I hope more exposure will follow, and Mr. Howland should be seen as very courageous considering the culture of deceit and cover-up at ITC.
Lawrence Wasden should be considered as complicit, as many in the legislature, for failing to act when complaints were raised.
May 29, 2008
Auditor says secret tax deals cost state millions
A whistleblower's report says the Idaho Tax Commission improperly allows out-of-state corporations to escape paying their fair share.
Idaho tax officials have let corporations out of millions of dollars of taxes by cutting secret deals when the companies fight their audits, a commission auditor said Wednesday in a 17-page whistleblower report.
Stan Howland, a corporate income tax auditor for the tax collection agency for 28 years, said the four appointed members of the Tax Commission, as well as the deputy attorneys general who advise them, routinely allow largely out-of-state corporations to pay just a percentage of what they really owe.
And the companies share information about how to save money on Idaho taxes, he said.
Howland said legislative auditors tried to stop the practice more than a decade ago, but it continues today.
Commissioners use disclosure loopholes in the state's public records laws to keep these decisions secret, Howland said in his report, which he delivered to Gov. Butch Otter, Attorney General Lawrence Wasden and Idaho's 105 legislators.
Otter and Wasden's offices declined to comment Wednesday, saying they hadn't had time to review the report.
But Sen. Brent Hill, R-Rexburg, a certified public accountant and chairman of the Senate Local Government and Taxation Committee, read the report. Hill represents taxpayers before the commission but not out-of-state corporations of the sort targeted in Howland's report. He said the commission strikes an appropriate balance in disputes over tax liability.
Hill said that in his experience the commission is aggressive about collecting taxes, but that compromise is sometimes in the state's interest.
"If you had the Tax Commission going after cases on the grounds of principle regardless of how much money was involved or how much time it would take in court we'd be sitting here talking about taxpayer harassment, inappropriate use of taxpayer funds in pursuing these cases and poor management," Hill said.
Without naming names of corporations, Howland's report details a few examples, each costing the state between $46,000 and $680,000 in unpaid taxes.
Hill said he accepted Howland's report as a good faith effort by a frustrated auditor and would consider his recommendations, including a possible review of the state's settlements with out-of-state taxpayers.
"If we're being too lenient, we need to look at that," Hill said.
Howland said the questionable practices began about 17 years ago and have continued despite complaints from auditors who believe the practices violate state law.
Howland said auditors feel undermined when companies win compromise settlements worth hundreds of thousands of dollars - even though the auditors' objections are proper and reflect state tax law.
"I'm hoping the Legislature will totally review all of the activities of the Tax Commission and all of its internal control policies, or lack thereof, and they'll address this situation," Howland told The Associated Press in an interview, adding that he's tried unsuccessfully to address the matter internally. "I believe Idaho taxpayers are suffering because of deals cut with large corporations."
Idaho's tax commissioners are Royce Chigbrow, an Otter appointee from 2007; Tom Katsilometes, named to the panel by then-Gov. Dirk Kempthorne in 2005; and the two longest-serving members, Severina "Sam" Haws, named by Gov. Phil Batt in 2000, and Coleen Grant, appointed by Gov. Cecil Andrus in 1991. Commissioners serve six-year terms.
Lawmakers who oversee tax issues in Idaho said they hadn't yet seen the report and couldn't comment.
"I'll look at it and follow up from there," said House Revenue and Taxation Chairman Dennis Lake, R-Blackfoot. "But as we speak, I have no knowledge of it."
Howland contends the improprieties result when companies file an incorrect Idaho income tax return, which is then corrected by the audit staff.
When a company formally protests, he says, it has become standard practice for a tax commissioner to offer a so-called "Confidential Compromise and Closing Agreement" requiring the company to pay only a percentage of what is really owed.
"This allows these companies to avoid paying millions of dollars of income tax that are properly due the state of Idaho, and to do so in complete secrecy," Howland said in his report. "The commission has settled the majority of all multistate corporate protests over the past 17 years with C&Cs. The commission has settled almost all multistate corporate protests in the past year in this manner."
Howland, who said he is about 1 years from retirement and wanted to take a stand now, contends the companies share information among themselves about how to take advantage of this practice in Idaho.
He doesn't identify the companies in his report, saying that would violate state law.
"The commission has operated that way for so many years, I think they just take it for granted," Howland said. "They don't see that all of the other taxpayers in this state are paying their full tax, and it's not fair."
The Idaho Statesman contributed to this report.
