Can the Tennessee Department of Revenue share tax information with a city or county about taxpayers located outside that city or county's borders?

Subject

Opinion No. 15-44, Disclosure of Returns and Tax Information to Officials of Local Government, May 6, 2015

Plain-English summary

Tennessee's Commissioner of Revenue asked the AG how to handle requests from cities and counties for tax data about taxpayers outside the requesting jurisdiction. Could the Department disclose sales and use tax data, business tax data, or Hall income tax data about taxpayers located in a different city or county, just because the requesting government thought the data might be useful?

The AG said almost always no. Disclosing a taxpayer's tax information without authorization is a Class E felony. The narrow exception that lets local governments see returns and tax information (Tenn. Code Ann. § 67-1-1704(d)) only applies when the local official needs the information to ensure that "proper local taxes are being paid." If a taxpayer is located outside the requesting jurisdiction, the local government has no local-tax enforcement interest in that taxpayer's data. Hall income tax and state sales tax are pure state taxes, so local officials have no business getting that data to police state taxes (that is the Commissioner's job). Local option sales taxes and ad valorem property taxes are real local taxes, but the same in-jurisdiction limit applies. Even when a request is legitimate, the Department should disclose only what is actually needed.

The AG also flagged a trickier subset: local taxes that the Commissioner himself collects and administers, like the local option sales tax and municipal business taxes that are state-collected. The local government may have a harder time showing it needs the underlying tax data when the Commissioner is the one actually enforcing.

Currency note

This opinion was issued in 2015. 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The Hall income tax, central to several of the AG's examples here, was repealed effective for tax years beginning January 1, 2021. Tennessee no longer collects a personal income tax. Anyone applying this opinion today should disregard the Hall tax discussion and verify the current versions of the local tax statutes.

Common questions

Why is this such a sensitive area?

Because unauthorized disclosure is criminal. Tenn. Code Ann. § 67-1-1709(a) makes it a Class E felony for anyone with access to a return or tax information to disclose it to any person, except as authorized by law. So the Department cannot share even seemingly harmless data without a clear statutory hook.

What kinds of information count as confidential "tax information"?

Tenn. Code Ann. § 67-1-1701(8) sweeps broadly: taxpayer identity, the nature, source, or amount of income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax collected, deficiencies, overassessments, tax payments, "or any other data" received, recorded, prepared by, furnished to, or collected by the Commissioner with respect to a return or potential liability.

What does the exception for local officials actually allow?

Tenn. Code Ann. § 67-1-1704(d) lets the Department disclose, on written request, returns and tax information "to duly authorized officials of a unit of local government of this state for the purpose of ascertaining whether proper local taxes are being paid." Two limits: written request, and a local-tax-enforcement purpose. Local officials who get information under this exception are themselves bound by confidentiality and cannot redistribute it.

Why can't a city or county get data on out-of-jurisdiction taxpayers?

Because the exception is keyed to local-tax enforcement. A Chattanooga taxpayer's sales tax data does not help Memphis ensure proper payment of Memphis local taxes. The AG carved out a narrow exception for situations where, for instance, an out-of-jurisdiction taxpayer owns personal property in the requesting jurisdiction (which would be taxable there) or where Department and local records disagree about a taxpayer's location.

Can the Department use state-tax data (like franchise and excise records) to help with a local-tax inquiry?

Yes. Even though state and local taxes are separate, the Department can rely on its franchise and excise records, business tax records, and sales and use tax records to identify, say, local businesses that should be paying ad valorem tax on tangible personal property under Tenn. Code Ann. § 67-5-903(a). The confidentiality exception does not pre-screen which tax records the Department uses to fulfill a legitimate local-tax disclosure request.

What's the catch with state-administered local taxes?

Local option sales tax (collected by the Commissioner under Tenn. Code Ann. § 67-6-710) and municipal business tax (collected by the Commissioner under Tenn. Code Ann. § 67-4-703) are technically local taxes, but the state does the enforcement. A local government asking for taxpayer data for those taxes has to articulate why it, rather than the Commissioner, needs that data to assist with enforcement. One exception: Tenn. Code Ann. § 67-4-719 authorizes a contract between the Commissioner and the county clerk or city official for delinquent business tax collection.

