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Ed Vogel

Nevada Supreme Court: Official Says IGT Will Pay

29 June 2005

CARSON CITY, Nevada -- Lawyers for a whistle-blower argued Tuesday that the attorney general's office has ignored state law and allowed International Game Technology to avoid paying as much as $100 million in sales taxes.

Lawyer John Bartlett told the Supreme Court that Attorney General Brian Sandoval is sworn to uphold the laws, even if he does not agree with them.

"The petitioners (attorney general's office) are arguing they can change what the Legislature has done," Bartlett said. "What is this policy of letting tax cheats off and going after things like Medicaid fraud?"

At one point, Chief Justice Nancy Becker said IGT may have a legitimate dispute over what taxes it owes and that no fraud was committed.

But Justice Bob Rose questioned whether the attorney general just wants to avoid paying millions of dollars he may be owed under a state law to the man who claimed IGT, a Reno-based slot maker, owes the state millions in taxes.

Bartlett said Sandoval will not enforce the False Claims Act, a law enacted in 1999 to protect whistle-blowers who report fraud by their companies.

Jim McAndrews, an IGT tax analyst, alleged that a joint venture between IGT and Anchor Coin filed false tax reports and owes more than $30 million in back taxes. Anchor was later acquired and merged into IGT. Under the law, the state can seek triple damages, and whistle-blowers are entitled to collect up to 50 percent of the taxes owed.

Justices are not expected to make a decision for several months.

Since making his charges 2 1/2 years ago, McAndrews has been barred from the company's offices but still collects a paycheck every two weeks.

Sandoval, who attended the hearing, denied IGT will escape paying any taxes it owes. He said the Taxation Department has been auditing the company for nearly two years and its findings will be used to collect all taxes due.

He said that decisions on state tax policies should be made by the eight-member state Tax Commission, not by a court. The part-time commission is a group of business people who pass tax regulations and settle disputes over taxes due.

Deputy Attorney General Greg Zunino argued the False Claims Act conflicts with other tax laws. A company could face more severe penalties under this law, according to Zunino, than companies found to have committed more egregious offenses through state tax audits.

Mark Mausert, another McAndrews lawyer, said whistle-blowers can look into the "nooks and crannies" of companies and find wrongdoing that auditors cannot. He said the whistle-blower law complements other laws and is meant to help investigators.

Until McAndrews came forward, the Taxation Department had not conducted an audit of the company, Mausert noted.

McAndrews said he used the False Claims Law to protect himself and his personal integrity.

"I could have been held criminally liable for the reports I was preparing," added McAndrews after the hearing.

In a related case, justices heard a lawyer representing the Chicago-based Beeler law firm argue that major companies such as, Borders, Wal-Mart and Target are avoiding paying Nevada sales taxes on items bought on the Internet and shipped to the state. Like McAndrews, Beeler wants to collect a share of the money the companies allegedly have not paid.

Sandoval wants the Beeler case dismissed and for the Tax Commission to determine if the companies owe back taxes.

In arguing for Beeler, lawyer William Urga said the taxpayers of Nevada are losing revenue because of the refusal of the big companies to pay taxes on Internet sales even though they have stores in Nevada.

He said a couple could go into Wal-Mart, buy a refrigerator, pay the taxes and take it home. But their Internet savvy neighbor could buy the same refrigerator on the Wal-Mart Web site and escape paying sales tax.

Urga pointed out that Borders, in its bookstores, has signs encouraging people to buy books on its Web site.

If customers who purchase books tax-free from the Web site have any problems with the purchase, Urga said, they can take it into the Borders' store for a replacement. Earlier this month, a California court required Borders to pay the state sales taxes on such Internet sales, Urga said.

Nevada Supreme Court: Official Says IGT Will Pay is republished from