"Get your facts first, and then you can distort them as much as you please." (Mark Twain)

Friday, May 20, 2005

Only the Little People Pay Taxes 

Here's an interesting story from my morning paper:
What Linda Fryant found was a revenue investigator's dream -- a mother lode of unpaid tax big enough to wipe out a chunk of the state's budget deficit.

She'd hit on a way to find out how much tax some of the state's wealthiest art collectors owed on recent purchases. It looked like as much as $100 million could be collected in back taxes, plus around $25 million a year going forward.

Fryant, five times nominated and once chosen for the department's outstanding achievement award, had scored big a few years before when she'd found that simply by sending agents around to look at luxury boats, the state could collect hundreds of thousands in unpaid "use tax" -- the equivalent of sales tax on items bought out of state and brought here by Washington residents. Many wealthy taxpayers came to call her, ruefully, "the boat lady."

But the opportunity to collect use tax on art was an even bigger bonanza. The statute of limitations allows the agency to collect back taxes for four years. Experts estimate that Washingtonians buy more than $300 million in art each year, and the state was collecting just a trickle of the tax owed.

But instead of being lauded in Olympia as the woman who enabled the state to fund more teachers, roads or indigent health care, Fryant has been placed on paid administrative leave. Her tax investigation was squelched, her supportive supervisor was forced to accept a reassignment out of state and scores of affluent taxpayers were let off the hook.

Many of the state's rich art collectors aren't willing to pony up what they owe, and the Department of Revenue is wary of facing their ire -- and their lawyers.

"The wealthy are able to negotiate a better deal than the average Joe," says Mike Gowrylow, DOR spokesman.

Late last year, bosses pulled the plug on Fryant's investigation. On Dec. 29, Jeannine Purrington, a supervisor over Fryant's department, wrote to Fryant's immediate supervisor that "until further notice no new art cases should be initiated ... while we continue to wrestle with the fallout from what's already occurred...."

DOR declined to give permission for Fryant or [her immediate supervisor, Brian] Moran to speak to the P-I.

A sidebar to the article reminds us that not all rich people are despicable bloodsuckers:
"I have no problem with this tax," [Seattle art collector Lyn Grinstein, wife of Gerald Grinstein, chairman of Delta Air Lines] said. "I think it's smart. They're trying to collect the most money for the state with the least effort. Art collectors are a good source. I didn't know about the use tax, but when I found out, we had our lawyer contact (the DOR). We paid what they said we owed, and I think they waived penalties and interest. There isn't a major art collector in the city who can't afford to pay. I can't understand what the complaining is about."

...but some pretty clearly are:
"If I were a good person, I'd pay the tax, but I'm not so I'm not going to."

Another sidebar describes what happened when someone suggested making an exception for art put on public display:
In 1994, Microsoft co-founder Bill Gates bought a Leonardo da Vinci manuscript for $30.8 million.

The following year, Richard Ford, Gates' attorney at his father's firm of Preston Gates & Ellis, sought to create an exception in state tax law for local collectors whose out-of-state art purchases serve the public good.

Ford, now retired, contacted his "old friend" Len McComb, who was director of the state Department of Revenue, for help.

McComb helped Ford draft a bill that would appeal to the interests of citizens across the state, not many of whom have had the chance to see a da Vinci manuscript firsthand.

"The idea was to offer a tax exemption for collectors whose artwork was available for public viewing, say at an art museum," said Ford, who primarily practiced in transportation law, not tax issues.

McComb, who is now a lobbyist in Olympia, remembers it well.

"I helped out a lot," said the former DOR head. "If Bill Gates had to pay nearly $3 million to bring the da Vinci manuscript into this state, why would he? He has eight or nine homes. He can leave it in a state without paying a use tax. I thought applying the use tax to art collectors would result in someone either not bringing (the art) into the state or not purchasing it at all. I saw it as my job to help draft the legislation so that it was specific and didn't include more (exemptions) than intended."

Some art collectors "went crazy," said McComb. He declined to name names.

Ford said that collectors told him they weren't paying the use tax on art purchases anyway.

One final thought - this controversy applies only to art purchased from out-of-state. Any art purchased from a gallery in Washington is subject to sales tax. Thus, the present system constitutes a massive subsidy for out-of-state art dealers, at the expense of local businesses. Just something for those who are reflexively anti-tax, pro-business to consider.

 

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