Idaho senator calls for Tax Commission investigation

BOISE – Idaho’s Senate tax chairman is calling for a full investigation into a whistleblower’s allegations that state tax commissioners have cut secret deals with out-of-state corporations to excuse them from paying millions in Idaho taxes.

“There’ve been some accusations made, and I don’t think we should take them lightly,” said Sen. Brent Hill, R-Rexburg. “I think a thorough investigation is appropriate. … We’re not going to let this drop.”

Stan Howland, a state tax auditor who’s worked for the Idaho Tax Commission for 28 years, sent lawmakers, the governor and the attorney general a 17-page report this week charging that tax commissioners routinely excuse large sums in taxes owed by large, multistate corporations, and confidentiality laws prevent anyone from finding out about it.

“The process by which this has occurred is relatively straightforward,” he wrote. “A corporation files an incorrect Idaho income tax return, it is corrected by the audit staff, the additional tax liability is protested by the taxpayer, and then a tax commissioner allows the taxpayer to pay only a percentage of what is really owed.”

The practice, which uses a confidential settlement approach rather than a published ruling that sets precedent, has been going on for 17 years, Howland wrote, but it’s gotten to the point in the past year to where “the commission has settled almost all multistate corporate protests in the past year in this manner.”

“These special deals are available primarily to those companies that are aware of the commission’s willingness to compromise audited tax returns,” Howland wrote. “The number of corporations receiving these ‘deals’ has increased over the years to a point where most large corporations now automatically protest all audits in anticipation of receiving their ‘Idaho tax break.’ “

The Idaho governor’s office, which appoints and oversees the state Tax Commission, and the Idaho attorney general’s office said they’re still reviewing the whistleblower’s report.

“We’re reviewing it and looking it over and don’t have any comment on it at this point,” said Jon Hanian, spokesman for Gov. Butch Otter.

Bob Cooper, spokesman for Idaho Attorney General Lawrence Wasden, said: “Anything that a citizen or an employee takes the time to deliver to us or to prepare, we’re going to take seriously and we’re going to look at it. But until we have a chance to review it and fully understand the complaints and the processes, it really would be premature to either validate or dismiss.”

Sen. Hill, a certified public accountant who routinely takes cases before the Tax Commission but hasn’t been involved in any multistate corporate audits, said he’s skeptical that tax commissioners and staffers have acted illegally. “I just have a real hard time believing that these competent people would conspire together to do an illegal act that has absolutely no benefit to them,” he said.

But, he said, “We need to look at some of those compromises … look at the facts, the circumstances and the amounts, and if as a result of that we feel that the commission has been too lenient in allowing these compromises for the amounts they have, then we need to give them better guidance and instruction on what to do.”

Hill said multistate tax law has grown increasingly complex in recent years. “I think that most large corporations automatically protest all audits, period, now – much more than they used to,” he said. “And that’s true whether they are multistate operations or in-state. Our clients just do.”

Hill said he has contacted Senate leadership about a possible legislative audit to investigate the allegations.

Rep. Jim Clark, R-Hayden Lake, a member of the House Revenue and Taxation Committee and chairman of the House Judiciary Committee, said he’d support that. Clark said he was particularly concerned about the idea of confidentiality laws preventing anyone from knowing about the excused taxes.

“We’ve got to fix that, that’s for sure,” he said. “That’s just not right.”

Howland, in his report, wrote, “This secret environment is due in part to legislation that considered the privacy of non-compliant taxpayers to be a priority at the expense of those that do comply.”

Howland called the confidential settlements “the commission’s best-kept secret from the residents of the state,” and said they’ve become such a problem in his work that, “Many multistate companies refuse to provide legally required substantiation to the Idaho auditors, stating openly that they will protest the audit and get relief from the commission.”

Hill said confidentiality laws, both state and federal, have caused problems in many financial areas in recent years. “The privacy laws that we passed in this nation have caused some inconveniences for a lot of these processes, whether it’s with taxes or credit or a lot of other problems,” he said. “I don’t think that Idaho’s intent is to have these things be more confidential than they are in other places in the nation. … If we are interpreting it more strictly than other states or the federal government is, I think we ought to look into this, to see if that’s what the Legislature really wants.”

Boise CPA Rich Jackson said he was surprised by the charges. But, he said, “I would seriously doubt if the commissioners stepped across the line.”

Jackson said he’s seen no evidence in his practice that confidential settlement agreements have become more pervasive, though he hasn’t handled large multistate corporate audit cases.

Hill said, “There’s kind of a joke around our office that if you get audited, you’d rather be audited by IRS than the state, because the state in most cases interprets the law more strictly. … I just have not found them pushovers on anything.”

Jackson agreed. “I’d be complimenting ‘em rather than shooting at ‘em,” he said, for pushing for compliance with state tax laws. “And they’ve done it with a very small staff.”

The same problem was highlighted in a legislative audit in 1996. Howland wrote in his report that the 1996 audit was softened at the behest of then-Attorney General Al Lance’s office, and the problems continued and worsened.

The 1996 audit stated: “The delegation of sole authority to compromise millions of dollars of contingent tax liabilities creates the opportunity for malfeasance especially when those compromises are not subject to public disclosure. We know of no other position in state government where one individual has sole and complete authority, in confidential circumstances, to determine the outcome of millions of dollars of revenue to the State General Fund.”

In response to the 1996 audit, which the Tax Commission disputed, the commission did agree to require a review by at least two other commissioners when one proposes a settlement to excuse more than $50,000 in taxes. Carl Olsson, deputy attorney general for the Tax Commission, said Friday that that policy was implemented right away and remains in effect. “That is then reviewed by the other commissioners,” he said.

Hill said he’s not ready to pass judgment, but wants the allegations checked out. “We want to investigate it. There’s no intent to ignore it,” he said. “Let’s find out, and make sure that the interest of the taxpayer and the interest of the citizens are both being taken care of. I just think that’s really important.”