published Thursday, October 20th, 2011

State tax variances questioned

NASHVILLE -- Comptroller Justin Wilson is criticizing the process under which former state Revenue Chief Reagan Farr and two of his predecessors granted multimillion-dollar tax variances to some businesses.

Wilson complains there was little documentation and a lack of a "formalized" process in the practice in which variances can be granted to businesses disputing business taxes the state says are owed.

"Department officials made it clear to us in our conversations that there were not regularly followed procedures regarding variances," Wilson wrote in the letter, dated Tuesday, to House Speaker Beth Harwell, Senate Speaker Ron Ramsey and the chairmen of the House and Senate finance committees.

He said because of the "manner in which the taxpayer-requested variances were granted or denied, there was no effective way to evaluate independently the appropriateness of the taxpayer-requested variances we examined."

In an interview, Wilson said the number of variances grew under Farr's 2007-10 tenure. The comptroller complained there was no centralized location for variances and that he isn't sure all of them were discovered despite the cooperation of current Revenue Commissioner Richard Roberts and his staff.

But Wilson emphasized that "we're not alleging any illegality" occurred in the granting or handling of variances.

Farr, who left Revenue in 2010, took strong issue with Wilson's letter in a telephone interview.

"I would say it is factually inaccurate and the implication is absurd that there are variances that are not on record at the Department of Revenue," he said. "Every variance under both my term or [immediate predecessor] Loren Chumley was drafted by the general counsel. The implication that there are secret variances is absurd."

Farr said the Revenue's Audit Division "has a copy of every variance because that is part of the taxpayer's file."

He called Wilson's letter "unprofessional" and challenged what he called the "hearsay aspect" of Wilson's letter and said there is "zero documentation" that top officials fought him.

"I'd like to see that," Farr said.

He said an increased number of taxpayer-requested variances were made as a result of his move to require fuller taxpayer-disclosure information in order to battle aggressive efforts by some multistate or multinational companies to avoid paying some taxes.

Wilson said in the interview that some variances appeared to have been OK'd for economic prospects as Farr's then-boss, Democratic Gov. Phil Bredesen, pushed economic development. Farr said that was not the case, noting it would not be legally defensible.

In response to a reporter's question, Wilson said taxpayer confidentiality prevented him from identifying any of the companies, let alone whether some might have involved Volkswagen, Wacker Chemical or other major recruiting successes of the Bredesen administration.

Officials examined the treatment of 57 taxpayer-requested variances between 2000 and this year. Thirty-nine were approved by Farr, his immediate predecessor, Loren Chumley, and Ruth Johnson, who worked for former Republican Gov. Don Sundquist, who preceded Chumley.

Only one has been approved so far this year under current Revenue Commissioner Roberts, an appointee of Republican Gov. Bill Haslam.

Wilson said Roberts and staff have made strides in formalizing the variance procedure and centralizing their location.

The comptroller, who was elected by the GOP-controlled General Assembly, said he is recommending to legislative leaders that they consider requiring variances be signed off on by the state attorney general. Revenue commissioners need to review any variances to see if circumstances have changed, meriting their revocation.

Senate Finance Committee Chairman Randy McNally, R-Oak Ridge, said Wilson "identified some areas that probably need changes. There appears to be the need for better record keeping on those variances and also needs to be some sort of check-off system."

He said his understanding is that former Revenue Commissioner Charles Trost, who succeeded Farr, granted no taxpayer-requested variances and actually revoked one.

about Andy Sher...

Andy Sher is a Nashville-based staff writer covering Tennessee state government and politics for the Times Free Press. A Washington correspondent from 1999-2005 for the Times Free Press, Andy previously headed up state Capitol coverage for The Chattanooga Times, worked as a state Capitol reporter for The Nashville Banner and was a contributor to The Tennessee Journal, among other publications. Andy worked for 17 years at The Chattanooga Times covering police, health care, county government, ...

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