AUTHORITY OF STATE AGENCY TO REQUIRE PRODUCTION OF INFORMATION FOR TAX RESEARCH ‑- CONFIDENTIALITY OF TAXPAYER INFORMATION

PUBLIC RECORDS ‑- STATUTES ‑- TAXATION ‑- AUTHORITY OF STATE AGENCY TO REQUIRE PRODUCTION OF INFORMATION FOR TAX RESEARCH ‑- CONFIDENTIALITY OF TAXPAYER INFORMATION

The Department of Revenue has statutory authority to require private businesses to provide information to the Department for research purposes, and information provided pursuant to such a requirement will be confidential and not subject to access by the general public, but the precise limits of the Department's authority depend on judicial determination in specific cases. 

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                                                                    May 9, 1986

Honorable Jeannette Hayner
State Senator, 16th District
Box 454
Walla Walla, Washington 99362

Honorable Emilio Cantu
State Senator, 41st District
4416 ‑ 138th Avenue S.E.
Bellevue, Washington 98006

Cite as:  AGO 1986 No. 7                                                                                                                  

 Dear Senators Hayner and Cantu:

            By letter previously acknowledged you have asked our advice regarding a research survey about to be conducted by the Department of Revenue.

             The Department proposes to solicit information by mailing an "information tax return" to several thousand businesses in the state in the next several weeks.  The "information tax return" calls upon businesses to provide the Department with a variety of information, primarily about their income and related subjects.1/ The Department also plans to request that each business in the  [[Orig. Op. Page 2]] survey group submit a copy of its most recent federal income tax return.

             The Department's stated purpose is to use the information obtained to develop a data base for use in making evaluations of changes in state taxes.

             Based upon the foregoing, you have asked the following two questions:

 "(1) Is there statutory authority for the Department to require businesses to respond to the survey?

 "(2) If the information is supplied, would it be considered confidential information which would not be subject to examination by the public or any other agency, or subject to use for any other purpose?"

             We answer both of your questions in the qualified affirmative as more fully discussed in the analysis below.

                                                              Introductory Summary

            Your first question inquires whether the Department can "require" a response to the survey.  Our review of the survey and public comments which have described the purpose of the survey does not lead to a clear conclusion as to whether the Department's survey is "a requirement" or simply a request for the voluntary submission of information.  This distinction is important and we believe the Department should, if it proceeds with the survey, make clear to the recipient whether the Department is "requiring" information or seeking simply the voluntary submission of information.  The reason we believe that distinction is important is that, while we find a statutory source upon which the Department can in fact require the information, our answer to the second question with reference to confidentiality is predicted upon the assumption that the information obtained is the result of a requirement, not a gratuitous voluntary submission.  Thus, if the Department does not require the submission of the information, our confidence in its protectable confidentiality is diminished.

             We should further emphasize at the outset that while we have concluded in response to your first question that there is a statutory basis for requiring information, we are not thereby concluding that a court would require all recipients of the survey to fully comply with all the requests for information therein.  If [[Orig. Op. Page 3]] the Department were to commence an action to compel specific companies to respond after their failure or refusal to supply the originally sought information, the court may well balance various interests.  These may include, but are not limited to, the Department's need for the information, the business' interest in nondisclosure, as well as the costs which would be sustained by the business in preparing the information and providing the same.  There is obviously a much closer nexus between information sought from a taxpayer and the individual tax liability of that taxpayer than there is between specific information sought from a business for a general research project conducted by the Department of Revenue.  We believe that, if the court were requested to compel production or impose sanctions for failure to respond, it would consider such a weighing process.

                                                                      ANALYSIS

             The starting point in our analysis is the maxim of construction that a state agency has only those powers which have been expressly granted by the legislature or which can be implied as the means necessary to carry out the legislative purpose.  See,Smith v. Green, 86 Wn.2d 363, 545 P.2d 550 (1976).  The Department's announced intention is to conduct a survey for research purposes, and the question then arises:  Does the Department have statutory authority to require businesses to answer the survey?

