Prosecutors: State lawmaker planned to profit from tax hike


KNOXVILLE, Tenn. (AP) — As Tennessee lawmakers raised cigarette taxes to 62 cents per pack in 2007, one veteran representative wanted even more, saying it “should have been a dollar.”

Prosecutors say that was part of Rep. Joe Armstrong’s elaborate scheme not to raise revenue or curb smoking rates but to line his own pockets. He’s accused of failing to pay taxes on money he made — more than $300,000 — by buying tax stamps at the old rate and selling them at the higher one.

Armstrong’s attorneys said at his federal trial Tuesday that he isn’t corrupt, but simply a victim of his accountant’s poor advice.

The indictment against Armstrong alleges he devised a scheme beginning in 2006 to profit from the cigarette tax hike planned by then-Gov. Phil Bredesen, a fellow Democrat. Armstrong was by Bredesen’s side when he toured east Tennessee to promote the 42-cent increase as a way to raise education funding and said at the time it should have been as much as $1 per pack.

According to the charges, the longtime legislator from Knoxville borrowed $250,000 to buy tax stamps through a wholesaler at the old 20-cent rate and then sold them at a profit after lawmakers more than tripled the tax in 2007.

His attorney, Gregory Isaacs, argued in court that there was nothing illegal about Armstrong making money off the purchase of the cheaper tax stamps. In fact, Isaacs said, he had every intention of paying taxes on the profits.

Isaacs blamed Armstrong’s accountant for failing to turn over money he gave him to the Internal Revenue Service.

“Joe did what a lot of Tennesseans did,” Isaacs told the jury. “They’re going to try to get him convicted for listening to his longtime accountant.”

Prosecutors argue that political considerations drove Armstrong, who was then the chairman of the House Health Committee, to conceal his role and withhold the taxes.

“He couldn’t be seen to be getting money from Big Tobacco,” Assistant U.S. Attorney Frank Dale said.

“Show Mr. Armstrong that he’s not above the law,” Dale urged the jury.

Isaacs responded that the government’s case hinges on the testimony of Charles Stivers, the accountant who filed the lawmaker’s tax returns. Isaacs said Armstrong had paid Stivers the money to cover the taxes, but that the accountant had pocketed that amount instead of paying the IRS.

According to Stivers’ plea agreement, the return on the purchase of $250,000 worth of tax stamps was $750,000, and he agreed to a 15 percent cut for funneling the proceeds through his bank. That 15 percent cut would have covered Armstrong’s tax burden, Isaacs said.

The longtime legislator wasn’t alone in taking advantage of the lag between when the tax hike passed and when it took effect. State officials saw a $9 million surge in tax stamp sales during that four-month period.

Earlier Tuesday, prosecutors succeeded in excluding the lone African-American potential juror from the trial over what they called “race-neutral reasons.”

District Judge Thomas W. Phillips agreed with prosecutor Charles Atchley’s argument that the 68-year-old retired caregiver had been “disengaged” during jury selection and that she would have had difficulty following a complex tax case.

“I have to have good jurors on this case,” Atchley told the judge.

Isaacs had argued that his client, who is black, deserved to be tried by a jury of his peers and there was no legitimate reason to exclude the juror.

Armstrong became Knox County’s youngest commissioner in 1982, and was first elected to the state House in 1988. A former president of the National Black Caucus of State Legislators, he is tied with two other lawmakers as the longest-serving members in the lower chamber of the Tennessee General Assembly.

Prosecutors said they expect to wrap up their portion of the trial by Thursday, which is also when Tennessee holds its primary election. Armstrong faces no Democratic opponent, but his political future hinges on the outcome of the trial.

Republican lawmakers are circulating a petition to call a special session to oust Armstrong along with Republican state Rep. Jeremy Durham, who allegedly had improper sexual interactions with more than 20 women.

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