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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.”

McNally Pleased with Haslam’s Handling of Amazon Sales Tax Issues

Sen. Randy McNally, R-Oak Ridge, who has worked to require Amazon.com to collect sales taxes on its online sales, said Monday he endorses Gov. Bill Haslam’s efforts to resolve the issue, calling it a potential “win-win” solution for the state.

McNally also said he appreciates efforts in the Haslam administration to set new guidelines on the handling of private letter rulings — or written agreements specific to the taxpayer — which might make the process more transparent yet still protect a taxpayer’s confidentiality.

McNally, chairman of the Senate Finance Ways and Means Committee, noted new clout among members of the Legislature from the Chattanooga area, where two of the three distribution centers in the state announced by Amazon will be located. A third center has been announced for Lebanon in Wilson County.

Haslam says his administration is in negotiations with representatives of Amazon on establishing a long-term relationship on sales tax collections. The governor’s efforts come in the wake of an agreement between his predecessor, Phil Bredesen, and Amazon, where the company was granted permission to operate its facilities in the state without collecting sales taxes. The reason given for the deal was that the creation of hundreds of jobs in Tennessee made up for the tax issue and that without the deal Amazon would go to another state.

Haslam said last week he wants an agreement with Amazon where the company can expand in Tennessee and at the same time come with an understanding on the collection of taxes. Haslam said if such an agreement were reached the public would be able to know about the deal. Much of the arrangement under the Bredesen administration has been secretive.

“To the extent they can work something out that allows them (Amazon) to operate facilities and provide the jobs and then would, in the end, have them collecting and remitting sales tax, that’s a win-win,” McNally said. “I’m pleased with what the governor has said.”

Commissioner of Revenue Richard Roberts said last week he cannot comment on talks with Amazon, even to confirm or deny that negotiations are occurring.

“He can’t really discuss it unless Amazon gives him permission to,” McNally said.

But Haslam has spoken openly about the discussions, expressing his personal desire that Amazon collect the tax. Haslam publicly voiced his support for the original agreement, as have many lawmakers, citing the importance of the state protecting its reputation for keeping its word.

“Whether the governor, in talking to Amazon, says, ‘This is going to be on the record, and our discussions are not protected by confidentiality,’ I don’t know,” McNally said. “There is a statutory provision that protects taxpayer confidentiality for the Department of Revenue officials.”

McNally said his understanding is that the Department of Revenue is working with Sen. Bo Watson, R-Hixson, speaker pro tem of the Senate, and others about how to handle private letter rulings that are key to the confidentiality matter.

An effort to reach Watson on Monday was unsuccessful.

McNally said he believes such an agreement at the department could be possible while still providing some protection to the taxpayer — “whether that’s through redaction, or whether it’s through having the confidentiality provision expire after a certain length of time, or whether that’s through a mechanism where the commissioner of Revenue would say he’s issuing the ruling regarding ‘XYZ’ provision of the revenue rules, and his ruling is such-and-such without mentioning the taxpayer.”

McNally said such an effort at the Department of Revenue is a positive change. He also expressed confidence that a new long-term deal would be spelled out publicly, as Haslam assured.

McNally at one time suggested a two-year “grace period” for requiring Amazon to collect sales tax, but Haslam responded that it would leave uncertainty on the issue.

One of the developments in the Amazon issue has been the recent emergence of power among some lawmakers from the Chattanooga area. Amazon has announced distribution centers in Hamilton County and Bradley County in the southeast corner of the state.

Watson was recently named speaker pro tem in the Senate after Sen. Jamie Woodson, R-Knoxville, who had had the role, announced her departure to take a job as head of the State Collaborative on Reforming Education. Rep. Gerald McCormick, R-Chattanooga, was elected House majority leader this year, and Rep. Eric Watson, R-Cleveland, is chairman of the House Judiciary Committee.

“I know there are some very strong advocates, certainly very powerful individuals in that area,” McNally said. “They’ve got some real power in Chattanooga that it hasn’t had in a number of years.

“At the same time, they’re reasonable individuals. They realize you’ve got jobs and capital investment on one side of the ledger sheet, and you’ve got potential erosion of the sales tax base on the other. So, all of our conversations have been cordial, but they’re very strong advocates of their position.”

McNally and Rep. Charles Sargent, R-Franklin, chairman of the House Finance Ways and Means Committee, sponsored legislation this year seeking a requirement that Amazon collect the tax. They postponed it.

On Aug. 1, McNally and Sargent requested an opinion from Attorney General Robert Cooper on whether the state may waive the obligation of an out-of-state retailer to collect the sales tax. That followed an earlier request for an opinion from Cooper on whether Amazon had established sufficient retail presence — a legal threshold called nexus — to warrant collection of the tax and whether their legislation requiring it was constitutional. Cooper opined that sufficient nexus was present to warrant the tax collection and that the legislation was constitutionally defensible.

McNally was asked Monday his current opinion on the prospects for his legislation being passed.

“I’d say it’s an uphill battle,” he said.

But he sounded upbeat about Haslam’s recent approach.

“I appreciate the governor trying to work toward an equitable solution for the state, for that region, as far as jobs and capital investment,” he said.

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