SC gov's state flights may raise tax liabilities

COLUMBIA, S.C. — South Carolina Gov. Mark Sanford's use of state planes for personal and political trips could open him and the state to federal tax penalties because the flights never were recorded as taxable fringe benefits.
Tax experts who reviewed an Associated Press analysis of more than 100 flights since 2003 said numerous trips could have triggered Internal Revenue Service rules that require adding the value of flights to the governor's wages, making them subject to taxes. The analysis shows nine flights since 2008 alone could be worth $19,019 in taxable benefits.
"The state appears to take the position that they assume that all of these are business flights," said Marianna Dyson, a former IRS fringe benefits lawyer and one of the nation's leading experts on the topic. By doing that, the state "ignored the rules applicable to the use of an employer's aircraft."
The governor's office contends the need to report any of Sanford's trips as income is preposterous because every flight is official business. "It's all working condition fringe benefits that we don't believe is taxable," said Sanford spokesman Ben Fox.
An AP investigation this summer showed Sanford traveled to numerous personal and political events even though state aircraft only are to be used for official business. While the governor has said he did nothing wrong, he has yet to explain how he properly used state planes for all those flights.
The governor on many occasions mixed official business — such as a meeting with newspaper editors — with a political event like a speech to a GOP group — and tax experts say those trips could require Sanford to pay taxes on some flights. It would be up to the IRS to decide, though an agency spokesman would not comment on how governors and states comply with fringe benefit laws.
Plus, Sanford likely needs to pay taxes on the flights taken by his children because they have no official role in state government.
The two-term governor's travel has been under scrutiny since he returned from a secret June rendezvous in Argentina with a woman he later called his soul mate. He has reimbursed the state $3,300 for travel related to a 2008 trip during which their longtime friendship became physical.
Ensuing AP investigations have shown Sanford flew in pricey commercial airline seats despite state requirements for low-cost travel; failed to disclose on ethics or campaign finance documents his use of private planes; and spent $63,000 for charter jets on European trade trips when commercial travel was available for a fraction of the cost.
Sanford's travel is being investigated by the State Ethics Commission, and lawmakers who've urged him to resign are considering whether to try to force him from office. The governor, who says he is trying to save his marriage, insists he's staying.
His spokesman was given detailed information on more than 100 trips with potential tax implications but refused to detail why each was not taxable.
"These claims defy common sense, and the governor stands where he stands — which is right there with literally hundreds upon hundreds of elected officials who also include their family on trips to public events, just as it falls squarely in line with former governors," Fox said.
Sanford, a legend of frugality for telling staff to use both sides of Post-It notes, took his children with him on yearly taxpayer-funded flights from the family's coastal plantation to Columbia to light the state's Christmas tree and to national governors conferences. Experts said the children's flights were nearly always subject to fringe benefit rules.
Bob Kamman, a fringe benefits expert in Phoenix who reviewed the AP research, which was based on flight logs and schedules, said at least 68 flights could be taxable.
He said business and personal travel can mix without tax consequences as long as the primary reason for a trip is business.
In August 2005, Sanford flew to the northwestern part of the state and spent less than two hours meeting with different newspapers before being driven to North Carolina for two nights and a day of "personal time" at a private lodge. The plane returned to Columbia without the governor.
"You have to draw the line somewhere on 'primarily personal' and 'primarily business,' and this is where it should be drawn, especially when the plane has to fly back to Columbia before picking him up again," Kamman said.
Other governors have faced similar scrutiny. An AP review in December estimated former Illinois Gov. Rod Blagojevich could owe more than $60,000 on non-business flights worth at least $225,000. Former Alaska Gov. Sarah Palin's settlement of an ethics investigation for trips taken with her children included a promise to pay any back taxes.
As with private employers, a state is supposed to report taxable benefits for its employees. But in South Carolina, the agencies that manage state aircraft and submit tax forms say the value of state aircraft use has never been reported. That's in part because the agencies rely on officials to verify they use the aircraft properly, and then assume that all of them do.
Failing to report benefits as income could subject the state to a penalty of 25 percent of what wasn't reported. For the flights since 2008, that tab could approach $5,000.
Dyson, the former IRS fringe benefit lawyer, said the idea was to protect taxpayers by using rules aimed at curbing abuses of corporate executives. She said most states have lagged the corporate world in properly reporting the benefits.
"These rules, which are designed to be fair, protect shareholders," she said. "By the state ignoring these rules, I think it encourages more personal use of the aircraft."


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