Is the Texas Comptroller legally allowed to require a sole proprietor's Social Security number and use it to formulate that person's state tax permit number?

Plain-English summary

This 1994 letter is different from most Texas Comptroller "letter rulings" in the STAR database: it is not an answer to a taxpayer's question about whether a particular sale or purchase is taxable. Instead, it is the Comptroller's own internal legal reasoning — apparently written in response to a person who had raised concerns, by phone, about the agency's practice of using Social Security numbers (SSNs) to formulate taxpayer permit numbers for sole proprietors. The letter walks through why the Comptroller believes that practice is legally permissible under federal privacy law, not whether any specific transaction owes sales tax.

The analysis addresses three federal-law questions in sequence. First, the federal Privacy Act of 1974 generally bars government agencies from denying a benefit because someone refuses to disclose their SSN, but that bar has an exception for recordkeeping systems that existed under a statute adopted before January 1, 1975 — and Texas's taxpayer-numbering system dates to the 1960s, so it falls within the exception. Second, a separate federal confidentiality rule, 42 U.S.C. § 405(c)(2)(C)(vii), requires states to keep SSNs confidential only when they were obtained under a law enacted on or after October 1, 1990 — and since the Texas sales tax long predates 1990, that confidentiality trigger doesn't apply here. Third, the Tax Reform Act of 1976 (42 U.S.C. § 405(c)(2)(C)(i)) affirmatively authorizes states to require SSN disclosure in connection with administering any tax, which the letter says would override any contrary reading of the Privacy Act anyway.

The letter's author (Wade Anderson, Assistant Director, Tax Administration) concludes that the Comptroller is legally entitled to keep using SSNs to build sole proprietors' taxpayer permit numbers. He separately, and candidly, acknowledges that the recipient's underlying objection may have been less about legality and more about whether the practice is good public policy — and states that changing the practice would be costly and disruptive, so the Comptroller did not intend to change it. That policy judgment is not a legal holding and is presented as the author's own view.

What this means for you

Sole proprietors registering for a Texas tax permit

If you registered a sole proprietorship for a Texas sales tax permit around this era, your Social Security number may have been used as part of (or the basis for) your taxpayer/permit number. This letter is the Comptroller's explanation for why it believed that practice was legally authorized, not a promise about how your specific SSN would be used or protected going forward.

Tax professionals and accountants advising sole proprietors

This letter is useful background if a client asks why a sole proprietor's state tax identification appears tied to an SSN, or raises privacy concerns about that practice. Note that this is a 1994 internal legal memo, not a generally applicable ruling — modern Texas practice (e.g., use of Employer Identification Numbers or other taxpayer numbers) may have since changed, and this letter should not be cited as current authority without checking present-day Comptroller procedures.

Anyone researching government use of Social Security numbers

The letter is a compact illustration of how the federal Privacy Act's pre-1975 grandfather exception, the 1990 confidentiality trigger in 42 U.S.C. § 405(c)(2)(C)(vii), and the Tax Reform Act's tax-administration carve-out in 42 U.S.C. § 405(c)(2)(C)(i) interact — a fact pattern that recurs whenever a state agency's use of SSNs in a decades-old system is challenged.

Common questions

Q: Why did the Comptroller think it was allowed to use sole proprietors' SSNs for tax permit numbers?
A: Because Texas's taxpayer-numbering system was established in the 1960s, before the Privacy Act of 1974's January 1, 1975 cutoff for its SSN-disclosure exception, and because federal law (42 U.S.C. § 405(c)(2)(C)(i), the Tax Reform Act of 1976) expressly lets states require SSN disclosure to administer a tax.

Q: Does the 1990 federal confidentiality requirement for SSNs apply here?
A: No — the letter explains that 42 U.S.C. § 405(c)(2)(C)(vii) only requires confidentiality for SSNs obtained under a state law enacted on or after October 1, 1990, and the Texas sales tax was enacted well before that date.

Q: Is this letter a ruling about whether a sale or purchase is taxable?
A: No. Unlike most STAR letter rulings, it does not address the taxability of a transaction. It is the Comptroller's internal legal analysis defending an administrative practice — using SSNs to build sole proprietor permit numbers — against a privacy-law objection.

Q: Did the Comptroller agree to stop using Social Security numbers this way?
A: No. The author states that reversing the practice would cause substantial expense and confusion, and that the agency did not intend to change it, while acknowledging the recipient's policy concerns were separate from the legal question.

Citations and references

• 5 U.S.C.A. § 552a (federal Privacy Act of 1974; general bar on denying benefits for refusal to disclose SSN, with pre-1975 recordkeeping-system exception)
• 42 U.S.C. § 405(c)(2)(C)(vii) (confidentiality duty for SSNs obtained under state laws enacted on or after October 1, 1990)
• 42 U.S.C. § 405(c)(2)(C)(i) (Tax Reform Act of 1976; authorizes states to require SSN disclosure for tax administration)

Source

• STAR search: https://star.comptroller.texas.gov/search?doc_type_code=L&tax_type_code=SST
• Opinion: https://star.comptroller.texas.gov/view/9405648L

Original ruling text

May 25, 1994

Dear **:

After our telephone conversation concerning our use of social security numbers
in formulating taxpayer numbers for sole proprietors, I asked our general law
section for citations concerning our right to obtain and use social security
numbers.

While the Federal Privacy Act ("Privacy Act") of 1974 generally prohibits
governmental entities from denying an individual a right, benefit, or privilege
because of the individual's refusal to disclose the individual's social
security number, it contains an exception for record systems developed under
statutes adopted prior to January 1, 1975. See 5 U.S.C.A. 552a. Our system
was established in the 1960s.

The Privacy Act does not include any provision which would prohibit the
Comptroller from redisclosing social security numbers obtained in accordance
with the Privacy Act. 42 U.S.C. Section 405(c)(2)(C)(vii) requires a state
agency that obtains or maintains social security account numbers under any law
enacted on or after October 1, 1990, to keep the numbers confidential. This
provision does not apply to social security numbers obtained to administer the
sales tax because the sales tax was enacted long before 1990.

Finally, the Tax Reform Act of 1976 authorizes a state to require an individual
to disclose the individual's social security number in connection with the
administration of any tax, general public assistance, driver's license, or
motor vehicle registration law. 42 U.S.C. Sec. 405(c)(2)(C)(i). This act
would supersede any contrary interpretation in the Privacy Act.

I believe that under these various provisions, the Comptroller is authorized to
use the social security number in administering tax laws. Because social
security numbers are normally and routinely used in administering the sales
tax, it would appear from these provisions, that the Comptroller is legally
entitled to use social security numbers in formulating taxpayer permit numbers.

This, of course, does not answer your second issue, that the use of social
security numbers in this manner is bad public policy. As I discussed with you,
reversing this policy would cause substantial expense for the state and
confusion for taxpayers.

I realize this is a matter of great concern to you. But, I believe we are
authorized to use social security numbers as we do and would not change this
policy because of the cost and disruption to the state and the confusion it
would cause for taxpayers. Should you have further questions, please feel free
to write me at 111 E. 17th Street, Austin, Texas 78774, or call me at
1-800-531-5441, extension 3-4004.

Sincerely,

Wade Anderson
Assistant Director
Tax Administration

cc: Tom Duffy, Executive Assistant
Glen D. Hunt, Director, Tax Administration
Martin Cherry, Chief, General Law
Charles Johnstone, Manager, Tax Administration