Background and statutory framework

Tennessee's taxpayer confidentiality regime lives in Tenn. Code Ann. §§ 67-1-1701 to -1712. Unauthorized disclosure of a return or tax information is a Class E felony (Tenn. Code Ann. § 67-1-1709(a)). "Tax information" is defined broadly in Tenn. Code Ann. § 67-1-1701(8) to include almost anything the Commissioner receives or creates in connection with a return.

There are several disclosure exceptions: Tenn. Code Ann. § 67-1-1704 (administrative purposes; tax collection), § 67-1-1705 (tax enforcement), § 67-1-1706 (parties in interest), and § 67-1-1707 (miscellaneous purposes). The local-government exception under § 67-1-1704(d) requires a written request and a local-tax purpose. Recipients of information under this exception are themselves subject to the confidentiality rules.

State sales tax (Tenn. Code Ann. § 67-6-202(a)) and Hall income tax (Tenn. Code Ann. § 67-2-103) are state taxes; cities and counties have no enforcement role. Although three-eighths of Hall income tax revenues were distributed to the cities and counties where the taxpayers resided (Tenn. Code Ann. § 67-2-119), that revenue-sharing did not convert the Hall tax into a local tax. Local option sales tax (Tenn. Code Ann. §§ 67-6-701(b) & -702(a)) and ad valorem property tax (Tenn. Code Ann. §§ 67-5-102(a)(1), 67-5-103(a)) are local taxes. Business tax can be either, depending on whether a municipality has elected to levy it (Tenn. Code Ann. § 67-4-705).

The Department's collection and administration responsibilities for state-administered local taxes are addressed in Tenn. Code Ann. § 67-4-703 (municipal business tax) and § 67-6-710 (local option sales tax). Tenn. Code Ann. § 67-4-719 lets the Commissioner contract with the county clerk or appropriate city official for delinquent business tax collection.

Citations

• Tenn. Code Ann. § 67-1-1701(8) (definition of "tax information")
• Tenn. Code Ann. § 67-1-1702(a) (general confidentiality)
• Tenn. Code Ann. § 67-1-1704 (administrative disclosure exceptions)
• Tenn. Code Ann. § 67-1-1704(d) (disclosure to local government officials)
• Tenn. Code Ann. §§ 67-1-1705 to -1707 (other disclosure exceptions)
• Tenn. Code Ann. § 67-1-1709(a) (Class E felony for unauthorized disclosure)
• Tenn. Code Ann. § 67-2-103 (Hall income tax is state tax only)
• Tenn. Code Ann. § 67-2-119 (Hall tax distribution to local governments)
• Tenn. Code Ann. § 67-4-703 (Commissioner administers municipal business tax)
• Tenn. Code Ann. § 67-4-704(a) (state business tax)
• Tenn. Code Ann. § 67-4-705 (municipal business tax authorization)
• Tenn. Code Ann. § 67-4-719 (delinquent business tax collection contracts)
• Tenn. Code Ann. § 67-5-102(a)(1) (county ad valorem tax)
• Tenn. Code Ann. § 67-5-103(a) (municipal property tax)
• Tenn. Code Ann. § 67-5-903(a) (tangible personal property reporting)
• Tenn. Code Ann. § 67-6-202(a) (state sales tax)
• Tenn. Code Ann. §§ 67-6-701(b) & -702(a) (local option sales tax)
• Tenn. Code Ann. § 67-6-710 (Commissioner administers local option sales tax)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2015/op15-44.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
May 6, 2015
Opinion No. 15-44
Disclosure of Returns and Tax Information to Officials of Local Government

Question 1

Assuming that a city is located half in County A and half in County B, may the Department of Revenue disclose to the city tax information pertaining to state and local Tennessee sales and use tax taxpayers located in County A and County B, but not in the city?

