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Tax Commission rules, report coming in past deadline

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A report to lawmakers on nearly $3 million that the Idaho State Tax Commission settled out with taxpayers in the last fiscal year is nearly complete, according to commission tax policy analyst Dan John.

The summary will outline each of the 44 "compromise and close" agreements made last year, including the amount at issue and the amount finally paid, without naming which companies won the settlements, John said.

While it will be the most detailed information on the commission's secret settlement deals to date, it's not enough nor soon enough for the senior auditor who first raised concerns about the state's settlement process.

"The commissioners are compromising almost every single case that hits their desk," said multi-state tax auditor Stan Howland.

Howland said that four more compromises had been issued with multi-state companies since November 2008, costing the state about $1.5 million.

In a 17-page report issued in May, Howland charged that commissioners were regularly settling tax audits of multi-state corporations to the tune of millions of dollars a year. Howland charged that the tax commissioners settle these cases without justification: The cases did not meet any of the three standards for settlement.

The Howland report spurred a series of follow-up reports from the attorney general, the Legislative Services Office and eventually from a CPA appointed by Gov. C. L. "Butch" Otter, who concluded that commissioners were not breaking the law but that the law was somewhat ambiguous.

Otter ordered the commission to clarify its procedures by Sept. 30, 2008, and to deliver a report on compromise and close agreements to the Legislature by the end of January.

The commission rewrote its rules on compromise agreements, putting a new temporary Rule 500 into effect on Nov. 1, a month after Otter's deadline. It will approve new internal procedures for what are now called "tax settlements" in a commission meeting as BW goes to press. And the commission has a few more days to get its report to the legislative tax committees.

"We just expected that when we came to the Legislature that we'd have something done on that," said Senate tax committee Chairman Brent Hill, a Rexburg Republican who is also a CPA.

Hill, who is satisfied with the new rules on compromise agreements, lambasted the tax commission at a recent public meeting for dragging its feet on the report.

"I don't understand why they're not anxious to have this resolved," he said.

But the new Rule 500, presented to Hill's committee but not yet approved at press time, may allow commissioners even more leeway in issuing secret settlements.

The Tax Commission changed the terminology without significantly changing the process.

"The word 'compromise' has a connotation that is not entirely accurate," tax commission deputy attorney general Ted Spangler told the Senate tax committee. "We actually come to an agreement with the taxpayer as to what is the exact liability."

So all references to "compromise" have been changed to "settlement" in the new rule.

Also, the main provision for issuing a compromise, a "doubt as to liability," has been changed to "disputed liability," now defined as "a reasonable disagreement as to the existence or amount of the correct tax liability under the law."

Howland decried this change in particular: "The only restriction that they had was this doubt as to liability, and they removed it."

The commission has also added, "promotion of effective tax administration" as an additional justification for settling.

These changes do not go far enough for some senators.

Boise Sen. Kate Kelly, a Democrat, is preparing a bill that would require an annual report to the Legislature and force at least two of the four tax commissioners to sign off on any settlement. It would also require the commission to share the grounds for compromises with some commission staff.

"Senator Hill sent a strong message to them the other day," Kelly said. "If their response isn't sufficient or if their annual report isn't sufficient ... then it may be that the Legislature has to take some affirmative action to compel them to do the right thing."

The commission meets today to consider new internal policies, a level of regulation that, unlike rules, lack legislative oversight; lawmakers were not notified of the meeting.

"Procedures normally don't rise to the level of legislators getting involved," John said.

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