June 7, 2010 in Idaho

Lawsuit challenges secret Idaho tax deals

By The Spokesman-Review
 

BOISE – A North Idaho legislator has filed a lawsuit against the state over secret tax deals that allegedly allowed some wealthy and politically connected taxpayers to get millions in breaks.

Those deals violated the Idaho Constitution, which requires taxing to be “uniform,” said state Rep. Shirley Ringo, D-Moscow.

Examples listed in the lawsuit, filed Monday in 4th District Court in Boise:

• A wealthy Idaho resident was given a $1.6 million tax break before the audit report on that taxpayer’s case had been filed, and the case was removed from the Tax Commission’s auditors. Auditors had alleged the taxpayer was fraudulently claiming no substantial business operations in the state.

• One state tax commissioner “reversed an audit adjustment on a friend and individual who is prominent in Idaho politics.”

• A tax manager for a large Idaho company “told a commissioner in a protest hearing that his opinion was asked by the governor on all reappointments. This event occurred several months before the commissioner was up for reappointment and the taxpayer received a $100,000 discount.”

Ringo called the cases cited in the lawsuit “appalling.”

“If those things have been going on, it just speaks to the need for reforms,” Ringo said. “I would put in on the emergency status, because I don’t want to accuse anybody of being corrupt, but I think it bears looking into.”

Retired state tax auditor Stan Howland alleged improprieties in the Tax Commission’s secret deals with certain taxpayers in 2008, when he submitted a 17-page whistleblower report to the governor, state Legislature and others. Two state investigations concluded no laws had been broken, but recommended reforms to the process through which single tax commissioners grant confidential settlements to certain taxpayers.

In 2009, the Legislature unanimously passed reform legislation to require all such settlements over $50,000 to receive an additional hearing with at least two tax commissioners and other officials present; to require the agreements to be kept on file and opened to legislative auditors, though not to the public; and to require annual reports to the Legislature on the settlements.

Howland opposed the 2009 legislation, saying it didn’t fix the problem. In an affidavit attached to Ringo’s lawsuit, he said the annual reports don’t provide enough information for anyone to tell if the settlements are legal or not.

Ringo said, “This is a matter of grave concern to me, both as a legislator, a taxpayer and a citizen. … The special treatment enjoyed by a few is costing millions in revenue, and the remainder of Idaho’s businesses and citizens bear the burden of supporting Idaho’s institutions.”

Ringo’s lawsuit names the Idaho Legislature, the state Tax Commission, and all four tax commissioners, Chairman Royce Chigbrow, Tom Katsilometes, Sam Haws and David Langhorst.

Ringo said the issue is not a partisan one. The Tax Commission is bipartisan; two of its members, Katsilometes and Langhorst, are former Democratic elected officials.

The suit says the current system results in “unfairly favoring those taxpayers … who happen to know how to ‘game the system,’ with a resultant shifting of the tax burden to other taxpayers.”

The lawsuit asks the court to declare current procedures and laws covering the secret settlements unconstitutional; ban all such deals until a constitutional system is put in place by the Legislature and the Tax Commission; and to award attorney fees and costs to Ringo. Her attorney is former Idaho Supreme Court justice and former Democratic candidate for governor Robert Huntley.

The Idaho attorney general’s office, which represents both the Legislature and the Tax Commission, had no immediate comment on the lawsuit. “We’re just reviewing that right now,” said spokeswoman Kriss Bivens-Cloyd.


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