This story was originally published in the Atlanta Journal-Constitution on Oct. 1, 2006.
The Georgia House had been passing legislation for almost 12 hours on the second-to-last day of the 2005 session when Rep. Larry O'Neal stepped to the podium and asked colleagues to pass a seemingly mundane tax bill requested by the state Department of Revenue.
He smiled and began, "For those of you who are still awake ..."
O'Neal, a Republican from Warner Robins, spent about two minutes that night --- March 29, 2005 --- discussing House Bill 488, a lengthy, 28-section measure. The bill, among other things, was designed to allow Georgians to delay paying state taxes on land they sell in Georgia if they buy similar property in another state.
He mentioned a last-minute change, which would make the tax break retroactive to land sales made in 2004.
It was hard to tell how many House members were paying attention. After 39 days of debating hundreds of pieces of legislation, the lawmakers were fading despite the bolstering effects of enough coffee and Diet Coke to caffeinate a small South Georgia town.
But in a back corner, Rep. Don Wix (D-Mableton), who owns a real estate business, took note. Such retroactive tax changes are rare.
Wix chuckled with back-bench seat mates about the backdated tax break.
I wonder who that one is for? Wix asked.
O'Neal quickly left the podium --- ignoring a question that was asked as he stepped away --- and House Speaker Glenn Richardson (R-Hiram) ordered a vote. In 44 seconds, 154 House members passed the bill --- including its retroactive tax cut --- without dissent.
And just like that, Gov. Sonny Perdue saved an estimated $100,000 in state taxes.
It is unclear whether anyone in the room knew that Perdue would benefit from the tax break. Legislators interviewed for this article said they were unaware that making the break retroactive helped Perdue or the relatively few other taxpayers who could benefit.
In fact, few of the legislators who voted on the measure acknowledge having much --- if any --- recollection of it.
But it did help Perdue. The governor signed the bill into law on April 12, 2005 --- three days before taxes were due.
Then he took advantage of the tax break on his 2004 tax return, according to his staff.
Without the backdated tax break, the governor would have had to pay taxes on money he made in 2004 by selling property he owned in Georgia. Later that year, he used $2 million in proceeds from the sale of that Georgia land to buy 19.51 acres near Florida's Walt Disney World.
The governor personally would not answer questions about whether he asked for the bill to be backdated. But Derrick Dickey, his spokesman, reiterated Friday that Perdue played no part in the passage of the bill or the backdating change. The governor's staff won't discuss it further.
Unlike other recent governors, Perdue did not put his assets in a blind trust when he took office, so he continues to manage his finances and businesses while earning a $131,000 annual state salary.
O'Neal appears to have been the provision's main champion in the Legislature. O'Neal, a lawyer who has worked on private land deals for Perdue, did not return several phone calls last week seeking comment.
Perdue's legislative allies who were on a key committee that approved the retroactive change say they don't recall how it all happened. That extends to the two lawmakers who ran the committee meeting in which the change was approved.
However, dozens of interviews with legislators, lobbyists and state officials, a review of videos from the floor of the Legislature and a review of public records, including Department of Revenue documents and state meeting minutes obtained by The Atlanta Journal-Constitution, reveal:
- While Department of Revenue Commissioner Bart Graham, a Perdue appointee, said last month that the threat of a lawsuit moved his office to recommend changing state tax law to defer taxes on certain out-of-state land purchases, the department's records show no evidence that legal action was pending. When interviewed again recently, Graham said a major taxpayer --- whom the commissioner said he cannot legally name --- was contesting paying Georgia taxes on an out-of-state property deal, but that the taxpayer had not filed suit or threatened to sue.
- The state's major real estate lobbyist and some of his clients --- individuals and businesses most likely to benefit from such a change in tax law --- say they didn't know about the tax break until they read about it last month in the AJC. Graham's agency said it got the word out via e-mails and interest group Web sites after the bill passed.
- Graham said he doesn't know who, besides Perdue, benefited from the tax break because the state doesn't collect such specific information from taxpayers. The state auditor's office estimated in a fiscal note attached to the bill that the tax break would cost the state $1.2 million per year --- suggesting that it is likely to benefit relatively few taxpayers.
