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The claim against the firm's request against a tax bill has been in legal limbo.
Saturday, May 11, 2013
The only thing the state has ever told a judge about a politically connected firm’s request to throw out a $1.7 million tax bill is that the company’s argument is “a legal opinion to which no response is required.”
The state’s brief did not elaborate. In nearly two years since the biotech firm Star Scientific sued to overturn the tax bill, the state has not asked for a hearing or made its own legal arguments in support of the tax bill, court records show.
Star’s chief executive officer gave $35,000 in gifts to the governor and attorney general and their families since their election. The company has given nearly $79,000 to the governor’s political action committee since he took office, too.
“That case has literally been handled like any other case in our office,” Ken Cuccinelli said during a visit to Troutville last week. “Nothing unusual has happened in that case. And like I said earlier, the only thing my office did is oppose it.”
It is up to the company to take the next step, Cuccinelli said, when asked why the state hadn’t asked for the case to be dismissed, or for a hearing, or detailed any arguments in support of its demand for the unpaid taxes.
Star has not responded to the state filing. After it filed the lawsuit and the state filed its only reply, Cuccinelli spent $10,000 to increase his holding of company stock and accepted the use of its CEO’s Smith Mountain Lake mansion and boat. He has said he was unaware of the suit until much later.
Cuccinelli said it would be unusual to let a case languish that long in Fairfax County, where he had practiced as a lawyer, but added it might be normal in rural Mecklenburg County, where Star filed its case.
Through their spokespeople, Bob McDonnell and Cuccinelli repeatedly declined to comment when asked whether they had ever discussed the tax liability with Star CEO Jonnie Williams, who gave McDonnell and Cuccinelli gifts ranging from $15,000 for the wedding of McDonnell’s daughter to the use by Cuccinelli of the Smith Mountain Lake home. The two cited the need by state officials to protect a taxpayer’s privacy.
“There are no new developments or new facts that have occurred” since Cuccinelli’s last briefing with Richmond reporters last month, Cuccinelli spokesman Brian Gottstein elaborated. “Until there are, we are moving on.”
McDonnell did not respond to a written question about whether any family members had discussed the matter with Williams. McDonnell’s wife was a speaker at an event Star organized to launch a new product last year.
The governor and attorney general also declined to comment about whether they had discussed Star’s tax liability with one another or with state tax officials. McDonnell did say he had not personally participated in any lawsuits involving taxes during his administration.
“While it can often take several years to reach resolution on a particular case, once the commonwealth’s claim has been instituted, Virginia is protected from any impact of this lengthy process because its original claim has been legally asserted and interest accrues on that claim throughout the process,” McDonnell spokesman Jeff Caldwell said.
Tax department spokesman Joel Davison also declined to say whether tax officials had discussed the case with any governor or attorney general. He declined to say what the department may have done to collect the taxes.
“Generally speaking, when the issues are complex or the amount of tax is substantial, the cases sometimes end up in court,” he said, when asked whether the length of time that passed since the department’s initial tax assessment in 2002 was unusual. “We try to settle them as quickly as possible, but sometimes these cases can go on for years.”
He declined to comment when asked why the department took nearly six years to respond to a 2004 request from Star to reconsider the assessment. Its response, which came after McDonnell and Cuccinelli took office, reaffirmed an earlier review upholding the assessment, court records show.
Star’s tax bill has been outstanding since 2002. The company was assessed nearly $708,000 in state sales and use taxes that year for tobacco barns it provided to farmers.
The bill kept growing because of interest and penal ties, adding $400,000 after McDonnell and Cuccinelli took their current offices, according to Star’s filings with the U.S. Securities and Exchange Commission. Those charges continue to grow, Star said.
It was a month after that first assessment in 2002 that Star made its first major contribution to a statewide GOP organization or candidate: a $5,000 contribution that was followed by another $5,000 that December.
That August, it began donating to then Attorney General Jerry Kilgore’s unsuccessful campaign for governor. The company eventually gave $101,000, all but $25,000 before Kilgore resigned as attorney general to campaign for governor. Williams gave another $27,232, all while Kilgore was still attorney general. Kilgore has said he now represents Williams.
“I had no knowledge of any of the tax department’s audits and dealings because those are confidential and I have no idea when tax even started looking at these issues. None of this would have come up while I was AG,” Kilgore said.
Kilgore lost the 2005 election, but McDonnell narrowly won his bid for attorney general that year.
Star, meanwhile, had other challenges. Its main business, selling discounted cigarettes, was sliding. Sales fell from $46.4 million in 2005 to $37.7 million in 2006.
It kept bleeding money, with expenses exceeding revenue by more than $12 million in 2006, including Williams’ $1 million salary. It was unable to meet performance terms for a state economic development grant of $300,000, it disclosed in financial filings.
Star pulled out of the discount cigarette business in 2007. Sales plunged to $482,000 — less than half the amount it owed the state. Its losses jumped to $41.5 million.
In 2008, it had no sales at all and reported a loss of $18.3 million. That year, Star had to repay Mecklenburg County a $300,000 economic development grant because it failed to meet performance targets, after it was unable to get state officials to give it more time.
In 2009, Star again had no sales at all, and lost $22.8 million as it continued to incur major expenses and tried to find new markets.
Those expenses included $28,582 of donations to McDonnell’s campaign, as well as Williams’ $1 million salary and $1.6 million for the use of Williams’ plane.
Williams, meanwhile, gave his first gift to Cuccinelli that year — a $600 flight to New York. Cuccinelli said that was the year he met Williams, substituting for McDonnell at a dinner.
In 2010, the year the tax department issued its second confirmation of the assessment, the company and Williams stepped up their giving.
McDonnell’s PAC received nearly $58,000 in donations. Cuccinelli got a free stay at Williams’ Goochland County mansion and a Thanksgiving break at Williams’ Smith Mountain Lake vacation home, for a total of $2,300.
That year, Cuccinelli invested nearly $10,000 in Star stock. Star had been disclosing the tax liability in its Securities and Exchange Commission filings every year since 2005, repeatedly saying it was prepared to sue if it couldn’t get the department to reverse the assessment. Cuccinelli campaign spokeswoman Anna Nix declined to comment when asked whether Cuccinelli was aware of that disclosure.
In 2011, the year Star sued and the state filed its only response, the company gave McDonnell’s PAC another $22,371. Williams gave McDonnell $2,268 for lodging and entertainment and $15,000 for his daughter’s wedding in 2011.
Williams gave Cuccinelli a box of food supplements, a flight to Kentucky and use of his Smith Mountain Lake vacation home and boat, worth $12,965.
“Ken Cuccinelli has consistently demonstrated a commitment to transparency and accountability and that includes being up front and honest with Virginians,” spokeswoman Nix said in response to a series of questions about what the attorney general did or did not do in the Star tax dispute.
“He recently amended his financial disclosure after a voluntary review. He then went a step further and asked Richmond Commonwealth’s Attorney Mike Herring to undertake an independent review of the disclosures. This too was completely voluntary on the attorney general’s part. His actions stand in stark contrast to [Democratic gubernatorial contender] Terry McAuliffe who refuses to release his tax returns and blames others for his companies’ failings,” she said.
Star would not comment about what its intentions were with the donations and gifts. It did not comment when asked why it had not made any additional motions in its lawsuit against the state, or whether the state had taken any action to collect the taxes. No collection effort was disclosed in its lawsuit.
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