Can the New York State Comptroller see confidential New York City tax returns when auditing the city's Department of Finance?

Plain-English summary

The State Comptroller launched an audit of New York City's Department of Finance to evaluate how the City handled assessed business taxes and tax protests. When the Comptroller requested supporting documents, Finance objected: the City's tax secrecy provisions (Admin. Code §§ 11-538, 11-688, 11-1116) forbid disclosure of taxpayer information "[e]xcept in accordance with proper judicial order or as otherwise provided by law." Penalties for unauthorized disclosure include dismissal from office and five-year disqualification from city or state employment.

The City Corporation Counsel asked the AG whether the Comptroller had the "otherwise provided by law" authority. The AG concluded yes. The State Constitution (Art. V, § 1) lets the Legislature assign the Comptroller "supervision of the accounts of any political subdivision of the state." General Municipal Law § 33 directs the Comptroller to inspect and examine municipal accounts and the "method and accuracy" of those accounts. General Municipal Law § 34 empowers the Comptroller to "compel the production of books and papers" in financial affairs of municipal corporations. The Fourth Department in Levitt v. Wanamaker (1961) had already held this audit authority qualified as "otherwise provided by law" sufficient to override the secrecy rule.

The AG also pointed out two structural safeguards. The Comptroller's office uses signed secrecy agreements with releasing agencies. And anyone receiving the secret information is bound by the same penalties as the original custodian. The result: efficient tax administration is furthered by the audit; taxpayer privacy is preserved through the contractual and statutory secrecy regime that follows the data downstream.

Currency note

This opinion was issued in 2004. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

The Comptroller's audit authority and the City's tax-secrecy provisions have both seen amendments. The relationships among state oversight, city taxing authority, and federal taxpayer privacy law have continued to develop. An auditor or municipal counsel facing a similar question today should review the current statutes and any subsequent appellate decisions.

Common questions

Q: What does "otherwise provided by law" mean in the tax secrecy provisions?
A: The phrase is meant to leave room for other statutes that authorize disclosure. The AG (and the Fourth Department in Levitt v. Wanamaker) read it broadly enough to include the Comptroller's general audit powers under General Municipal Law §§ 33-34. A narrow reading limited to enumerated disclosure statutes would render the catchall "otherwise" clause meaningless.

Q: Does the Comptroller's audit power extend to performance audits, not just financial audits?
A: Yes. The Court of Appeals in In re McCall v. Barrios-Paoli (1999) interpreted §§ 33 and 34 to include "performance audits," meaning audits of how well an agency carries out its programs.

Q: How is taxpayer privacy protected once the Comptroller has the data?
A: Two ways. Signed secrecy agreements between the Comptroller and the releasing agency. And the city's secrecy provisions themselves bind any downstream recipient to the same confidentiality obligations and penalties as Finance.

Q: What was the State Tax Department's contrary view in earlier cases?
A: In the 1957 Wanamaker litigation, counsel to the State Department of Taxation and Finance argued that only specifically enumerated exceptions to the secrecy rule (such as audits of refund claims) qualified as "law" authorizing disclosure. The Fourth Department rejected that reading.

Q: Why does the AG cite the OCTF case?
A: In re N.Y. State Dep't of Taxation and Finance v. N.Y. State Dep't of Law (OCTF), 44 N.Y.2d 575 (1978), drew a line between "marshaling of revenues" (a legitimate reason to access secret tax data, here the audit goal) and unrelated investigations (where the AG's office's organized crime task force authority was held insufficient). The audit here clearly fell on the marshaling-of-revenues side.

Q: Do these principles apply only to NYC, or to other municipalities too?
A: The structural rules (constitutional audit authority, GML §§ 33-34, secrecy regimes with "otherwise provided by law" exceptions) apply throughout the state. NYC's tax-secrecy provisions are particularly explicit and were derived from State legislation (L. 1966, ch. 772).

Background and statutory framework

The State Comptroller's audit jurisdiction begins in the Constitution. N.Y. Const. Art. V, § 1 lets the Legislature give the Comptroller "supervision of the accounts of any political subdivision of the state." General Municipal Law § 33 implements that authority by directing the Comptroller to "inspect and examine" the accounts of municipal officers and to examine the financial condition, resources, "method and accuracy" of municipal accounts. Section 34 lets the Comptroller "compel the production of books and papers."

