State News
October 17, 2018

Auditor: Tax abatements properly granted, but poorly documented

By Xander Landen/VTDigger

A new report by the Vermont State Auditor found the tax department did a poor job of documenting the reasons behind some tax abatements, and suggested that lawmakers should have more oversight of the process.

The investigation was prompted in 2016, after current and former employees raised concerns about certain business tax abatements the department had granted.

Ultimately, in a report released last week, the auditor’s office did not find that tax officials improperly granted exemptions to companies with liabilities in Vermont in 2015 and 2016.

However, it did find that documentation of the reasons behind the dozens of abatements during those years was shoddy. The report also raised questions about whether the tax department should be working more closely with lawmakers to file reports about abatements and clarify tax laws.

State Auditor Doug Hoffer highlighted one case his office examined in which Vermont’s tax commissioner at the time, Mary Peterson, granted an abatement to a company that challenged the amount they owed the state, arguing a tax law in question was ambiguous.

Peterson granted the abatement, but did not do so for other taxpayers in the same situation who could have in theory also received abatements, Hoffer said.

“It’s a question of equity,” Hoffer said in an interview. “Similarly situated taxpayers didn’t get the benefit of that decision. If you only do it for one, then you’re leaving everybody else hanging.”

Hoffer declined to provide more specifics about the law in question or the case, in order to keep the party involved confidential.

However, he said the tax department could have worked with the Legislature to change the law in question, which he said has not been modified since the abatement was granted.

“I’m not suggesting that what the commissioner did was unreasonable, but take it to the next level and say, ‘what could they or should they have done?’” he said.

He added that he thinks lawmakers should consider asking or requiring the department to file a regular report on abatements, so they can track them.

Kaj Samsom, the current tax commissioner, said the department already conducts internal reports on abatements. He doesn’t know how much value additional reporting on abatements would add.

He said he’s careful when deciding to grant abatements that might benefit some companies and disadvantage others.

“As far as how I’ve handled some of those situations it’s been very much with full recognition that others in the industry have borne the cost of compliance and paying taxes,” Samsom said. “That always weighs very heavily into whether an abatement is appropriate.”

For the audit, Hoffer’s office examined 59 abatements or write-offs of sales and use, meals and rooms, business or corporate income taxes between 2015 and 2016.

The audit found in many cases, that the reasons the department gave for reducing companies’ tax liabilities were not well documented.

In 23 of the cases, for example, the auditor found that the Tax Department’s staff did not document any reason for reducing taxpayers’ liabilities, cited a reason that wasn’t consistent with the department’s policies or rules, or cited a reason that only partially applied to the case.

“The failure to document an adequate reason limits the department’s ability to evaluate whether standards for abating tax liabilities are applied consistently to provide fair and equitable treatment for taxpayers,” the report says.

Hoffer and Tax Department officials largely attribute the poor documentation of to the department’s standard operating procedure, which at the time, “failed to address the statutory requirement for [the Vermont Department of Taxes] to document the reasons for abatements.”

That standard operating procedure was updated in late 2016.

Samsom said that the state’s audit was fair overall, but stressed that documentation of abatements has improved. “I think we’re in a very different position now,” he said. “Readers of the report should recognize that this covers a time frame that is two years stale at its most recent.”

Samsom and Deputy Commissioner Craig Bolio noted, the Tax Department was going through a transition to use a new software system during the years in question, and that employees were growing accustomed to the new technology.

“When you’re looking at 2015, 2016, that’s where people are at their most green,” Bolio said.

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