- Veteran lawmakers and Graham say it's rare for the state to grant such retroactive tax breaks. Rep. Richard Royal (R-Camilla), a 20-year member of the House Ways & Means Committee and the panel's former chairman, said he doesn't remember another retroactive tax break. "I was advised by legislative counsel not to do anything like that."
- Perdue has 40 days after the session to sign bills. He signed HB 488 a day after it was sent to his office and three days before the April 15 tax deadline. Perdue said that he didn't rush to sign HB 488. The governor filed for an extension on his taxes, his staff said, so the signing date was irrelevant to him.
An interesting revision
The governor received his tax break on inherited land he and his sister sold to a South Georgia developer in June 2004. They sold 318 acres just north of Perdue's Houston County home for $4.4 million. In December, he used $2 million from his share to buy the land near Disney World in Orlando.
Perdue bought the Florida land from Newnan developer Stanley Thomas, whom the governor appointed a year earlier to the state's economic development board. The board is stocked with Georgia business leaders and oversees efforts to attract businesses to the state.
Less than two months later, O'Neal filed HB 488, which was designed to eliminate discrepancies between state and federal tax code. Such bills are an annual routine for the Department of Revenue. They often are noncontroversial and incomprehensible to just about anyone but accountants and tax lawyers.
O'Neal has had a close relationship with the governor. O'Neal, a lawyer, has formed partnerships for Perdue and his wife, and once served as the governor's House floor leader.
Among HB 488's provisions was one changing the way the state assesses taxes on capital gains from property sales. For years, state law has allowed a taxpayer who sells property in Georgia and then buys a similar piece of property in the state to defer paying capital gains taxes, assessed at 6 percent. The taxpayer will have to pay the taxes when he sells the land without buying another piece of property.
But, before HB 488 became law in 2005, taxpayers who sold Georgia property and bought "like" property in another state still had to pay Georgia capital gains taxes in that tax year.
Graham said no other state had a capital gains provision like Georgia's, and he believed it was unconstitutional. Last month, when asked about the provision, Graham said, "We had some taxpayers who were initiating litigation."
However, department records, including correspondence between the agency and a taxpayer who was complaining about the provision, don't contain any threats of lawsuits.
Even so, Graham said that the taxpayer and his partners were contesting their tax bill after an in-state land sale was followed by an out-of-state purchase of similar property.
The commissioner last week acknowledged that no written complaint had been filed, but he considered a formal notice of an impending lawsuit as "the next logical step."
"We get sued all the time, " Graham added.
Although measures like HB 488 are considered "administration bills" and are reviewed by the governor's office, Perdue's staff said he was not involved in writing or promoting this particular bill.
As originally filed, the bill wouldn't have provided Perdue a tax break because it applied to transactions made after Jan. 1, 2005. Perdue sold his land in 2004.
O'Neal, chairman of the tax-writing House Ways & Means Committee, filed the bill for the revenue department. Ways & Means chairmen typically file such bills. When asked last month about the bill's tax break component, O'Neal said, "I don't remember that specific provision in the bill."
HB 488 wasn't closely watched by lobbyists who usually track such legislation. Keith Hatcher, longtime lobbyist for the Georgia Association of Realtors, said he was unaware of it, even though its proposed tax changes would benefit his association's members.
"We didn't know about it until we saw the articles about it [in the AJC], " Hatcher said.
The bill passed O'Neal's 24-member committee with little notice. Committee members said they recall no debate on it.
It passed the House a week later. It passed the Senate Finance Committee a week after that, on March 17, 2005.
However, before the bill could make it to the full Senate, it was bounced back to the Senate Finance Committee. On March 22, O'Neal appeared before the committee asking for approval of HB 488 --- with a revision, meeting records show. He wanted committee members to agree to make the tax break retroactive to 2004.
