Posted on: Tuesday, October 8, 2002
State should pursue Chevron tax charges
Gov. Ben Cayetano and his attorney general, Earl Anzai, are once again seeking to take Chevron to court in hopes of recovering many, many millions of dollars.
The last lawsuit sought $2 billion from Hawai'i's biggest gasoline supplier, charging that illegal price-fixing was the reason Island consumers pay among the highest gas prices in the nation.
The lawsuit may have created unrealistic expectations that the state was "doing something" about the high cost of gasoline in Hawai'i. In the end, the state settled for $35 million, a small fraction of the sum sought.
But the lawsuit did prompt changes. Gasoline prices seemed to come down as the suit made headlines. And the Legislature last year passed a law intending to set a "cap" on gasoline prices in the state.
It remains to be seen how this law will be implemented and whether it will work, but gubernatorial candidate Linda Lingle says she would work to repeal it if elected.
This newest lawsuit would seek to recover huge amounts of taxes allegedly evaded over 30 years.
A report released by two accounting professors who have taught at UH charged that Chevron and Texaco, companies now merged, operated a complex scheme to avoid paying billions in U.S. and state taxes — mostly in Hawai'i and California.
The companies did this, the professors wrote, by buying Indonesian oil at an inflated price. Spending more for oil allows them to overstate deductions on U.S. income tax returns. And then, the professors charge, the Indonesians correct their price overcharge by slipping the companies free oil.
The professors, Jeffrey Gramlich and James Wheeler, reckon the 30-year total of U.S. taxes thus evaded was $3.35 billion, and the amount still owing to Hawai'i at a little more than a half-billion dollars.
After the IRS looked into this in the early 1990s, Chevron was allowed to file amended tax returns with additional payments of some $675 million. But there it stopped. Cayetano suggests the reason Uncle Sam backed off was "foreign policy considerations" — considerations that don't apply to state governments.
Chevron says all of these charges are old news, that it solved all of its problems with the IRS long ago.
Cayetano is right to pursue this issue, even though he has less than two months remaining in office. But expectations should be realistic. For starters, it is one thing for professors to allege a tax scheme; it is quite another to demonstrate in court that the scheme actually existed.
But Gramlich and Wheeler are reputable accounting professors who argue strongly that hundreds of millions in taxes are owing and possibly recoverable. There's no excuse for failing to explore their charges fully.
