Company Deal sold business to may owe millions in taxes

Nathan Deal’s salvage yard could be fueling another controversy

Gov. Nathan Deal was hoping to rid himself of a controversy that plagued his last campaign when he sold off a lucrative salvage yard. Instead, the buyer’s multimillion-dollar tax woes have given fresh ammunition to critics.

The Texas-based car auction firm that agreed to pay $3.2 million each to Deal and his business partner Ken Cronan for Gainesville Salvage & Disposal is battling the state over nearly $74 million in disputed back taxes, and the company has been ramping up its lobbying forces as it wages the legal fight.

Deal said Tuesday he had no intention of getting involved in the ongoing legal battle between the company, Copart, and Department of Revenue officials who say the firm failed to pay sales tax on parts sales. He said he had no knowledge of Copart’s tax woes because the property was run in a blind trust, which means the assets are controlled by a third party.

“They will get no preferential treatment. The Department of Revenue has jurisdiction over this and will deal with that case just like they do other cases,” he said. “The governor’s office has no involvement with this. None at all.”

But critics, noting that Deal appoints the tax department’s head, say it could prove hard for the governor to divorce himself from the ongoing tax dispute.

“I knew the Copart deal was too good to be true. And it definitely is,” said Melanie Sloan, the executive director of Citizens for Responsibility and Ethics in Washington. “It was clear from the get-go that they wanted something and this may be it.”

The transaction will net Deal and Cronan roughly $3.2 million each from the sale of the business and a 10-year lease on the land. It is the company’s fifth location in Georgia as it looks to expand its footprint in this market.

The salvage yard has long been the source of steady income — and political controversy — for Deal.

The partners once held a lucrative no-bid agreement with the state to provide space for state employees to inspect rebuilt salvaged cars. The Atlanta Journal-Constitution reported in 2009 that Deal, then a congressman, intervened with state officials who wanted to open the program to more locations.

The story led to an ethics complaint and a congressional investigation. Deal resigned from Congress in March 2010 before an ethics organization could move forward, saying he wanted to devote himself full-time to the governor’s race. After he was elected, he put the business in the blind trust.

Copart’s dispute is over whether parts sales to international resellers are subject to Georgia sales tax. A state audit found the company owes $73.8 million in taxes, penalties and fees accumulated between 2007 and 2011. The company is appealing, but said in a Securities Exchange Commission filing that “ambiguous” state rules mean the outcome could go either way.

It warned investors that “litigating and defending the matter in Georgia could be expensive and time-consuming and result in substantial management distraction.” A loss could have a “material adverse effect” on the company’s bottom line, the firm said.

Copart, which declined repeated requests for comment, has stepped up its interest in Georgia politics in the wake of the tax fight.

The company had no lobbyists on its payroll here when it first disclosed the dispute in December 2011. Within months, though, Copart hired four lobbyists, including influential veterans Arthur “Skin” Edge and Trip Martin. Deal, for his part, said he isn’t aware of any lobbying on Copart’s behalf.

Under the terms of Copart’s purchase agreement, Deal and Cronan will get roughly $2 million apiece for the salvage business and vehicles. The contract also requires the firm to pay Deal and Cronan $120,000 each annually over 10 years to lease the land, and gives Copart an option to buy the land for $4.8 million when the lease agreement ends.

Deal attorney Randy Evans said the governor wasn’t involved in the negotiations, but approved the final agreement. Evans said knowing about Copart’s tax issues wouldn’t have affected the final deal either way.

“We walled off any issues relating the state and state business to avoid any suggestion that it had or would have any impact on the transaction,” Evans told the AJC.

Records show that Cronan, who didn’t return calls seeking comment, had previous ties to Copart. He was a member of the used parts division of the state Board of Registration of Used Motor Vehicles in August 2005 when it approved licenses for the company to operate in Georgia.

The governor’s office was particularly sensitive about the timing of the sale, which comes as he prepares to ask voters for a second term. He faces a likely Democratic opponent in November and a GOP primary challenge from Dalton Mayor David Pennington, who said the latest “ethical cloud” distracts focus from Georgia’s economy.

State tax officials declined repeated requests for comment on the case, but Deal’s office said it will “vigorously pursue whatever is owed the state.”

Some voters still have concerns. “I’m worried Copart will get off easy,” said Janet Hudson, a 69-year-old retired software analyst from Holly Springs. “Just think about how many teacher salaries that money would pay for.”

Bryan Long, director of the progressive group Better Georgia, hinted at the challenges ahead when he called for Deal to refuse rent from the company until it pays its debt to the state.

“Copart solved a political and financial problem for Gov. Deal, while the company has a $74 million problem of its own being decided by the state,” said Long, whose group often needles GOP leaders. “If Gov. Deal weren’t involved in this business deal, even he would be outraged.”

The governor, for his part, seemed relieved to rid himself of the business as he ratcheted up his next campaign. He said in an earlier interview the decision to sell the property was simple.

“Any time you have a good offer to sell your business,” he said, “that’s a good business decision.”

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