CALIFORNIA ELECTIONS / U.S. SENATE : Feinstein’s Debut Ad Says Huffington Dodged State Income Tax

In her first political commercials of the campaign, Sen. Dianne Feinstein on Tuesday portrayed Rep. Michael Huffington, her likely Republican challenger, as a millionaire Texas carpetbagger who dodged California income taxes.

Huffington (R-Santa Barbara) said he had done nothing to avoid paying his proper taxes and described the ads as “a desperate act from a desperate politician. There won’t be any political impact because it will backfire on her.”

The tax question stems from Huffington and his wife claiming separate residences from 1988 to 1991. Huffington saved hundreds of thousands of dollars because there is no state income tax in Texas, where he filed, Feinstein’s campaign spokesman said.

Feinstein campaign officials stopped short of saying that Huffington acted illegally, calling instead for an investigation by the state Franchise Tax Board to determine his residence during those years.

Huffington, who faced the same criticism in his 1992 House race, said he lived in Houston because he was working full time at his family’s oil and gas company until it was sold in mid-1991. He said he spent weekends in Santa Barbara, where his wife was living at the couple’s mansion.

Huffington won his first elected office less than a year after moving to California, unseating a veteran Republican congressman. He is the front-runner in next Tuesday’s GOP Senate primary, due largely to the $6.3 million he has given his campaign from his personal fortune.

With the primary a week away, GOP rival William E. Dannemeyer also launched his strongest attack of the campaign, faxing to reporters a series of pointed questions, including the tax-dodging charge.

The tax issue forced Huffington into the no-win situation of defending himself by highlighting his recent Texas roots.

“I had a Texas driver’s license, I was employed in Texas, I voted in Texas, my doctors were in Texas, I was born in Texas and my residence was in Texas,” Huffington said Tuesday. “Almost my entire life, I was a Texas resident. . . . They’re going to say, ‘He was a Texan.’ Well, you’re right. I am now a Californian.”

Huffington has spent much of the spring attacking Feinstein’s record on taxes and crime. A Times poll last week indicated that the effort has helped cut Feinstein’s lead over Huffington in a hypothetical matchup by half.

With the television ads, Feinstein’s strategists took aim at a perceived open flank in the Huffington campaign; recent polls show that more than 60% of the voters don’t know much about him.

The ads are expected to run statewide for at least two weeks--even after Tuesday’s primary, portending a brutal campaign for the November election if Huffington wins the GOP nomination.

In a scene from the commercial, a simulated group of Huffington ad executives discuss the difficulty they’ve had in developing a campaign strategy for a flawed candidate facing a popular incumbent.

“Nobody said it was going to be easy to beat Feinstein with a Texas oil millionaire,” one strategist offers. Finally, the leader of the meeting concludes: “Gentlemen, the only thing that will work is negative ads--and lots of ‘em.”

“It’s Willie Horton time again,” says one of the officials. “Guess virtue is out this year,” adds another.

The commercial raises the tax issue saying, “He avoided California taxes.”

Feinstein campaign manager Kam Kuwata said there are legitimate questions raised about Huffington’s residency because Santa Barbara neighbors have told the Feinstein campaign that he was often in the area.

He said Huffington had a powerful financial incentive to keep a Houston residence because it allowed him to save as much as several hundred thousand dollars that would have been taxed in California and not in Texas.

The amount Huffington would have owed in California taxes cannot be determined because his salary from the family business and his profit from the company’s sale are unknown. Huffington has declined to disclose his taxes or reveal his wealth. Estimates, however, indicate that the sale of the company generated about $600 million and that Huffington’s fortune exceeds $70 million.

Huffington said he and his wife, Arianna Stassinopolous Huffington, a best-selling author, filed separate tax returns. He said his wife paid California income taxes after she moved to the state in August, 1988.

“There is not one shred of evidence or truth that says I owed any taxes,” Huffington said.

California state tax officials said they cannot comment directly on Huffington’s case and declined to say whether they would act on Feinstein’s complaint. But they said residency laws are vague and that the circumstances in Huffington’s case--a married couple filing separately with one living in another state--is not by itself suspicious.

“If a person lives in Texas and their sole source of income is in Texas, we probably would not think twice about whether that person is from Texas” even with a spouse in California, said Jim Reber, spokesman for the state Franchise Tax Board. “Residency is probably one of the toughest and grayest areas of tax laws that exists. You are a resident of California if you are here for other than temporary or transitory purposes. That’s it.”

The location of family and employer are factors in determining residency, Reber said. But he also listed a number of other lifestyle indicators such as social ties, bank accounts, driver’s license, voting registration and vehicles.

The California Department of Motor Vehicles confirmed that Huffington obtained his state driver’s license in 1991. Voter registration records show a move to California the same year.

Dannemeyer on Tuesday issued a two-page list of questions for Huffington about his residency, his taxes and his personal wealth.

The former Orange County congressman said Huffington’s wife was a campaign issue because she has represented her husband as a surrogate speaker and has been a member of a controversial New Age group led by John-Roger. Dannemeyer asked Huffington to disclose his wife’s role in the “cult” and to defend allegations against the organization about misuse of money and about sexual activities.

Huffington responded by saying: “Here’s my comment for all of the things coming out this last week--if a politician waits until the last week or 10 days to release something, you can bet there’s not much truth to it or they would have done it much sooner. This is what the people of California are sick of. I guarantee my campaign will not come out with an attack in the last 10 days.”