).
  • 10 N.C. Gen. Stat. § 105-264.2 (2016).
  • 11 General information letters (“GILs”) are non-binding letters that contain a general discussion of tax principles or applications focused on a specific area of interest.  In GILs, the issuing department does not interpret or advise on the state’s tax laws, rather they provide general information on a scenario.  GILs could somewhat be compared to the Fact Sheets the Department publishes.
  • 12 The Illinois Department of Revenue PLRs are available at:
  • 13 The Texas Comptroller letters are available at:
  • 14 The New York State Department of Taxation and Finance advisory opinions are available at:
  • 15 H.F. 2876, supra note 4.
  • 16 Video testimony on H.F. 2876 is available at
  • 17 See Antonello v. Commissioner of Revenue, 884 N.W.2d 640 (Minn. 2016).
  • 18 See Commissioner of Revenue v. Dahmes Stainless, Inc., 884 N.W.2d 648 (Minn. 2016); see also the lower court’s decision Dahmes Stainless, Inc. v. Commissioner of Revenue, Dkt. No. 8228-R (Minn. Tax Ct. 2015).
  • 19 Video testimony, supra note 17
  • 20 Video testimony, supra note 17
  • 21 “Practitioner Perspectives on the State of Minnesota’s Tax Administration”  MCFE Issue Brief No. 15, December 2016
  • 22 Minn. Stat. § 270C.07. The oldest revenue notice available on the Minnesota Department of Revenue’s website is from 1991.
  • 23 The revenue notices are available at
  • 24 Minnesota Department of Revenue Study, Study on Dissemination of Administrative Determinations, Jan. 7, 1991.