Palin owes tax on per diem, state says

EXPENSES: Governor received meal money while living in Wasilla.

February 17, 2009 

Gov. Sarah Palin must pay income taxes on thousands of dollars in expense money she received while living at her Wasilla home, under a new determination by state officials.

The governor's office wouldn't say this week how much she owes in back taxes for meal money, or whether she intends to continue to receive the per diem allowance. As of December, she was still charging the state for meals and incidentals.

"The amount of taxes owed is a private matter," Sharon Leighow, Palin's spokeswoman, said in an e-mail. "If the governor collects future per diem, those documents would be a matter of public record."

The revelation about Palin comes as U.S. senators, including Sen. Mark Begich, D-Alaska, are under scrutiny over back taxes. A survey by the political newspaper and Web site Politico (www.politico.com) found that Begich was one of seven senators who acknowledged having paid back taxes.

Some other state employees also owe back income taxes for travel payments and will be getting revised tax forms, Annette Kreitzer, state administration commissioner, said in an e-mail.

She wouldn't say which, or how many, employees will be receiving the notifications.

The payments became a touchy issue for Palin last fall when she was running for vice president and campaigned as a budget watchdog.

The Washington Post published a story in mid-September that said she had charged the state almost $17,000 for meals and incidentals while staying in her own home.

The state considers Juneau, where she lives in the Governor's Mansion, to be Palin's official duty station.

Palin billed the state for 312 nights spent in her Wasilla home during her first 19 months in office, according to the Washington Post. She received $60 a day tax free, money intended to cover meals and incidentals, while traveling on state business, her travel forms show.

"Last fall we raised questions about longstanding practices within the Department of Administration regarding tax treatment of per diem payments," Kreitzer wrote in an exchange of e-mails over the past few days with the Daily News.

"At the Governor's request, we reviewed the situation to determine whether we were in full compliance with the pertinent Internal Revenue Service regulations," Kreitzer wrote. "As a result of this review, we determined that per diem needs to be treated as income, requiring a revision of W-2 forms for any affected employees."

The new determination by administration officials won't affect state lawmakers, said Pam Varni, director of the Legislative Affairs agency.

Under IRS guidelines, legislators receive tax-free payments to help with living expenses while in Juneau for the legislative session -- if their home is at least 50 miles away, Varni said.

The current rate, set by the U.S. Department of Defense, is $189 a day. That goes to everyone except the three Juneau-based legislators, who get smaller payments that are taxed as compensation.

Legislators can also charge the state $150 a day for time spent on state business when the Legislature is not in session, but those payments are taxed as income, Varni said.

Begich's situation came to light through a political survey released last week by Politico about senators and their taxes.

Fifty-five senators, including Sen. Lisa Murkowski, R-Alaska, didn't answer the questions, and a few others owed money but didn't consider it "back taxes" for one reason or another.

On his way out of a meeting with veterans on Monday, Begich answered a few questions about the back taxes he paid on a vehicle provided to him by the city when he was mayor.

"I refused the car the first 10 or 12 months," Begich said. "I didn't want the car.

"Then they told me I had to have it because of liability and a need and security and blah, blah, blah. So I ended up getting a used car. The first time a mayor has gotten a used car." It was a former police SUV.

The tax obligation came to his attention in late 2007, as he remembers it, after a regular IRS audit of city issues. The city then sent him revised tax statements.

"They gave me a letter and said you got to pay taxes on it. So they revised my W-2s." He wouldn't say how much he owed. "It's irrelevant," Begich said.

Generally, people are supposed to pay income taxes on the value of an employer-provided vehicle that is for personal use. Police vehicles are among the exceptions -- officers can drive them home and not be taxed on the value of the commute.

There's no specific exception in the law for mayors or governors. Palin has had a state Chevy Suburban.

Begich said a mayor is always on the job. No other Anchorage mayor ever had to pay income taxes on a city vehicle, he said.

"That's the point. I'm always on call. Always. ... And I think that's what the city's view was, for the city manager and me, was that we were always on call," Begich said. "But the IRS viewed it differently."

"After that issue came up, I got rid of the car," Begich said. He was in a downtown parking lot getting into the Toyota Highlander hybrid he bought in late 2007 to replace the city rig.

The Politico story about the survey said his situation echoed that of Tom Daschle, who had to step down as President Barack Obama's pick for health secretary after revelations about back taxes, including taxes owed for a limo and driver.

"For Politico to say it's the same as Daschle -- that's bunk," Begich said.


Find Lisa Demer online at adn.com/contact/ldemer or call 257-4390.