Sometime between July 1, 2007, and Dec. 31, 2008, the Idaho State Tax Commission settled a tax case with an unnamed multi-state corporation, giving the company a $489,153 discount on the amount that state auditors had determined it owed.
According to a much-awaited report on last year's tax settlements, this particular "compromise and close" was agreed to because the commissioner in charge had some doubts as to the company's tax liability and because of the "hazards of litigation."
Tax Commission Chairman Royce Chigbrow told the Idaho Senate Tax Committee last week that a similar case was being argued in another state, and the courts in that state had ruled that the gains from the sale of one of the company's divisions should be counted as non-business income.
"Rather than engage in litigation with the taxpayer, the commission and the taxpayer settled the case," the report concludes.
The 22-page report ordered by Gov. C.L. "Butch" Otter consisted of a chart showing all of the commission's recent settlements by tax type, the amount due and the amount settled upon with a short description of the facts of the case.
The report provides some detail on $6.3 million in settlements the commission offered during the past year and a half.
Chigbrow padded the report with almost 200 pages of other reports already issued on the settlement process, including the original whistle blower report from multi-state tax auditor Stan Howland.
Howland attended the hearing and spoke about the half-million dollar non-business income settlement, asserting that a decision in another state does not count as precedent in Idaho.
While Howland's allegations that the commission was illegally settling cases focused on multi-state corporations—the area of the Tax Commission with which he is familiar—many of the last year's settlements were in the individual income tax area, which was led by Commissioner Coleen Grant, until her retirement March 6.
Grant had appeared the day before at the Senate committee to present her own report. Some of the cases she agreed to settle—including a $101,919 refund to one family business—were the result of changes in tax law facilitated by Tax Committee Chairman Brent Hill, who is also a Rexburg accountant.
Auditors initially found that the taxpayers in one case owed the state $24,545, but after the taxpayers approached the Legislature last year, and Hill helped write two bills to change the tax liability on pass-through companies and on credit for taxes paid to other states, the Tax Commission allowed a capital gains deduction that resulted in the large refund.
After reviewing the two reports, the Senate committee took up a bill proposed by Hill and Senate Minority Leader Kate Kelly to make some changes to the commission's settlement procedures.
The bill, which passed the full Senate on Monday and is headed to the House, allows commissioners to settle cases without demonstrating a "doubt as to liability" as they were directed before. It also requires that any settlements in excess of $50,000 be signed by two commissioners and be reviewed by an attorney, tax policy specialist and auditor or other agency representative. And it requires that case files be retained though they are still exempt from public disclosure.
The bill also requires an annual report by March 1 each year.
Howland and his attorney, former Idaho Supreme Court Justice Robert Huntley, opposed the bill, arguing that it did not change anything significant in the commission's procedure, and that it may in fact make the process even less transparent by eliminating one of the only bases for settlement, the doubt as to liability.
Howland said that 75 percent of the multi-state companies he audits refuse to provide documentation or substantiate their claims for a lower tax amount, preferring to speak directly with the commissioners for a deal.
"Senate Bill 1128 simply embeds these problems into statute," Howland said.
"The key ingredient that this bill leaves out is public accountability," he said. "This does not remove the secrecy."
Chigbrow, asked why the controversy over tax settlements had arisen, recounted his early days as a CPA in Idaho when he never appealed audits.
"I'd just tell my client, 'forget it and get on with life because nobody had ears at the Tax Commission,'" Chigbrow said.
With Grant's retirement, Chigbrow will now head up the commission's audit division.