New York City's tax-secrecy provisions track the State's Tax Law secrecy provisions. The Tax Law's "[e]xcept in accordance with proper judicial order or as otherwise provided by law" formula appears in §§ 202(1), 697(e), and 1146(a), and the City Admin Code carries the same language at §§ 11-538, 11-688, and 11-1116. Levitt v. Wanamaker settled the construction: the Comptroller's audit authority is "law" sufficient to satisfy the exception, even though it is not specifically enumerated as a secrecy exception. The OCTF decision is the limit principle: a generic statute (like Executive Law § 70-a(3), giving an organized crime task force broad cooperative authority) is not enough; the disclosure has to be tied to a substantive audit or revenue function.

The opinion also flagged the procedural protections: signed secrecy agreements between Comptroller and the agency, and the statutory pass-through of confidentiality obligations onto every downstream recipient.

Citations and references

Statutes:

• N.Y. Const., Art. V, § 1
• Executive Law § 70-a(3)
• General Municipal Law §§ 33, 34
• New York City Administrative Code §§ 11-537, 11-538, 11-638(1), 11-688, 11-1116
• Tax Law §§ 202(1), 697(e), 1146(a)
• L. 1966, ch. 772, § 1

Cases:

• Levitt v. Wanamaker, 12 A.D.2d 149 (4th Dep't 1961)
• In re McCall v. Barrios-Paoli, 93 N.Y.2d 99 (1999)
• In re N.Y. State Dep't of Taxation and Finance v. N.Y. State Dep't of Law, Statewide Organized Crime Task Force, 44 N.Y.2d 575 (1978)

Source

• Landing page: https://ag.ny.gov/libraries-documents/opinions/opinions-year
• Original PDF: https://ag.ny.gov/sites/default/files/opinions/I_2004-13_pw.pdf

Original opinion text

N.Y. CONST., ART. V, § 1; EXECUTIVE LAW § 70-a(3); GENERAL MUNICIPAL LAW §§ 33, 34; NEW YORK CITY ADMINISTRATIVE CODE §§ 11-537, 11-538, 11-638(1), 11-688, 11-1116; TAX LAW §§ 202(1), 697(e), 1146(a); L. 1966, CH. 772, § 1.

The office of the State Comptroller is authorized under state law to access tax information, in the course of an audit, that is otherwise secret.

November 29, 2004

Michael A. Cardozo
Corporation Counsel
New York City
100 Church Street
New York, New York 10007-2601

Informal Opinion
No. 2004-13

Dear Mr. Cardozo:

You have informed us that New York City has a local law requiring that certain tax information remain secret "[e]xcept . . . as otherwise provided by law." You have asked whether the State Comptroller is authorized under state law to access documentation from the New York City Department of Finance in connection with an audit of that department by the Comptroller. We are of the opinion that the Comptroller is so authorized.

Analysis

The State Comptroller has commenced an audit of the City Department of Finance ("Finance") to determine the efficiency of Finance's procedures with respect to collecting assessed business taxes and handling tax protests. To proceed with its audit, the Comptroller has requested various documents. Finance has taken the position that certain documents cannot be produced because they contain confidential tax information that cannot be disclosed pursuant to New York City Administrative Code §§ 11-538 (Unincorporated Business Income Tax), 11-688 (Business Taxes), and 11-1116 (Utility Tax).

These sections provide that

[e]xcept in accordance with proper judicial order or as otherwise provided by law, it shall be unlawful for the commissioner of finance, the department of finance of the city, any officer or employee of the department of finance of the city, . . . [and others including] any person who, pursuant to this section, is permitted to inspect any report or return, or to whom any information contained in any report or return is furnished, . . . to divulge or make known in any manner the amount of income or any particulars set forth or disclosed in any report or return, under this chapter.

N.Y.C. Admin. Code § 11-688(1). The penalties for willful violation of sections 11-538, 11-688, and 11-1116 include dismissal from office, inability to hold any public office in the City or State for a period of five years, as well as criminal penalties.

We are of the opinion that the powers and duties granted to the office of the State Comptroller pursuant to the Constitution and under state statute provide authority for the Comptroller or his designees to access confidential tax information during the course of an audit.

The Constitution authorizes the Legislature to assign to the Comptroller "supervision of the accounts of any political subdivision of the state." N.Y. Const. art. V, § 1. Pursuant to that authority, the Legislature has mandated that the Comptroller cause the accounts of all officers of each . . . municipal corporation . . . to be inspected and examined by one or more examiners of municipal affairs for such periods as the comptroller shall deem necessary. On every such examination inquiry shall be made as to the financial condition and resources of the municipal corporation . . . and into the method and accuracy of its accounts. General Municipal Law § 33. The Comptroller's office is empowered to "examine into the financial affairs of every . . . municipal corporation . . . , and to compel . . . the production of books and papers." General Municipal Law § 34. In addition to authorizing financial audits, the Court of Appeals has interpreted these powers to include the authority to conduct "performance audits", i.e., to examine the performance of government organizations, programs, activities, or functions, of New York City agencies. In re McCall v. Barrios-Paoli, 93 N.Y.2d 99 (1999).

