Palin Now Owes Taxes on Payments for Nights at Home, State Rules

Washington Post Staff Writer
Thursday, February 19, 2009; Page A04

Alaska Gov. Sarah Palin (R) owes income taxes on nearly $17,000 paid to her as travel reimbursements when she spent nights in her Wasilla residence, according to a state legal opinion that the payments were not legitimate business expenses, a state official said yesterday.

During her first 19 months in office, Palin charged the state $16,951 in "per diem" allowances for spending 312 nights in her home. The allowances were intended to cover meals and incidental expenses while she was traveling on state business.

The state this week reversed a policy that had treated the payments as legitimate business expenses under the Internal Revenue Code, said state administrator Annette Kreitzer. Payments to employees charging "per diem" expenses to stay in their own homes will be treated as income subject to taxes, Kreitzer said, and the state will update the employees' W-2 forms.

Palin's expenses were reported by The Washington Post last year after the Republican presidential nominee, Sen. John McCain (Ariz.), named Palin as his running mate. The Post reviewed records from late 2006 through early August 2008, and the story prompted a review by state officials. The governor continued to seek the payments through the end of the year, according to the Anchorage Daily News, which first reported this week that she owed taxes on the payments.

The additional income will have to be reported on Palin's 2008 tax returns, due April 15. It is not known whether the governor, whose state salary is $125,000 a year, plans to pay back taxes for per diem reimbursements she received in 2007. If Palin refunded the expense payments, she probably would not have to pay taxes on them, tax lawyers said.

The governor's spokeswoman, Sharon Leighow, acknowledged that the governor had received legal guidance in a report, but she declined to comment further.

Kreitzer refused to release the report. She said there were other "affected employees" in addition to Palin but did not provide further details.

Leighow said in September that "the governor is entitled to a per diem, and she claims it." At the time, the state finance director said the practice was permitted because Palin's official "duty station" is Juneau, the state capital, which is 600 miles from Wasilla.

Palin often stayed in her lakeside home in Wasilla and drove 45 miles to Anchorage, to a state office building where she conducts most of her business.

Reimbursement for legitimate business expenses is not considered taxable income under the Internal Revenue Code, tax lawyers said. At the time of The Post's story, some tax lawyers and liberal groups suggested that Palin's per diem expenses should be treated as income.

Palin collected the per diem allowance from April 22, 2008, four days after the birth of her fifth child, until June 3, when she flew to Juneau for two days. She also charged the state a per diem on Thanksgiving Day 2007, citing her attendance at the Great Alaska Shootout college basketball tournament in Anchorage.

"We've always followed the law and fully disclosed all that," Palin said in an interview on Fox News during the campaign.

Palin said many of the per diem expenses occurred while plumbing was being repaired in the governor's mansion in Juneau. She said she could have billed the state for hotel or apartment lodging but opted against that, "knowing that we're going to spend quite a bit of time here [in Wasilla], especially those months where the remodels were taking place in the governor's mansion. And we would disclose my per diem, we wouldn't try to hide it."

On the initial expense reports, Palin wrote "Lodging -- own residence" or "Lodging -- Wasilla residence" more than 30 times on the days she charged a per diem, the reports show. But in two dozen undated amendments, the governor deleted the references to her residence or home.

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