State sales tax laws can be pretty complicated. The bigger your company grows, the more complicated it can get. Fortunately, there is a lot of state provided information out there to help your company navigate its way through any of the red tape out there. Between the state’s website, its information publications, and the written law, most of your questions can be answered.
But what if you can’t find the answer in those resources? You’re going to need a letter ruling from the state.
What is a letter ruling?
A letter ruling is a private, written determination on a sales tax issue that comes directly from the state. They are useful for situations that are not expressly spelled out in other written materials from the state. Your state may offer tax hotlines or walk-in appointments at the local office but the answers you get from them are for general purposes only.
In most cases, they can’t be used as defense in an audit. On the other hand, a letter ruling is an official decision from the state and can be used in legal proceedings.
How to request a letter ruling?
To request a letter ruling for your company, start by contacting the state tax commission. (Start with TaxJar’s list of state tax agencies if you’re not sure where to begin.) Most will have instructions on how to send your request by mail, fax, or email. Include all of the required pieces of information your state requires. If you don’t, you may not get a response at all.
At the very least, you’ll need your company’s contact information, tax ID number/permit number, and all of the relevant details of the situation. You’ll also need to note whether you have an ongoing tax case and reference the case number in your request.
Be sure to clearly state your issue, formed as a question. This is so that the commission knows how to give you the answer you’re looking for. The more specific your letter ruling, the more useful it will be. If you don’t simplify the request down to a single question, it’s harder for the state to respond with a specific answer.
Be specific, and patient
Most states will not issue a letter ruling on hypothetical situations. For instance, a third party can’t make inquiries about another company’s tax situation. Make sure you use language that makes it clear this is an actual situation relevant to your business if you want a response.
Although you’ll generally receive an acknowledgement of receipt, the response time for your letter can vary. Processing times can increase at certain times of the year. If the tax commission has to contact you for additional details, it will require additional processing time.
Keep it in a safe place
Store your private letter ruling for future use. In many cases, the state will not reissue the letter if it is lost or destroyed. You may see your ruling posted in the state’s database for the public’s general information but identifying information will be redacted. If you disagree with the ruling or have additional facts to add, you can request another review by replying to the letter or using the contact information in it.
Have you received a letter ruling from a state? Let us know in the comments how the process went for you!