             The Department of Revenue has broad authority to engage in research, including research on tax alternatives which may include taxes not currently in use in this state.  A clear enunciation of that authority is expressed in the following portions of RCW 82.01.060:

             "The director of revenue . . . through the department of revenue . . . shall:

             ". . .

             "(4) Maintain a tax research section with sufficient technical, clerical and other employees to conduct constant observation and investigation of the effectiveness and adequacy of the revenue laws of this state and of the sister states in order to assist the governor, the legislature and the director in estimation of revenue, analysis of tax measures, and determination  [[Orig. Op. Page 4]] of the administrative feasibility of proposed tax legislation and allied problems;

             "(5) Recommend to the governor such amendments, changes in, and modifications of the revenue laws as seem proper and requisite to remedy injustice and irregularities in taxation, and to facilitate the assessment and collection of taxes in the most economical manner."

             RCW 82.01.060, while authorizing the Department to conduct research, does not require that private businesses provide the Department with information concerning their activities, nor do we read a statute authorizing the Department to engage in research as necessarily implying the power to compel private parties to produce information for research purposes.  Thus, if there is a power to compel the production of information for a research survey, the source of that power must be found in another statute.

             Before proceeding further we should note that the power and authority of the Department of Revenue is expressed in more than one title of the RCWs.  Chapters 82.01 and 82.32 RCW, under the heading "Excise Taxes," provides express general statutory powers of the Department of Revenue.  General powers of the Department of Revenue are also set forth in chapter 84.08 RCW which is part of Title 84 dealing with "Property Taxes."  When the state tax laws were recodified in 1961 (chapter 15, Laws of 1961), it was specifically provided in RCW 84.98.010 that where the recodified provisions were substantially the same as prior enactments, they reflected a continuation, not a new enactment.  Further, it was stated in the official note to the statute, "Many powers and duties of the tax commission [the statutory predecessor of the Department of Revenue], both specific and general appear throughout the three titles" (reported at page 1237 of the session laws).  The three titles included Title 82 (excise tax), Title 83 (estate taxes) and Title 84 (property taxes).  It is important to recognize that the powers, duties and authority of the Department can be found in any one of the three titles and those powers are not unique to the three major subjects, i.e., excise taxes, estate taxes and property taxes.

             There are a variety of statutes which empower the Department of Revenue to require recordkeeping by a taxpayer, permit access to such records and, under certain circumstances, an obligation to produce the same.  Those statutes include RCW 82.32.045(1) and (3), RCW 82.32.070, RCW 82.32.110 and RCW 82.32.290(1)(a)(vi).  However, in the present situation, we believe that the appropriate statute  [[Orig. Op. Page 5]] to be examined regarding the Department's authority to require persons to produce information called for by the survey is RCW 84.08.050.  Subsection (1) is the relevant portion:

             "Require individuals, partnerships, companies, associations and corporations to furnish information as to their capital, funded debts, investments, value of property, earnings, taxes and all other facts called for on these subjects so that the department may determine the taxable value of any propertyor any other fact it may consider necessary to carry out any duties now or hereafter imposed upon it, or may ascertain the relative burdens borne by all kinds and classes of property within the state, and for these purposes their records, books, accounts, papers and memoranda shall be subject to production and inspection, investigation and examination by said department, or any employee thereof designated by said department for such purpose, and any or all real and/or personal property in this state shall be subject to visitation, investigation, examination and/or listing at any and all times by the department or by any employee thereof designated by said department."  (Emphasis added)

 Because RCW 84.08.050(1) is a single complex sentence, it is useful to break it down for closer analysis.

             First, the subsection authorizes the Department of Revenue to require individuals, partnerships, companies, associations and corporations to furnish information as to the following subjects: capital, funded debts, investments, value of property, earnings, taxes, and all other facts called for on these subjects.  The statute goes on to list the purposes for which the Department can require information:  to determine the taxable value of any other property; to determine any other fact the Department may consider necessary to carry out any duties now or hereafter imposed upon it; and to ascertain the relative burdens borne by all kinds and classes of property within the state.  The remainder of this subsection details the specific mechanisms which the Department may employ to administer the statute.

