Cayetano wants Gov. Ben Cayetano, angered over a report that ChevronTexaco owes the state $563 million in back taxes, has ordered Attorney General Earl Anzai to found out why the Internal Revenue Service backed off a tax investigation of ChevronTexaco in the 1990s.
investigation into
gas taxes
The governor was angered by a report
that ChevronTexaco owes the state
$563 million in back taxes
and the IRS dropped the caseBy Tim Ruel
truel@starbulletin.comBut Anzai noted the state has a lot of studying to do before it can consider bringing a case against Chevron.
"Whenever allegations of significant tax fraud are brought forward by credible sources, it is our responsibility to investigate," Cayetano said.
Two Hawaii accounting professors released a report earlier this month that said Chevron evaded more than $3 billion in federal and state taxes between 1970 and 2000 by paying inflated prices for crude oil to Chevron's Indonesian joint venture, Caltex. The professors estimated Hawaii's tax liability based on public energy records that show the amount of oil Chevron shipped into the state from Indonesia during much of the 1990s.
The IRS investigated the case in the early 1990s, and closed it in 1994 in exchange for a $675 million settlement from Chevron. Chevron has said the professors' report raised no new information. A spokesman declined comment yesterday.
Cayetano said he suspects "foreign policy considerations" caused the federal government, then under the Clinton administration, to back off from its investigation. A Cayetano spokeswoman declined to elaborate further.
"A half billion dollars is a great deal of money for Hawaii, and I'm not inclined to walk away from it if we don't have to," Cayetano said. The state government's total revenue for fiscal 2001 was $3.4 billion.
Cayetano, whose term ends in less than 10 weeks, has tangled with Chevron before. Shortly before Cayetano's successful gubernatorial re-election bid in 1998, the state sued the state's major oil companies over allegations of price fixing. The state settled the case for $35 million, less than 2 percent of the $2 billion it was seeking.
Kurt Kawafuchi, head of the Tax Division in the Attorney General's Office, has said tax fraud can be difficult to prove because the state must have a simple explanation of how a taxpayer intended to evade taxes. Chevron's scheme, as described by the professors, is complex. The firm basically overpaid its Indonesian taxes, for which it received a tax credit from the United States, and free oil from Indonesia, the professors said.
The professors, Jeff Gramlich and James Wheeler, want the state to open an investigation so they can get more information about Chevron's finances. They've also approached California.
Earlier this week, Wheeler gave Cayetano a written response to concerns recently voiced by Kawafuchi and Anzai. Wheeler said he and Gramlich know what fraud means, and they do not take the charge lightly. Wheeler notes he was on the staff of the Joint Committee on Taxation of the U.S. Congress.
The professors said they have contacted a Houston law firm, Susman Godfrey, that would front the costs of a lawsuit.
If the state does sue, it would need to hire a law firm that would be willing to cover the costs of pursuing a case, Anzai said, not just front the costs.
The huge amount of Chevron's tax liability may provoke outrage among ordinary taxpayers, but the state still has to make a case, requiring the study of tax returns and other documents, Anzai said. He noted that the professors are reputable researchers who put a lot of effort into the report.
Gramlich is a University of Hawaii professor who is currently a visiting professor at the University of Michigan. Wheeler is retired from the University of Michigan and lives in Lanikai.
State of Hawaii