Like the members of previous committees, several members of the Senate Finance Committee --- Republicans and Democrats --- don't remember much. Among those who don't recall the events leading up to the bill's retroactive change are Casey Cagle of Gainesville, who at the time headed the committee. He is now the Republican candidate for lieutenant governor.
Mitch Seabaugh (R-Sharpsburg), a Senate Rules Committee member who made the motion to move HB 488 back to the Finance Committee, said, "I can't remember a thing about it."
Graham, the revenue commissioner, said he wasn't at the meeting and didn't ask for the retroactive change. The commissioner said he was informed of O'Neal's change before the bill hit the Senate and House floors for the final vote.
The bill made it through the committee and onto the Senate floor with little discussion, according to Senate records. It easily passed the full chamber.
Back in the House, O'Neal took the podium, or "well, " about 9 p.m., on March 29 to present HB 488 for final passage. He had presented other hard-to-follow tax bills to tired colleagues that day, and this one would be no different.
He told House members the only change in HB 488 was "the effective date of the abolition of the replacement property provision under Section 1031 of the IRS code exchange rules."
The bill was approved in minutes.
A lot can get through
Lawmakers call the end of each legislative session the "dangerous hour, " because they often don't have time to read everything before casting votes. Small committees of legislators --- called conference committees --- bring rewritten legislation before the House and Senate, and lawmakers place their trust in colleagues presenting the bills to let them know what's going on.
So legislators like Wix, who figured something was up, still voted for it. So did longtime House Ways & Means Committee member Jeanette Jamieson (D-Toccoa), who runs a tax service.
"It was so obvious the way it was written that it was slid in there in a way where it would be considered at the busiest time, " she said. "I accepted what was said from the well. I recognized it probably was a tax bill for somebody."
After reading in the AJC that Perdue benefited from the change, Jamieson, the 22-year legislator said, "I was disappointed in the way it was handled. We had just blindly passed a major tax break for the governor."
When the AJC wrote about Perdue's Florida land purchase, some House members who remembered O'Neal's comments about HB 488 on the second-to-last night of the session concluded that the governor had benefited, and they contacted the AJC.
When the AJC wrote about the tax bill three days later, Derrick Dickey, spokesman for Perdue's re-election campaign, said the governor didn't know about the special provisions.
Dickey did, however, confirm that Perdue took the tax break.
Then the Perdue campaign stopped answering questions from the AJC, saying the governor has no more to say about it.
But Perdue did reply when a caller on a radio talk show asked him last month, "The one thing I haven't been able to do is find a way to have a friend of mine write me a bill that saves me a $100,000 on my taxes. I was wondering how I might be able to get that done."
"Well, you get elected governor, " Perdue replied.
> June 22, 2004: Perdue and his sister sell 318 acres of inherited Houston County land to Stoker Group, a development company, for $4.4 million.
> Dec. 17: Perdue buys 19.51 acres of land near Disney World in the Orlando area for $2 million from Newnan developer Stanley Thomas, whom he appointed to his economic development board.
> Feb. 16, 2005: House Ways & Means Chairman Larry O'Neal (R-Warner Robins) files an administration tax bill, House Bill 488, that defers taxes on land sales starting in 2005 when "like" property is purchased in another state.
> March 4: O'Neal's committee approves HB 488.
> March 11: House passes HB 488.
> March 17: Senate Finance Committee approves HB 488.
> March 22: Senate Rules Committee sends HB 488 back to Finance Committee for changes on the motion of Sen. Mitch Seabaugh (R-Sharpsburg).
> March 22: O'Neal, a lawyer who has filed land partnerships for Perdue and his wife, brings HB 488 to the Senate Finance Committee with a change, making tax deferment provision applicable to land bought beginning in 2004, instead of 2005. Committee approves a new version on a motion by Senate President Pro Tempore Eric Johnson (R-Savannah). Revenue Commissioner Bart Graham, whose department wrote HB 488, says he wasn't at the meeting.
> March 29: Senate approves HB 488. O'Neal presents new version to the House without taking questions from chamber members, and it passes in three minutes.
> April 11: House formally transfers the bill to Perdue for his signature.
> April 12: Perdue signs HB 488 into law.