By CHRISTOPHER BUTLER

Under the leadership of former Commissioner Reagan Farr, Tennessee’s Department of Revenue sharply increased the number of taxpayer-requested variances to companies doing business in Tennessee, State Comptroller Justin Wilson said in a report this week.

The commissioner may impose a variance when the Department discovers during the course of an audit that a taxpayer’s actual taxes paid do not reflect the taxes that should have been paid.

The Department received more requests for variances during the tenures of both Farr and former Commissioner Loren Chumley. Wilson also reported an increase in the number of commissioner-imposed variances during Farr’s time in office, Wilson said.

“Department officials made it clear to us in our conversations that there were not regularly followed procedures regarding variances,” according to Wilson’s report.

Those same Department officials also expressed concern about the appropriateness and the reasoning for some of the variances that were granted.

Reagan Farr

“Due to 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,” Wilson said.

“Of the 40 taxpayer-requested variances, we identified at least seven instances since 2002 in which the variance letters contained language that suggested economic development, such as job creation or retention, was at least part of the discussion in relation to the taxpayer’s variance request and award.”

“In some situations, it appeared that a variance was promised to a taxpayer as part of an economic investment in Tennessee.”

Wilson warned that such practices could lead to inconsistent application of tax laws and cause problems in litigation between the state and taxpayers.

A variance requires no review or approval beyond the Commissioner of the Department of Revenue.

Christopher Butler is the editor of Tennessee Watchdog and the Director of Government Accountability for the Beacon Center of Tennessee. Contact him at chris@beacontn.org

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