Mistaken Erosion in the Confidentiality of Taxpayer Information in Washington

INTRODUCTION
Small words can make big differences. For instance, when a court ignores an or and replaces it
with an of, bad things can happen. A recent ruling by the Washington State Board of Tax
Appeals (the Board) which guts Washingtons statutory provisions safeguarding the
confidentiality of taxpayer returns and information shows why knowing the difference between
or and of and demonstrating a basic level of reading proficiency should be required before
anyone can interpret laws as a judge or bureaucrat.
Taxpayers in Washington should now know that because the Board could not distinguish
between or and of, the confidentiality of their tax returns and information are less protected
and more vulnerable to disclosure than the applicable statute had promised.
BACKGROUND
The tax information of any business is generally indicative of the financial condition, scope,
success or failure of the tax payers business activities. Most businesses thus consider the
information they give the government in connection with the calculation of their tax obligations
to be highly sensitive and confidential.
Governments generally recognize and respect their tax payers need to preserve the privacy and
confidentiality of the tax information their taxpayers give in complying with their tax
obligations. Among other things, its thought that the promise of confidentiality by the state helps
to generate more open and complete disclosure by tax payers.
In Washington for instance, RCW 82.32.330 prohibits any state agency, including the
Department of Revenue, from disclosing a tax payers return or tax information. The statute
broadly defines protected tax information to include:
1. . . .[A] taxpayers identity;
2. [T]he nature, source, or amount of the taxpayers income, payments, receipts,
deductions, exemptions, credits, assets, liabilities, net worth, tax liability
deficiencies, overassessments, or tax payments;
3. [W]hether the taxpayers return was, is being, or will be examined or subject to
other investigation or processing;
4. [A] part of a written determination that is not designated as a precedent and
disclosed pursuant to RCW 82.32.410 or a background file document relating to a
final determination; and,
5. [O]ther data received by, recorded by, prepared by, furnished to, or collected by
the department of revenue with respect to the determination of the existence or

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possible existence of liability, or the amount thereof, of a person under the laws of
this state for a tax, penalty, interest, fine, forfeiture, or other imposition or
offense.
RCW 82.32.330(2) declares that all of this information is confidential and privileged. While
the statute does contain several precisely enumerated exceptions, primarily for purposes of law
enforcement or compiling statistical data by other government agencies, the prohibited scope of
disclosure is broad and explicit.
Any employee of the Washington Department of Revenue who discloses a tax payers return or
tax information in violation of the statute thereby commits a misdemeanor, must forfeit their job,
and . . . is incapable of holding any public office or employment [in Washington] for a period of
two years thereafter. RCW 82.32.330(6).
THE STATUTE SAYS OR BUT THE BOARD SAYS OF
In an order issued August 20, 2015 in Macys Northwest Inc. v. State of Washington Department
of Revenue, Dkt. #13-060, the Board ordered the Department of Revenue to produce various
items of tax information including information . . . pertaining to confidential settlement
agreements the Department has entered into with third parties in violation of the statutory
prohibition on such disclosure. (A copy of that Order is here.) To reach its conclusion the Board
cited the passage in RCW 82.32.330(1)(c) that . . . data, material, or documents that do not
disclose information related to a specific or identifiable taxpayer do not constitute tax
information under this section. Order Granting Appellants Motion to Compel, p. 3. (emphasis
in original)
The quoted passage from the statute obviously means that information from a taxpayer is
privileged, confidential and not subject to disclosure if it is . . . information related to a specific
or identifiable taxpayer. . . . This language plainly means that tax information related to a
specific taxpayer must be treated as privileged and confidential regardless of whether that
specific taxpayer could be identified. The information being sought concerning confidential
settlement agreements was plainly within the ambit of the statutory privilege.
The Board, however, ignoring the disjunctive or, explicitly read this passage as meaning that
tax information for a specific taxpayer should be disclosed if that taxpayer was not identified
explicitly in the course of the disclosure. Consequently it ordered the Department to produce the
requested information while simply identifying the specific taxpayers by numbers, letters or
some other supposedly neutral method.
In denying the Department of Revenues Motion for Reconsideration the Board confirmed its
own misreading of the statutory language. In its Order denying that Motion the Board misquoted
the critical wording of RCW 82.32.330(1)(c) in claiming that the words, . . . in particular, the
phrase specific of identifiable taxpayer --- is clear and convincing. (emphasis added) Order
Denying Departments Motion for Reconsideration of Order, p. 2. (A copy of that Order is here.)

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In short, the Boards inability to read and apply the statute as written significantly weakened that
statute and deprived Washington taxpayers of the confidentiality which the statute by its terms
had promised. Perhaps more ironically, it also put Department of Revenue employees in the
position of having to risk either contempt for refusing to comply with the Boards order
compelling production or losing their jobs and committing a misdemeanor in violation of RCW
82.32.330(6).
11/3/2015 Lawrence B. Hunt of Hunt & Associates, P.C. All rights reserved.

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