Opinion 1

No. As a general rule, information concerning taxpayers located outside the city will not assist city officials in ensuring that proper local taxes are being paid and, thus, the exception contained in Tenn. Code Ann. § 67-1-1704(d) does not apply.

Question 2

May the Department disclose to the city tax information pertaining to Tennessee state and municipal business tax taxpayers located in County A and County B, but not in the city?

Opinion 2

No.

Question 3

May the Department disclose to the city tax information pertaining to Tennessee Hall income tax taxpayers located in County A and County B, but not in the city?

Opinion 3

No.

Question 4

Assuming that County C borders County D, County E, and County F, may the Department disclose to County C tax information pertaining to state and local Tennessee sales and use tax taxpayers located in County D, County E, and County F?

Opinion 4

No. As a general rule, information concerning taxpayers located outside County C will not assist that county's officials in ensuring that proper local taxes are being paid and, thus, the exception contained in Tenn. Code Ann. § 67-1-1704(d) does not apply.

Question 5

May the Department disclose to County C tax information pertaining to Tennessee state and municipal business tax taxpayers located in County D, County E, and County F?

Opinion 5

No.

Question 6

May the Department disclose to County C tax information pertaining to Tennessee Hall income tax taxpayers located in County D, County E, and County F?

Opinion 6

No.

ANALYSIS

Taxpayer confidentiality laws prevent officers and employees of the Department of Revenue from disclosing tax returns and tax information to third parties. Tenn. Code Ann. § 67-1-1702(a). "It is a Class E felony for any person who has, or had at any time, access to any return or tax information to disclose to any person, except as authorized by law, any such return or tax information." Tenn. Code Ann. § 67-1-1709(a).

The laws broadly define "tax information" to include, inter alia,

a taxpayer's identity, the nature, source, or amount of the taxpayer's income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax collected, deficiencies, overassessments, or tax payments, . . . or any other data, received by, recorded by, prepared by, furnished to, or collected by, the commissioner with respect to a return or with respect to the determination of the existence, or possible existence, of liability.

Tenn. Code Ann. § 67-1-1701(8).

Despite their broad prohibition on tax information disclosure, the taxpayer confidentiality laws contain certain exceptions. See Tenn. Code Ann. § 67-1-1704 (Disclosure for administrative purposes – Tax collection); § 67-1-1705 (Disclosure for tax enforcement); § 67-1-1706 (Disclosure to parties in interest); and § 67-1-1707 (Disclosure for miscellaneous purposes). In particular, Tenn. Code Ann. § 67-1-1704(d) authorizes the Department to disclose, upon written request, returns and tax information "to duly authorized officials of a unit of local government of this state for the purpose of ascertaining whether proper local taxes are being paid." This exception contains two basic requirements: the local officials' request must be made in writing, and the request must be made for the purpose of determining whether taxpayers are properly paying local taxes. Local governmental officials who receive returns and tax information pursuant to this exception are governed by the provisions of Tenn. Code Ann. §§ 67-1-1701 to -1712 and are restricted from further disclosure of the information received.

Your request references several types of taxes that might motivate a request for information from local governmental officials, including state and local option sales taxes, business taxes, Hall income taxes, and personal property taxes. State sales taxes and Hall income taxes are purely state taxes and, thus, a local official's desire to ensure that these taxes are being properly paid does not fit within the exception of Tenn. Code Ann. § 67-1-1704(d). See Tenn. Code Ann. § 67-2-103 (providing that the Hall income tax "is for state purposes only, and no county or municipality shall have power to levy the tax"); Tenn. Code Ann. § 67-6-202(a) (levying sales tax to be "due the state" for the "privilege of engaging in the business of selling tangible personal property at retail in this state"). Similarly, with the exception of business taxes levied by municipalities that have elected to levy the tax, see Tenn. Code Ann. § 67-4-705, the business tax is now a state tax and not a local one. See Tenn. Code Ann. § 67-4-704(a) (levying a state tax on the privilege of "the making of sales by engaging in any vocation, occupation, business, or business activity enumerated" by statute). The exception contained in Tenn. Code Ann. § 67-1-1704(d) is designed to assist local officials in determining whether proper local taxes are being paid. The exception was not enacted for the purpose of ensuring that proper state taxes are being paid, which is the duty and responsibility of the Commissioner of Revenue and not local officials. See Tenn. Code Ann. §§ 4-3-1903(b)(1) & 67-1-102(b)(1).

