In Wake of Comptroller’s Report on Farr, Haslam says Consistency Needed in Tax-Variance Decisions

Gov. Bill Haslam said Monday the best reaction to a comptroller’s report widely seen as critical of former Department of Revenue Commissioner Reagan Farr is to establish clearly defined procedures for tax variances granted by the commissioner.

“I just got a copy and read it over the weekend,” Haslam said of the report (pdf).

“For us, I think the important thing is to say: What are we going to do going forward? I think the clear message to us was: We want to have well-documented, clearly organized procedures for how you handle any variances.”

Haslam said he and current Revenue Commissioner Richard Roberts have talked about the issue and that Roberts agrees with him on the proper approach.

Haslam said he does not know if he will advocate any legislation to address procedures for tax variances, however. He said all of his department chiefs are reporting to him with any proposals for legislation they may have for next year and that he will address the Department of Revenue later this week.

A key element of the issue, however, has been the private nature of Revenue decisions, which affect individual taxpayers.

Comptroller Justin Wilson’s report, dated Oct. 17, is accompanied by a letter to Lt. Gov. Ron Ramsey, Speaker of the House Beth Harwell, Sen. Randy McNally of Oak Ridge and Rep. Charles Sargent of Franklin, saying the report is in response to their request. All four of the legislators are Republicans. McNally and Sargent are chairmen of their chambers’ respective finance committees.

Wilson is a Republican. Farr served in the administration of former Gov. Phil Bredesen, a Democrat.

The comptroller’s report looked at tax variances from 2000-2011 and involved a review of 59 variances — 40 requested by the taxpayer, 19 by the commissioner. The report said approvals of taxpayer-requested variances increased during the tenure of Loren Chumley, who served in 2002-2007, and Farr, who served in 2007-2010. It noted a frequency in recent years where variance award letters involved references to economic development.

“Specifically, taxpayers would use job creation and economic impact as part of their argument for why they should be awarded a variance,” the report said, adding that requests used tax treatment as a “negotiation tool.”

The report said key department employees were sometimes excluded from the decision-making process. The report recommends that the Legislature consider legislation requiring additional approvals to variances, that the department should proceed with a new tracking system for variances and that the department develop a process for reviewing awarded variances.

Haslam acknowledged Monday the difficulty of dealing with privacy issues of agreements with taxpayers balanced with transparency in government.

“That is one of the difficulties, because obviously it deals with private taxpayers’ information,” Haslam said. “But I think the important thing for us to do is make certain, again, that there is a process that is clear and predictable and we’re letting people know everything we can — absent private taxpayers’ information.

“We really are trying to do that.”