             The legislature employed the disjunctive word "or" in separating the various purposes for which the Department of Revenue may require information under the statute.  The use of the disjunctive indicates that the purposes for which the Department may require information are broader than the need to determine the taxable value of particular property and, instead, extend to other  [[Orig. Op. Page 6]] facts considered "necessary to carry out any duties now or hereafter imposed" upon the Department.

             The statutory evolution of RCW 84.08.050(1) makes it clear that the Department's power to require individuals and corporations to supply information is broader than those instances where the value of property or the actual liability of particular persons is in question.  The language in question has its direct antecedent in chapter 115, Laws of 1905.  The 1905 statute read as follows:

             "The [State Board of Tax] commissioners shall have the power, and it shall be their duty:

             ". . .

             "Seventh:  To require individuals, partnerships, companies, associations and corporations to furnish information as to their capital, funded debts, value of property, earnings, taxes and all other facts called for on these subjects, so that the commission [may determine the taxable value of any property or other fact it may consider necessary to carry out any duties now of hereafter imposed upon it, or] may ascertain the relative burdens borne by all kinds and classes of property within the State.2/

             ". . ." § 2, chapter 115, Laws of 1905.

             The original 1905 version of the statute in § 2 sets forth the authority of the Board of Tax Commissioners for the panoply of state taxation.  The touchstone of the portion quoted above was not related to the determination of tax liability, but rather it was related to the obtaining of information to consider the equity of the property tax system.

             The 1935 Legislature added language to what is now RCW 84.08.050(1), authorizing the Department (then still the Commission) to require the production of information in connection with the determination of the taxable value of any property, as well as ". . . any other fact it may consider necessary to carry out any duties now or hereafter imposed upon it . . ."

              [[Orig. Op. Page 7]]

            The 1935 legislative session enacted the comprehensive revenue act (chapter 180, Laws of 1935) introduced as House Bill 237.  The amendment of RCW 84.08.050 by the same session was a departmental request bill, HB 498, which anticipated and contemplated the adoption of the comprehensive revenue act.  Thus the specific amendment adding the language "may determine the taxable value of any property or any other fact it may consider necessary to carry out any duties now or hereinafter imposed by it . . ." was not constrained by reference to property taxation.  This amendatory language certainly contemplated the broad taxing authority contained in the 1935 revenue act which goes well beyond the area of simply property taxation.

             As earlier noted, what is now RCW 84.08.050 antedates by several decades the current codification of the tax code into separate titles relating to excise taxes, estate taxes and property taxes.  Neither the original 1905 statute nor the subsequent legislative acts amending this section related exclusively to property tax.  Accordingly, we must conclude that RCW 84.08.050 is a general administrative statute for the Department of Revenue and was not intended to be limited to property tax.  Even if it were, we note that most of the questions on the proposed "information tax return" relate to property taxes.3/

             From the language of the statute itself and from its history we are satisfied that the legislature intended RCW 84.08.050 to authorize the Department to require the furnishing of information.  That statute is broad enough to permit the Department to require the production of information in order to carry out its statutory research purposes.4/

              [[Orig. Op. Page 8]]

            Our answer to your first question is, therefore, generally affirmative.  We qualify it because, as noted earlier, RCW 84.08.050(1) is not unlimited in its description of the information which the Department can require to be produced.

            We have reviewed the draft questionnaire which the Department proposes to send out, and we observe that most of the information called for fits within one or more of the categories listed above.  Even to the extent information does not fit within those categories, and therefore might not be subject to the compulsory production pursuant to RCW 84.08.050(1), a business may supply the information to the Department on a voluntary basis.5/

             Turning now to your second question which we repeat for ease of reference.

             "If the information is supplied, would it be considered confidential information which would not be subject to examination by the public or any other agency, or subject to use for any other purpose?"

           In our opinion, the tax code's own secrecy statute, RCW 82.32.330, affords confidentiality to any information supplied by taxpayers pursuant to the Department's request for information, at least where a response is "required."  We are far less certain about the confidentiality of the information that is supplied on a purely voluntary gratuitous basis.

