‘Good faith’ again argued in legislator’s tax case
HOT SPRINGS — The good faith defense state Rep. Mickey Gates, R-Hot Springs, invoked earlier this year was reasserted in Garland County Circuit Court Thursday as the three-term legislator’s rationale for the tax situation that has him facing prison time.
Gates’ attorney, Jeff Rosenzweig, told the court during Thursday’s pretrial hearing that the six felony counts of failing to pay income taxes or file an income tax return from 2012 to 2017 his client was charged with last year are the result of Gates following instructions from the Department of Finance and Administration.
The trial is scheduled to begin July 29.
Rosenzweig told the court Gates was paying off back taxes when he was arrested. He said Gates was paying $1,500 a month toward $54,000 in taxes and penalties owed. Gates gave this figure earlier this year on the settlement he reached with the state revenue agency after an audit of him and his promotional products company.
The financial disclosure statement he filed in January listed $13,812 owed on the settlement, but Rosenzweig told the court Thursday that the monthly payments are going toward a disputed amount.
“I think the record will show Mr. Gates paid a substantial amount of money from his business and legislative and quorum court salaries,” Rosenzweig told the court. “In addition to that, he’s been paying $1,500 a month on the disputed debt to DFA which relates to the failure to file.”
Rosenzweig said the Department of Finance and Administration told Gates he had to pay taxes owed for previous years before returns could be filed for subsequent years.
“Our defense is good faith, to the extent the state repudiates what DFA said to Mr. Gates, saying it’s erroneous or that it was misunderstood,” he told the court. “There was good faith shown by making the payments and the reliance on what DFA had told him.”
Rosenzweig said Gates saved numerous emails from the Department of Finance and Administration that will show he was working to resolve his tax issues prior to his arrest. According to county property records, the state has active liens of $54,325 and $159,882 against Gates for the 2007 and 2014 tax years. The affidavit the Arkansas State Police filed in support of Gates’ arrest said he owed $259,841 in taxes, penalties and interest as of last June.
The sworn statement said the Department of Finance and Administration found no tax returns for Gates in its computer system, which the statement said contains records dating back to 2003. The state tax code’s six-year statute of limitations for prosecuting tax offenses limited Gates’ jeopardy to the 2012 to 2017 tax years.
Special Prosecutor Jack McQuary and Rosenzweig agreed to separate verdict forms for failing to file income taxes and failing to pay income taxes, despite the two offenses being linked in the statute McQuary charged Gates with violating.
“We want separate verdict forms, so we’ll have an idea of what the jury thinks about each one,” Rosenzweig told the court. “We’ll be presenting different evidence for each count.”
Benton County Circuit Judge Brad Karren, whom the state Supreme Court appointed to the case, instructed the attorneys to agree on a jury instruction for the definition of “willfully,” which is included in the statute but not defined. The tax code stipulates that willfully failing to pay taxes or file a return is a felony, punishable by up to six years in prison.
“If you can’t agree, I’ll see if I can draft one that will make you both upset,” he said.
Karren stated for the record that he advised Gates of his right not to testify, telling the parties that the court will inform the jury of Gates’ right should he choose not to take the stand.
Gates was elected in November to a third term representing west Garland and north Saline counties in the state House, defeating Democrat Kevin Rogers by an almost two-to-one margin despite being arrested four months earlier.
The state police affidavit said McQuary instructed the agency to open an investigation into Gates’ tax records in March 2018.