According to the Wall Street Journal, financially hard-hit states seeking revenues are taking aim at taxpayers who owe back taxes to their local government, putting state tax codes in the forefront. Below is the full article.
Financially strapped states are getting more aggressive with tax scofflaws, hoping that stepped-up enforcement and the posting of the names of delinquents online will push more people to pay up.
Oklahoma and Ohio are mining Internal Revenue Service data for leads and some tax collectors are cajoling other state agencies to share data about residents. Missouri’s tax agency has asked for the authority to garnish bank accounts to collect tax judgments. And Nebraska lawmakers are preparing to let the state post online the names of hundreds of taxpayers who owe $20,000 or more.
Such efforts are designed to augment states’ efforts to attack budget deficits that are projected to swell to a combined $55.5 billion for the fiscal year beginning July 1, according to the National Conference of State Legislatures. The collection efforts are likely to fill only a fraction of the gap, but state officials say every extra penny of revenue helps.
“When revenues are flush, sometimes—even though it shouldn’t matter—the pressure’s not quite on state taxing agencies to go after those [delinquent] accounts,” said Tony Mastin, Oklahoma’s tax commission administrator.
Across the U.S., individual income taxes and sales taxes account for large parts of state tax collections, so revenue departments tend to focus on those areas in the hunt for unpaid taxes.
The IRS estimated in a July report that about 84% of taxes it oversees are paid voluntarily. States often derive their estimates from the IRS figures. California, for example, says its annual tax gap—the difference between taxes owed and those paid—for individual and business income is about $6.5 billion.
The recession has caused a sharp drop in total state revenue. Although some economic data point to recovery, monthly revenue collections continue to miss scaled-back forecasts. All states but Vermont have at least a limited requirement to balance their budgets, and they have been cutting spending, increasing tax rates and adding fees to eliminate deficits.
The measures have been unpopular with voters, which could pose problems for politicians in a year when 37 governor’s seats are up for election. Collecting more of what taxpayers legally owe is fairer than raising taxes and fees on all residents, state tax commissioners say.
Confusion about state tax codes explains 15% of so-called nonfilers, said Vaughn Lombardo, executive administrator of the tax discovery division in the Ohio Department of Taxation. And a growing portion of delinquents simply can’t afford to pay because of job losses or other recession-related blows, Mr. Lombardo said.
Many of the new state tax-collection efforts involve legal changes that compel agencies to work together, as well as computer upgrades needed to sift through data.
In Georgia, several state legislators—including one campaigning for governor—introduced a bill last month that would require the state’s Department of Revenue to inform counties of businesses that have operating licenses but aren’t paying sales taxes. Proponents have said the measure would raise an extra $1 billion for state and local governments.