             There are also other possible bases for argument that the information required should be confidential.  We qualify our  [[Orig. Op. Page 9]] generally affirmative answer because we recognize that several of the statutes we consider are capable of more than one interpretation, and it is not possible to predict with complete accuracy what the courts would do if asked to apply them to the situation at hand.  Nevertheless, we feel that our affirmative answer is consistent with the legislative intent expressed in the statutes and with our answer to question (1).

             As noted earlier, the Department's stated intent in requesting the information contained in the proposed "information tax return" is research‑-to develop a data base for use in analyzing various tax schemes.  When you ask whether the information supplied would be considered confidential, we assume you are speaking of the specific information supplied by a particular taxpayer, not the statistical and other data which the Department proposes to generate from the information it obtains.  This latter category of information, once stripped of details identifying its sources and transformed into statistics, would almost certainly be available for public access.  See, RCW 42.17.250,et seq., and RCW 82.32.330(3).

            We turn now to the more sensitive question‑-would members of the general public be able to gain access to the specific information returns supplied by particular taxpayers at the request of the Department.  We begin by examining the confidentiality statute contained within the State's Tax Code.

             RCW 82.32.330 provides, in pertinent part, as follows:

             "Except as hereinafter provided it shall be unlawful for the department of revenue or any member, deputy, clerk, agent, employee, or representative thereof or any other personto make known or reveal any facts or information contained in any return filed by any taxpayer or disclosed in any investigation or examination of the taxpayer's books and records made in connection with the administration hereof.  The foregoing, however, shall not be construed to prohibit the department of revenue or a member or employee thereof from:  (1) Giving such facts or information in evidence in any court action involving tax imposed hereunder or involving a violation of the provisions hereof or involving another state department and the taxpayer; (2) giving such facts and information to the taxpayer or his duly authorized agent; (3) publishing statistics so classified as to prevent the identification of particular returns or reports or items  [[Orig. Op. Page 10]] thereof; (4) giving such facts or information, for official purposes only, to the governor or attorney general, or to any state department, agency, board, commission, council, or any committee or subcommittee of the legislature dealing with matters of taxation, revenue, trade, commerce, the control of industry or the professions; (5) permitting its records to be audited and examined by the proper state officer, his agents and employees; (6) giving any such facts or information to the proper officer of the internal revenue service of the United States or to the proper officer of the tax department of any state or city or town or county, for official purposes, but only if the statutes of the United States or of such other state or city or town or county, as the case may be, grants substantially similar privileges to the proper officers of this state; or (7) giving any such facts or information to the Department of Justice, the Bureau of Alcohol, Tobacco and Firearms of the Department of the Treasury, or the army or navy departments of the United States, or any authorized representative thereof, for official purposes.

             ". . ."  (Emphasis supplied)

             The first point to consider is whether RCW 82.32.330 applies by its terms to the information which the Department proposes to obtain through the survey which is the subject of your inquiry.  The statute covers two types of information:  (1) Facts or information contained in any return filed by any taxpayer, or (2) facts or information disclosed inany investigation or examination of the taxpayer's books and records made in connection with the administration "hereof."

             Although the Department describes the questionnaire it proposes to distribute as an "information tax return," we are not satisfied that attaching the label "return" to the information requested by the Department for research purposes constitutes a "return" as contemplated in state statute.  In reviewing our state tax code, the only uses of "returns" we discovered were connected with taxes imposed, taxes paid, or a determination of taxes not due, or taxes due and owing.  See,e.g., RCW 82.32.045, RCW 82.32.100, RCW 82.32.110 and WAC 458-20-228.  We therefore conclude that a form on which taxpayers are requested to fill out information concerning property which is not presently subject to taxation, where the information bears no relation to actual tax liability of the taxpayer, should not be considered a "return" for  [[Orig. Op. Page 11]] the purposes of RCW 82.32.330.  By this conclusion we are not exempting from the secrecy statute those reports or returns that are statutorily required for various tax exemptions in whole or in part,e.g., RCW 84.36.815.

