Debate over uncollected taxes puts spotlight on sale of Deal firm

The controversial sale of a salvage yard co-owned by Gov. Nathan Deal last year has become fresh fodder in the race for the state’s top job amid a new debate over how vigorously the state should pursue tax cheats.

Democrat Jason Carter’s campaign made clear it would put last year’s sale of the business to Texas-based Copart, which is in a tax dispute with the state, at the center of a new round of attacks this week. It came after Deal’s campaign criticized his plan to more aggressively pursue an estimated $2.5 billion pot of unpaid state taxes to fund education.

The back-and-forth plays into the larger debate that’s roiling the final months of the race for governor. Carter sees the sale as a chance to portray the governor as a politician who used his office to enrich himself. Deal’s campaign views the new attacks as a sign of an increasingly desperate rival grasping to gain traction as November nears.

The escalating war of words over tax cheats also highlights key differences between the candidates. Carter’s campaign is centered on a vow to increase funding for education, which he says has been short-shrifted by as much as $1 billion a year in Deal’s tenure. The governor, who offers more modest campaign promises, challenges Carter to outline specifics.

A $74 million tax dispute

The governor's staff hoped it would rid itself of a controversy when it announced the sale in July 2013 of the lucrative Gainesville Salvage & Disposal to Copart, which paid $3.2 million each to Deal and his business partner. Days later, though, it was revealed that Copart was locked in a lengthy dispute with state regulators over as much as $74 million in back taxes.

The governor quickly sought to distance himself from the sale. He said he would not interfere with the legal battle between Copart and regulators who say the firm failed to pay sales tax on auto parts. He also said he had no knowledge of Copart’s tax woes because the property was run in a blind trust, which meant the assets were controlled by a third party.

Deal’s office, though, helped shape the sale’s announcement. Chris Riley, the governor’s top aide, urged in an email to an attorney May 10, 2013, that a draft of the press release about the deal should “remove Gainesville as much as possible and make it appear to be more metro Atlanta.”

The governor’s critics question whether Riley’s email signaled that the governor knew more about the deal than he let on, while Deal spokesman Brian Robinson says the governor’s office has only played a role in the release of the news to the public and not the negotiation of the sale itself. He said Deal “expects Copart to pay every cent that it owes to the state.”

“This is yet another example of how Jason Carter will say absolutely anything to change the subject when he gets caught making hollow promises that he can’t back up,” Robinson said.

Democrats are likely to step up the attack. Better Georgia, a left-leaning group supporting Carter's bid, unveiled an online ad last week trying to draw a line between the Copart sale and the struggle of everyday Georgians. And Carter spokesman Bryan Thomas accused the governor of collecting checks for himself while not pressing to resolve Copart's case.

“He pockets $10,000 every month from a major tax cheat. Why would he want to go after them?” Thomas said. “Governor Deal has no problem collecting checks for himself, but he won’t collect on behalf of Georgia families.”

Meanwhile, the status of the tax dispute remains uncertain. State revenue officials would not comment on the investigation, citing confidentiality laws. The company also declined to comment, but it warned investors in a June filing that losing the case "could have a material adverse effect" on Copart's bottom line.

A widening education rift

The attacks over tax cheats came amid a larger debate over education funding that is forging the biggest policy divide in the governor’s race.

Carter claims Deal’s education budgets have “dismantled” the state’s school system, and he vowed to reverse austerity cuts to education enacted amid an economic downturn in 2003. But he has long been dogged by questions over what he would do to shore up the spending.

The Democrat said this month that a comprehensive review of state spending would turn up a "giant amount of waste" that could be better spent in classrooms. And he set off this latest tiff on Wednesday by pledging to go after uncollected taxes owed by residents and businesses dodging the system.

“There’s $2.5 billion that is uncollected out there from people who are cheating on their taxes and against whom we aren’t enforcing the law,” the Atlanta state senator said. “That’s $2.5 billion of money that’s gone uncollected by our state government for years now.”

He's referring to a state audit released in January that encouraged revenue officials to step up efforts to collect back taxes and estimated there's a pot of $2.5 billion that could be tapped. Of that figure, revenue officials estimate that about $800 million comes from accounts at least 15 years old. Millions more could be tied up in bankruptcies or other court proceedings.

Deal’s education agenda isn’t as far-reaching — and, his campaign said, far more realistic. He vows to recalculate the complicated school funding formula and to give top teachers pay raises. His campaign hasn’t outlined the financial cost to those plans, either, though Carter’s proposal is likely to be costlier.

Jen Talaber, a spokeswoman for the governor’s campaign, called Carter’s pledge to pursue tax dodgers “yet another hollow promise that sounds good in stump speeches but doesn’t pass the smell test in reality.”

“It’s time for Carter to stop the games and start laying out what programs and scores of departments he would close to come up with a billion dollars without raising taxes,” she said.