Local option sales taxes, on the other hand, are local taxes that are levied by the counties and the incorporated cities and towns that have passed resolutions authorizing such taxes. See Tenn. Code Ann. §§ 67-6-701(b) & -702(a). Ad valorem taxes on real and personal property imposed by counties and municipalities also are local taxes. See Tenn. Code Ann. § 67-5-102(a)(1) (providing that "[f]or county general purposes, the various counties are authorized to levy an ad valorem tax upon all property subject to this form of taxation"); Tenn. Code Ann. § 67-5-103(a) (authorizing "[t]axes on property for municipal purposes"). And, as previously mentioned, the business tax may be considered a local tax if it is levied by a municipality that has adopted the tax. See Tenn. Code Ann. § 67-4-705. Under Tenn. Code Ann. § 67-1-1704(d), the Department may share returns and tax information with the local governments that impose these taxes to the extent that such information will assist local officials in determining whether proper local taxes are being paid.

Written requests for returns and tax information should be evaluated on a case-by-case basis. Generally, returns and tax information relative to taxpayers located outside a requesting city's or county's jurisdiction will not assist the local government in ensuring that proper local taxes are being paid. For this reason, the answers to Questions 1 through 6 generally will be "no" because they all contemplate disclosing tax information relative to taxpayers in jurisdictions other than the requesting city or county. Of course, exceptions to the general rule could arise, such as when the Department's records show that certain taxpayers located outside the requesting city or county own personal property within the city or county that is subject to taxation by that local government or when the records of the Department and the local government conflict as to the location of a particular taxpayer.

In any event, the tax information disclosed by the Department should not be any more comprehensive than that required to ensure that proper local taxes are being paid. A city or county might justifiably request information on business taxpayers located within its jurisdiction to the extent that such information aids city or county officials in ensuring that business taxpayers are reporting and paying ad valorem taxes on their tangible personal property. See Tenn. Code Ann. § 67-5-903(a). And, when the Department responds to such a request, the confidentiality exception contained in Tenn. Code Ann. § 67-1-1704(d) does not preclude the Department from relying on returns and tax information related to various types of state taxes. For example, the Department's franchise and excise tax records, its business tax records, and its sales and use tax records all might have information that assists the city or county in identifying local businesses that should be paying ad valorem taxes on their tangible personal property.

The more difficult question arises when the request relates to taxes that are local in nature but that are administered by the Commissioner of Revenue. See Tenn. Code Ann. § 67-4-703 (authorizing commissioner to collect and administer municipal business taxes); Tenn. Code Ann. § 67-6-710 (authorizing commissioner to collect and administer local option sales taxes). A local government may have difficulty showing that it needs tax information to determine whether proper local option sales taxes or municipal business taxes are being paid when the Commissioner is the party charged with collecting and administering those taxes. But see Tenn. Code Ann. § 67-4-719 (authorizing commissioner "to enter into a contract with the county clerk, in the case of business taxes levied by the state, or the appropriate city official, in the case of business taxes levied by a municipality, for the collection of taxes that have become delinquent"). When responding to requests for tax information, therefore, the Department should carefully consider the particular local tax that the local government seeks to enforce, as well as the scope of the tax information that realistically would assist local governmental officials in ensuring that the local tax is being properly paid.

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

MARY ELLEN KNACK
Senior Counsel

Requested by:
The Honorable Richard H. Roberts
Commissioner of Revenue
Andrew Jackson State Office Building
Nashville, Tennessee 37242

Footnote: Despite the fact that three-eighths of Hall income taxes collected are distributed to the respective cities and counties where the taxpayers reside, Tenn. Code Ann. § 67-2-119, the Hall income tax is a state tax only. Tenn. Code Ann. § 67-2-103.