For three years, Roanoke Commissioner of the Revenue Sherman Holland has worked to put behind him a 2005 report that said his office wasn't effectively performing its duties and was losing as much as $500,000 to $1 million a year in tax revenue.

That report, compiled by City Auditor Drew Harmon, questioned whether the commissioner's office was using "adequate processes and controls" to ensure that personal property and business taxes were assessed equitably.

Holland fired back, arguing the audit was not only inaccurate but illegal. As an elected state constitutional officer, he didn't have to allow city auditors into his office.

The city council, which initially expressed some interest in the auditor's report, backed off, and the controversy diminished as Holland won an uncontested third term just months later.

But over the past several weeks, Holland has again found himself the subject of scrutiny after WDBJ (Channel 7) news anchor Keith Humphry obtained a list of more than 500 businesses that did not pay the city's business, professional and occupational license tax. Last week Holland issued a response, claiming he was not consulted before the story initially aired and that he did nothing wrong.

The report was not actually a document from the commissioner's office, but a list of "inactive" businesses that was requested in November by City Treasurer Evelyn Powers after receiving a complaint from "a person with a delinquent business license" who had been told it was better not to file a tax form with the city.

An "inactive" status doesn't necessarily mean that a business has closed, or that it's delinquent in paying its taxes. In the commissioner's office, in fact, all businesses start the year with an "inactive" status. That changes as they pay their taxes and generally interact with the city. Those that are still inactive in November have not done either.

"Inactive means we haven't found any indication that your business is actually in business in the city at that time," Holland said. "We have no authority to bill you ... as of yet."

Because the city's department of technology was busy installing a new computer system, Powers asked Harmon's office to run a report matching businesses that had a license in 2006 but not in 2007.

"The report was just generated on my side for me to use as a collection tool," Powers said. "From my side, the inactive list was not intended to point fingers and say anybody hasn't done their job, but intended to use to ensure that we had gotten everything out, or at least made an attempt."

According to Holland, more than half of the businesses on the list are truly inactive; the rest are from out of town, temporary vendors, closed businesses or active businesses actually in the system. In his news release, Holland writes that only 202 of the businesses are truly inactive, which he says represents a "truly outstanding" 97 percent processing rate.

He adds that most or all of those 202 inactive Roanoke businesses likely have gross revenues of less than $100,000, meaning they're subject only to a $50 flat tax.

Holland said that fees collected from the inactive businesses -- even including all 511 of them -- would amount to only tens of thousands of dollars rather than the hundreds of thousands suggested by some of the reports.

Still, the list has again brought to attention the 2005 criticisms of Holland's office and other ongoing problems in the city's tax assessment and collection process. That's of particular interest in a year in which reduced revenue projections have resulted in across-the-board cuts to produce a balanced $260 million city budget.

Roanoke Finance Director Jesse Hall said the business license tax brought in $12.6 million in fiscal year 2006-07. That's about 7 percent of the city's local revenues, which include local taxes, permits and fees.

"All of those issues are issues we all have to be concerned with," said Vice Mayor-elect and City Councilman Sherman Lea. "That's revenue, and the taxes need to be collected."

One of the biggest problems is an antiquated filing system that forces the commissioner and treasurer to rely heavily on paper instead of electronic records.

"It's very manual," Powers said.

The city is installing a new computer system to help streamline the process and ensure a smoother, year-to-year continuity. Its first phase, which covers real estate taxes, is set to go live in December. Business license taxes should follow sometime in 2009, with personal property taxes set for a couple of years later.

But there also remain questions raised by the city auditor's 2005 report.

"Here's what happened in '05: This thing shot out there and he [Harmon] threw it to the wind without any consultation of the commissioner to go through the findings before it went public," said Deputy Commissioner Greg Emerson. "This is stuff we already do."

One recommendation was that the commissioner's office conduct more frequent audits to ensure businesses were paying the proper tax amount.

The commissioner's office responded that it audits more than half of those businesses paying the license tax.

Emerson said the office's 2007 audit rate was just a little lower, at 49 percent. Those range from "broad system desk-like audits to personal on-site audits," he said.

Harmon said that range is part of the problem.

According to the 2005 report, "The commissioner's office invests very little effort in field audits of businesses. The office, instead, invests its time in desk reviews of new state sales tax accounts reports and individual tax returns to identify non-filers and businesses under-reporting gross receipts."

Those reviews, the report says, are incomplete.

"You have to be very careful about how you're defining 'audit,' " Harmon said. "Just looking at a return or comparing it to a prior year's return -- that is not a field audit. A field audit where you visit a business and confirm what is being reported is more in line with what we're talking about."

Holland won't be letting city auditors back in his office any time soon, because he said it's illegal to allow city officials access to tax records.

City Attorney Bill Hackworth said in 2005 that while municipal performance audits of the commissioner's office are prohibited under state attorney general's rulings, there is a gray area if Holland approves such an audit.

The Roanoke Times' coverage of the 1997 race in which Holland first won election to the office reported that Holland pledged he would "allow independent city audits of the commissioner of revenue's office every year" and comply with all the recommendations.

"He said we could do it at any time until we had a report that said he wasn't doing his job," said Harmon. "At that point he didn't want us in and council respected that. By code we can't do anything about it."

Holland said he agreed only to independent audits, not to those conducted by the city auditor. He said he submits to annual independent audits.

In addition, a state auditor annually audits the commissioner's office to ensure the state government is receiving its fair share of taxes.

Harmon stands by his 2005 report. And while "I haven't done any audit work to draw any kind of objective conclusion," he said he hasn't seen any evidence of improvements in Holland's office since.

"I haven't seen anything that would tell me anything is better or different," Harmon said.

And Holland, who will be up for re-election next year, still doesn't buy that.

"Where is this million dollars coming from?" he asked. "I challenge anyone: If they tell me where it is I'll go get it."