Are the West Virginia State Tax Department’s audit manuals subject to disclosure from the West Virginia Freedom of Information Act?
That’s a question the West Virginia Supreme Court is scheduled to take up during the current term of court.
Rule 19 arguments are set at 1 p.m. Feb. 6 in Tax Analysts vs. Matthew Irby, West Virginia State Tax Commissioner, Case No. 22-0491.
Tax Analysts, a 501©(3) nonprofit, brought the petition before the justices on Oct. 24, 2022. Attorneys Zachary J. Rosencrance, for Bowles Rice LLP, Charleston, and Cornish F. Hitchcock, for the Hitchcock Law Firm PLLC, Washington, represent Tax Analysts. Senior Deputy Attorney General Katherine A. Schultz and Assistant Attorney General William C. Ballard represent the state Tax Department.
Tax Analysts’ appeal came after Kanawha Circuit Judge Tera L. Salango entered a June 22, 2022, order granting state Tax Commissioner Matthew R. Irby’s motion to dismiss Tax Analysts’ Freedom of Information complaint.
The matter began with Tax Analysts’ July 29, 2021, letter to the West Virginia Tax Department requesting “The current version of all field audit manuals and audit training manuals in the formats (electronic or otherwise) in which they are maintained. The request covers not only manuals that are designated as such, but also training materials or continuing education materials related to audits.”
Tax Analysts’ letter cited West Virginia Code §§ 29B-1-1, “Freedom of Information.” So why would Tax Analysts want the documents? According to its appeal, Tax Analysts was founded in 1970 and has publications serving “100 tax professionals in law firms, accounting firms, corporations and government agencies, including in West Virginia. Through its weekly periodical, Tax Notes State, and its daily online periodical, Tax Notes Today State, Tax Analysts reports on developments affecting the tax laws and policies of West Virginia and the other 49 states.”
In denying Tax Analysts’ Freedom of Information Act request, the Tax Department countered by citing a specific exemption, under West Virginia Code § 11-10-5d(b)(5)(B). The Tax Department, represented before the lower court by Ballard, contended “Disclosure of the information contained in the records could reasonably be expected to educate potential tax evaders on how to circumvent state tax laws by revealing the techniques and procedures used by auditors in reviewing taxpayer records to verify if a taxpayer has remitted the proper amount of tax to the Tax Department.”
Salango agreed, finding that the “Tax Department has reasonably interpreted West Virginia Code § 1110-5d(b)(5)(B) to mean that the methodologies by which it selects returns for auditing is within the same category of information as the methodologies by which the Tax Department carries out its audits (i.e., the requested audit manuals) — and therefore protects from disclosure all documents related to the Tax Department’s auditing processes, including those requested by Plaintiff. Because the Legislature has foreclosed the relief that Plaintiff seeks in this case, its Complaint is DISMISSED WITH PREJUDICE.”
Rosencrance and Hitchcock believe Salango’s ruling missed the mark because she didn’t require the state to show why the materials couldn’t have been redacted.
“Tax Analysts has never contested the ability of the [Tax] Department, upon a proper evidentiary showing, to redact and withhold those portions of the requested records that meet the criteria in the Standards Exemption cited by the Department. There is no dispute on that point,” they contend.
“What is at issue here is whether the trial court properly dismissed the case on the pleadings when there is an unresolved question of fact as to whether the Department has released all nonexempt portions of the requested records. This question of fact exists in all FOIA cases, which can be resolved only if the agency, which has the burden of proof in FOIA cases, submits what this Court has termed a ‘relatively detailed justification’ for any withholding, not merely conclusory statements that nothing can be redacted and disclosed,” Rosencrance and Hitchcock contend.
“Farley v. Worley, 215 W.Va. 412, 425, 599 S.E.2d 835, 848(2012). Such a ‘justification’ is to consist of a Vaughn index that identifies exempt portions, along with supporting affidavit(s) that explain and justify any withholding. A requester may then challenge the sufficiency of that showing, and the trial judge may, if warranted, review the withheld records in camera. These procedures are important to allow the trial judge to make a finding, based on a full record, that all non-exempt portions are being released.
“But none of that happened here. Instead, the trial court dismissed the case on the pleadings, deciding that it was appropriate to defer to the Department’s unsupported, one-sentence assertion that the exempt portions of the requested records cannot be “logically separated” from the nonexempt portions that must be disclosed.
“This ruling was in error for multiple reasons. The trial court never cited this Court’s decisions that set a very high standard for dismissal under Rule 12(b)(6), nor did the Order cite any of the specific canons of construction that govern FOIA cases and that tilt in favor of disclosure and require that exemptions be read narrowly. Moreover, there is no FOIA case that allows a court to defer to an agency’s interpretation of an exemption, and in any event, the Standards Exemption appears in a statute that expressly contemplates the release of records with redactions of sensitive information.”
Schultz and Ballard doubled down on Salango’s ruling in their response to the appeal.
“Despite Petitioner Tax Analysts’ ... arguments to the contrary, the sole issue on appeal is purely a matter of law: whether the West Virginia State Tax Department’s ... ‘audit manuals’ are protected from disclosure under the West Virginia Freedom of Information Act ... pursuant to West Virginia Code §§ 29B-1-4(a)(5) and ll-10-5d(b)(5)(B),” Schultz and Ballard assert.
“In its Brief, Tax Analysts argue that the Circuit Court incorrectly dismissed its Complaint because issues of fact remained to be decided. ... This argument is simply a red herring because it fundamentally misstates the sole basis for the Dismissal Order: that the Tax Department’s ‘field audit manuals and audit training manuals’ are exempt from disclosure as a matter of law.
“In other words, because Tax Analysts only requested documents which the Tax Department is statutorily protected from disclosing, there were no issues of fact to be decided by the Circuit Court, and Complaint was properly dismissed. In addition to the statutory basis, the Tax Department has a longstanding policy reason for not disclosing its audit manuals.
“The Tax Department believes that disclosure of its audit manuals would educate potential tax evaders on how to circumvent state tax laws by revealing the techniques and procedures used by the Tax Department to determine whether tax returns should be selected for audit and how its return examiners conduct audits. The Tax Department does not disclosure its tax return audit manuals because doing so would be against the public interest.”
Tax Analysts’ latest IRS Form 990 (for tax year 2021) shows its headquarters in Falls Church, Virginia. Tax Analysts describes its mission and significant activities as “publishing and fostering tax policy debate. Ensuring disclosure of tax information to the public.”
Tax Analysts listed 204 employees, 13 volunteers, and $30.9 million in total revenue for tax year 2021, including $22.7 million in salaries, other compensation and employee benefits. Tax Analysts listed about $31.3 million in total expenses, for a net loss of about $335,000. Most of Tax Analysts’ revenue comes from electronic databases revenue ($26.5 million). Its print publication revenue is $1.1 million.
Tax Analysts was founded by Thomas F. Field, a former Treasury Office of Tax Legislative Counsel attorney.