             We turn now to the question of whether the responses to the "information returns" will constitute "facts or information . . . disclosed in any . . . examination of the taxpayer's books and records made in connection with the administration hereof . . ."  A request in the nature of a demand for information required by the Department regarding specific information concerning a taxpayer's income and related subjects, in our opinion, constitutes an examination of the taxpayer's books and records.  We see no logical distinction between direct examination of the taxpayer's books and records by an employee or other representative of the Department and an indirect examination, as in this case, where the Department requires the taxpayer to examine its own books and records and supply information contained in those books and records to the Department.

             The question remains as to whether this is an examination made in connection with the ". . . administration . . . hereof . . ."  Put another way, what scope did the legislature intend to give the "secrecy" statute, and is that scope broad enough to encompass the information in question here?  The word "hereof" comes from the 1961 amendments to what is now RCW 82.32.330.  The 1961 session of the legislature regrouped, recodified and reenacted large portions of the state's revenue statutes as a single tax code.  In connection with the recodification, the 1961 Legislature changed the phrase ". . . made in connection with the administration of this act . . ."  (the original language from a 1935 statute) to the phrase ". . . made in connection with the administration hereof. . ."  [emphasis added].  When a material change in a statute is made, a change in the legislative intent is presumed.  Strunk v. State Farm Mutual Auto Insurance Co., 90 Wn.2d 210, 580 P.2d 622 (1978).

             The obvious meaning of "hereof" is that it refers to "this present 1961 act," which was in fact a comprehensive recodification of Titles 82, 83, and 84 RCW.  In other words, the 1961 Legislature intended to extend the scope of the 1935 secrecy act to  [[Orig. Op. Page 12]] investigations or examinations of taxpayer's books and records made in connection with any provisions in Titles 82, 83, or 84 RCW.6/ That extension of RCW 82.32.330 in 1961 makes its secrecy protection cover any records obtained by the Department from a taxpayer in connection with the administration of one or more provisions of the tax titles.

             There is another provision in chapter 82.32 RCW which might, at first blush, appear to limit RCW 82.32.330 and make it inapplicable to the subject raised by your question.  RCW 82.32.010 reads as follows:

             "The provisions of this chapter shall apply with respect to thetaxes imposed under chapters 82.04 through 82.29A RCW of this title, under chapter 84.33 RCW, and under other titles, chapters, and sections in such manner and to such extent as indicated in each such title, chapter, or section."  [Emphasis added]

             Is the effect of the foregoing language from RCW 82.32.010 to limit the secrecy provisions of RCW 82.32.330, which are undisputably "provisions of this chapter" to information relating to "taxes imposed" under the various chapters listed in RCW 82.32.010?  We think not.

             Our primary reason for thinking that RCW 82.32.010 is not a limitation on the effect of RCW 82.32.330 is that there is nothing in RCW 82.32.010 to indicate that the legislature intended the phrase "taxes imposed" to be specifically limited to RCW 82.32.330.  The evident purpose behind RCW 82.32.010 was to clarify those situations in which the provisions of chapter 82.32 RCW would apply, not to delineate other situations in which that chapter would not apply.  We note that the original 1935 version of this section did delineate provisions to which the administrative sections of the code were not applicable (see § 245, chapter 180, Laws of 1935),  [[Orig. Op. Page 13]] but later versions of the statute contain no such limitation.

             This is bolstered by the fact that RCW 82.32.330, by its own terms, relates to "the administration hereof" in the sense of the administration of the general tax codes (see previous discussion).  It would be inconsistent with this language to read the "secrecy" statute as limited in its application to those specific taxes enumerated in RCW 82.32.010.

             We, therefore, conclude that RCW 82.32.330 extends to information required by the Department to be produced as previously discussed.

             The "secrecy" provisions of the tax code should also be read in light of the state's general public records statutes, originally enacted as Initiative Measure No. 276 in 1972 and now codified as chapter 42.17 RCW.  The general thrust of chapter 42.17 RCW is for full access to public records by the general public.  See RCW 42.17.010 and RCW 42.17.260.  The first question to be dealt with, looking at chapter 42.17 RCW and RCW 82.32.330 together is:  Does chapter 42.17 RCW supersede RCW 82.32.330?

             We answer this question in the negative.  While RCW 42.17.920 provides that ". . . [i]n the event of conflict between the provisions of this act and any other act, the provisions of this act shall govern . . .", chapter 42.17 RCW (originally enacted as chapter 1, Laws of 1973) contains neither a repealer nor an amendment of RCW 82.32.330.

