State revenue secretary resigns

His last day on the job will be Oct. 22.

Sen. David Hoyle, a Gaston County Democrat who decided not to seek re-election this fall after 18 years in the state Senate, will succeed Lay in charge of the Department of Revenue.

"I thank Ken Lay for his service to the state and for the progress he has made in seeking a new strategic direction for the Department of Revenue,” Perdue said in a statement. “I am happy to welcome David Hoyle to the cabinet. He recognizes my commitment to setting government straight, and I believe he will garner the respect and trust of taxpayers."

As co-chairman of the Senate Finance Committee, Hoyle has been one of the Senate's chief budget writers and helped craft state tax laws.

Lay, who worked for Bank of America before being named revenue secretary early last year, has been criticized in recent months for delays in issuing state income tax refunds, for allowing two top managers to bill the department for commuting costs and for a new policy that allowed the state to keep overpayments on older tax returns.

“I consider it a great honor and privilege to have been asked to serve as secretary of the North Carolina Department of Revenue, and it is with continued honor that I now leave that position," Lay said in a statement. "The department has a stronger strategic vision that has reached a point of inflection, which is a perfect time for new leadership.”

In recent weeks, a rift developed between Perdue and Lay over the older returns. The department had adopted a policy of not confirming overpayments that had been flagged by its computers, and the time for taxpayers to claim a refund had lapsed in thousands of cases.

Questions arose how much Perdue's staff knew about the policy, but the governor said she was incensed when she found out and said further delays in processing the refunds were "not acceptable." Lay then deployed teams of revenue department employees to handle the backlog of returns, which dated to 1994.

"I can't understand why someone would believe that money belongs to the state," said Sen. Clark Jenkins, co-chairman of the Senate Finance Committee.

Jenkins, D-Edgecombe, said that he also felt the revenue department had become "heavy-handed" in collections and "not business friendly."

Lay did get credit when his department negotiated $427 million in settlements from businesses that owed back taxes, but the department drew the scorn of privacy advocates when it went up against online retail giant Amazon.com in an effort to collect sales tax on Internet purchases by North Carolina residents.

Tardy refunds by the revenue department have irritated state taxpayers for two consecutive years, and the state had to pay more than 300,000 taxpayers interest on their 2009 refunds because they weren't processed by the end of May, as required by state law. Lay and other state officials said cash flow problems caused by the economic downturn forced them to hold money back in order to pay other bills.

A WRAL News investigation prompted the Lay to adjust the department's policies for travel expenses this summer. John Sadoff, the director of the department's tax compliance division, and Alan Woodard, the director of examinations, were reimbursed about $78,000 over the past two years for mileage and lodging as they commuted from their homes near Charlotte to work in Raleigh.

Lay initially defended the spending, but lawmakers questioned it in light of budget cutbacks elsewhere. The revenue department eventually decided to incorporate more technology to minimize the cost of travel and to use state vehicles for commuting workers.