The secrecy provisions of New York City Administrative Code §§ 11-537, 11-688, and 11-1116 are essentially identical to numerous provisions of state law. See, e.g., Tax Law §§ 202(1) (corporation tax); 697(e) (personal income tax); 1146(a) (sales and compensating use tax). The purpose of these provisions is two-fold: first, to protect the privacy interests of the reporting entity or individual, and second, to facilitate the State's collection of taxes by encouraging accurate self-reporting. See In re N.Y. State Dep't of Taxation and Finance v. N.Y. State Dep't of Law, Statewide Organized Crime Task Force [OCTF], 44 N.Y.2d 575, 579-80 (1978). Thus, the Legislature determined that information collected from tax returns generally must be strictly protected.

The Legislature did, however, recognize certain instances where the disclosure of otherwise confidential tax information was warranted. Thus, the Legislature sanctioned the divulgence of tax information when it was requested pursuant to "proper judicial order." See, e.g., Tax Law §§ 202(1); 697(e); 1146(a). The Legislature also recognized that other exceptions to the secrecy rule might exist: it provided that such disclosure was unlawful "[e]xcept . . . as otherwise provided by law." Id.

We are of the opinion that the mandate given to the Comptroller pursuant to General Municipal Law § 33 to "inspect[] and examine[]" municipal accounts, including their "method and accuracy," and the power, pursuant to General Municipal Law § 34, to "examine into the financial affairs of every . . . municipal corporation" and to "compel . . . the production of books and papers" constitute statutory authorization to access otherwise secret tax information. If it were not so, the Comptroller could not meet his statutory obligation, founded in the Constitution, to inspect and examine the "accounts of all officers" of a municipal corporation. General Municipal Law § 33.

Case law accords with this view. In 1961, interpreting a state statute, the Appellate Division concluded that the Comptroller was authorized to review sales tax returns which were otherwise subject to secrecy provisions. Levitt v. Wanamaker, 12 A.D.2d 149 (4th Dep't 1961). The court's conclusion was based on General Municipal Law § 33's mandate to the Comptroller to inspect and examine municipal accounts, and thus the divulgence of the tax information was "otherwise provided by law." Id. To refuse the Comptroller access to tax returns containing confidential information would have resulted in the Comptroller's inability to perform his mandate. See id. at 152. The court rejected the position, taken by counsel to the State Department of Taxation and Finance, that the inclusion of more specifically-delineated exceptions to the secrecy rule meant that the Comptroller's duties and powers granted by sections 33 and 34 of the General Municipal Law were not sufficient to constitute "other law." The court indicated that to interpret the secrecy provisions to permit divulgence only to those entities named and for the reasons given would render the clause "[e]xcept . . . as otherwise provided by law" meaningless. Id.

Our conclusion is also consistent with the rationale of OCTF, which recognized that the "marshaling of revenues" was a valid reason to disclose otherwise confidential tax information, while investigations that bear no relationship to tax matters do not warrant disclosure. 44 N.Y.2d at 581, 582.

Finally, we note that the procedures surrounding the audit provide assurances that the confidential information will continue to be protected while also furthering the goals of efficient tax collection. We have been informed that the Comptroller's procedures in conducting an audit involving confidential tax information include providing to the releasing agency signed "secrecy agreements." Moreover, we note that the secrecy provisions provide that anyone to whom the secret information is disclosed is bound to protect the information, subject to the same penalties as Finance. N.Y.C. Admin. Code §§ 11-538(1); 11-638(1). In this way, the privacy of the information is protected, while the goal of efficient tax collection is furthered through the audit, as well as through the non-use of tax information for other than tax purposes.

For the reasons discussed above, we therefore conclude that state law authorizes the office of the State Comptroller to access tax information, in the course of an audit, that is otherwise secret.

The Attorney General renders formal opinions only to officers and departments of state government. Thus, this is an informal opinion rendered to assist you in advising the municipality you represent.

Very truly yours,

KATHRYN SHEINGOLD
Assistant Solicitor General
In Charge of Opinions