             The legislature has reaffirmed the force of RCW 82.32.330 by amending it twice since the enactment of chapter 42.17 RCW.  See § 12, chapter 138, Laws of 1984 and § 9, chapter 414, Laws of 1985.  The 1985 change also incorporated the recognition of RCW 82.32.330 into the language of chapter 42.17 RCW itself.  See RCW 42.17.310(1)(c) as amended by § 8, chapter 414, Laws of 1985.

             We conclude from the foregoing facts that chapter 42.17 RCW has not superseded RCW 82.32.330 and that the latter statute applies to situations such as that presented by your question.

             We note in passing that there are also provisions in chapter 42.17 RCW which may provide additional bases for exempting at least some of the information the Department proposes to request.  See,e.g., RCW 42.17.310(1)(c) (certain information required of any taxpayer in connection with the assessment or collection of any  [[Orig. Op. Page 14]] tax) and RCW 42.17.310(1)(h) (relating to certain valuable formulae, designs, drawings and research data under certain circumstances).

             We note also RCW 42.17.330 which provides court protection of certain public records if a court finds that an examination of such records "would clearly not be in the public interest and would substantially and irreparably damage any person, or would substantially or irreparably damage vital governmental functions . . ."

             We are not here predicting the extent to which courts would protect the Department's records on the basis of chapter 42.17 RCW.7/ However, the very recent case of In the Matter of Gordon Rosier, 105 Wn.2d 606, ___ P.2d ___ (1986) indicates a judicial concern about the potential consequences of releasing information in public record cases.  WhileRosier presents facts different from those discussed in your question, it does reflect that when balancing the public right to know with the interests of the informations's subject, greater weight is now being accorded the subject's interests.

             As we noted earlier, the Department proposes to request, along with certain information to be generated by the taxpayers, copies of federal income tax returns filed by those taxpayers.  That portion of the request raises federal law issues which we should note before closing.

             If a state requires a taxpayer to attach to or include in a state tax return a copy of any portion of his federal return, there is no federal law prohibition against subsequent disclosure by the state of the contents of the return.  However, if the state under such circumstances fails to adopt provisions of law ". . . which protect the confidentiality of the copy of the federal return . . ." the Internal Revenue Service is henceforth forbidden to share any further information with that state or its officers.  See 26 U.S.C. § 6103(p)(8).  It is difficult to assess this provision which only comes into play where a state requires a federal return  [[Orig. Op. Page 15]] to be attached to or included in a state return.  It is not clear whether the "information tax return" under discussion would be such a return for federal law purposes.  If it is, RCW 82.32.330 (see previous discussion) should serve to satisfy the federal requirement that the state protect the confidentiality of the federal return.  If the "information" is not a "return" for federal purposes, then the federal statute just cited should not be applicable.8/

             All of the foregoing discussion concerns access by the general public to the contents of information tax returns supplied pursuant to the Department's request.  Your question also mentions possible access by agencies to this informations.  We note that RCW 82.32.330 specifically authorizes the Department to share otherwise secret information with certain types of officers or entities, under certain conditions, and with certain protections.

             Finally, your second question also asks whether the Department, having obtained the information in question for research purposes, could nonetheless use it for other purposes (presumably tax audit or other enforcement purposes).  There is no statutory provision which limits the Department in any way in the use of information it obtains.  Thus the Department would have the legal right (though it might choose not to exercise it) to use information for any purpose.

             Summary:

             As noted earlier, we answer both your questions in the qualified affirmative.  Subject to the statutory limitations of RCW 84.08.050, we are of the opinion that the Department can require a taxpayer to provide the requested information.  Under RCW 82.32.330, we are of the further opinion that if the "information tax return" is required, it is confidential subject to those provisions specifically set forth in the statute itself.

              [[Orig. Op. Page 16]]

            We trust the foregoing will be of assistance to you.

 Very truly yours,
KENNETH O. EIKENBERRY
Attorney General

JAMES K. PHARRIS
Senior Assistant
Attorney General