State Shortchanged By Unpaid Taxes Lawmaker Says Auditors Should Lay Off Taxpayers, Target Non-Payers

Scofflaws, cheats and taxpayer filing errors cost Idaho a quarter of a billion dollars a year in lost taxes, according to a new legislative report.

But much of that could be recouped if tax collectors spent less time auditing taxpayers and more time seeking those who don’t pay at all, the report concludes.

Prepared by the state’s office of performance evaluations, the report recommends internal changes to the way taxes are collected. Those changes could bring in an extra $47 million a year at little or no cost to taxpayers.

The study was requested by retiring state Rep. Kathleen “Kitty” Gurnsey, R-Boise, who feared Idaho was gaining a reputation as a state that doesn’t enforce tax rules.

It estimates the state’s “tax gap” - the difference between taxes residents owe and taxes the state actually collects - at $245 million a year.

That’s about one-sixth of the entire state budget and enough to run Kootenai County’s 500-employee bureaucracy for more than seven years.

“It’s a big, big number,” said Nancy Van Maren, study director and administrator for the legislative office of performance evaluations.

Most of Idaho’s state budget comes from sales and use taxes and individual and corporate income taxes. Property taxes primarily go to local government and schools.

The state loses about $120 million in unpaid sales and use taxes every year and about $111 million in individual income tax. Corporate income tax collection, on average, is $4.5 million shy of where it should be.

Van Maren said the state loses tax dollars when residents:

Underreport taxable income and sales;

Overstate income tax deductions;

Fail to pay taxes on goods bought out of state;

Abuse exemptions;

Make unintentional mistakes;

Don’t file returns.

It’s unrealistic to think those problems will ever go away or that the state will ever collect everything it is due, Van Maren said. Enforcement would get too expensive.

“There would be court time, lawyers arguing back and forth … there’s cost associated with all that,” she said.

But simple changes at the State Tax Commission could bring in at least 20 percent more every year.

For example, she said, tax collectors should focus audits on industries with histories of tax errors or underpayment. It would increase revenue and help educate the industry to avoid future errors.

The office also could hire more part-time interns at $7.50 an hour to help direct “self-audits” - a new program that allows taxpayers to audit themselves.

And the office could transfer resources from audits to tax collection.

Currently, the state has 34 people auditing income tax filers and 39 people auditing sales tax payers. Only 17 people search for those who don’t pay taxes at all.

Members of a legislative oversight committee plan to push for the recommended changes next spring, said State Sen. Grant Ipsen, R-Boise.

“We’re going to try to make it happen, though I don’t know exactly how yet,” Ipsen said. , DataTimes