Lying charge heats up Norfolk commissioner race

NORFOLK

The race for commissioner of revenue has taken a negative turn, with challenger Doug Knack claiming that incumbent Sharon McDonald uttered "a blatant lie" at a debate, and McDonald retorting that Knack "doesn't have a clue as to what he's talking about."

McDonald, 54, is seeking her fourth term as commissioner of revenue, which levies taxes on most businesses. The position pays $136,167 per year.

McDonald is backed by most of the City Council, most other elected officials, and the Democratic Party. Knack, an independent, has mounted a spirited challenge. The 58-year-old real estate agent garnered endorsements from a pair of political opposites: former Republican U.S. Rep. Thelma Drake and Vivian Paige, a former Democratic nominee for treasurer who runs a left-leaning political blog.

Knack has raised $24,000, nearly twice as much as McDonald, including a loan of $5,000 he made to his own campaign. "I wouldn't be in this if I didn't think I could win," he said.

McDonald and Knack have clashed outside the political arena. Knack's wife owns Kathy Knack Interior Designs in Ghent.

She has been fighting McDonald over the tax classification of her business since 2004.

Kathy Knack says she's being charged too much in business taxes. McDonald says she's just following the state code.

State law allows McDonald to assess taxes at higher rates for personal services than for retail sales. Knack is taxed for providing personal services.

McDonald said because most of the furniture and other wares she sells is custom-designed in the store, what Knack is really selling is her advice. "The state guidelines are very clear, that interior decorating is a personal service," McDonald said.

McDonald said she has asked Kathy Knack for records that separate retail sales from personal services. "She said she can't provide the records," McDonald said.

Doug Knack provided The Virginian-Pilot detailed financial records from his wife's business, including a breakdown in sales from 2004 through 2008, on the condition that numbers not be published. They indicate about 5 percent of her income is from "design services."

Knack said he decided to run not just because of his wife's business, but because of "inconsistencies" in McDonald's office.

The Retail Merchants Association, a statewide business group based in Norfolk, has contributed $4,164 to Knack's campaign and has long been critical of McDonald.

The association asked state Tax Commissioner Janie Bowen to provide a non binding ruling on whether Norfolk's interior designers are improperly taxed at a higher rate. She ruled, in one test case submitted by the merchants association, that the taxes were improper.

At a civic league forum, McDonald said the ruling had nothing to do with Norfolk. Knack's campaign said that was a "blatant lie."

"It doesn't have any bearing on Norfolk because it's fictitious," McDonald said. "There is not any such business in Norfolk that I am aware of."

Margaret Ballard of the Retail Merchants Association replied that "the appeal was based on an active business in the city of Norfolk."

McDonald touts improvements she has made to her office, including the opening of the region's first state Department of Motor Vehicles branch at a city hall and a policy that allows 85 percent of new businesses to acquire all permits at her office. McDonald also credits her office with collecting $35 million in the last 12 years from businesses that had not been complying with the law.

Knack faulted McDonald for spending more than a month each of the last two winters in Richmond lobbying the General Assembly for the commissioner of revenue state association, efforts McDonald says have helped Norfolk taxpayers.

He also said her "aggressive" attitude toward assessing taxes may be driving businesses out of the city. "She's been aggressive, and it's not her job to be aggressive; it's her job to follow the law," he said.

McDonald said that's exactly what she's been doing - making sure businesses follow the law.

"If it's aggressive tactics because we're looking under every rock, trying to find tax money for this city, then so be it," she said.

"I think most of my constituents would say, 'That's exactly what you should be doing, because if you make sure everyone is paying their fair share, then that's less that I have to pay.' "

Harry Minium, (757) 446-2371, harry.minium@pilotonline.com