worse than paying taxes????
Discovering that your neighbors aren’t!
Comment: No one likes
to pay taxes, but we pay them anyway…..at least most of us do! Generally,
you’ll find that cheating in any given area is inversely proportional to a
combination of three factors…..the ability of the tax authority to detect the
cheating, vis-à-vis technology; the amount of enforcement effort expended; and
the degree of difficulty it takes to comply.
For example, let’s take a
look at the Sales/Use Tax. The State of Connecticut achieves one of its largest
annual sources of audit revenue from auditing Business Sales/Use Taxes. Over a
recent three year period, the State has recovered an average of 117 million
dollars annually. Interestingly, a recent study estimated that this may account
for less than a third of what’s due. Examining this on the basis of our three
factor formula, the State has an enforcement program, (positive
impact), that focuses on businesses, as opposed to individuals, because
that’s where the revenue is most concentrated. Offsetting their effort is the
fact that businesses must track their liability in their accounting process,
raising the difficulty in complying, (negative impact). If
their enforcement effectiveness is less than one third, as the study estimated,
then it can be assumed that their detection capability is
inadequate, (negative impact).
In comparison to business
entities, few individuals know or care that a Sales/Use tax liability is created
when they purchase certain items from out-of-state mail order companies through
catalogs or over the Internet. In this example, there is little or no
detection capability, (negative), no effective
enforcement program, (negative), but there is minimal
difficulty in complying since they can easily report the liability
when they file their annual State Income Tax return, (positive). Putting
the dollar amount in perspective, according to the aforementioned study, losses
from Internet purchases alone, (not including catalog sales), are estimated at
44.2 billion dollars nationwide in FY05 and growing rapidly.
As you can see in these
examples, in order to have an effective program, all three factors have to be
considered. There are other factors as well, depending on the tax, but these
have the greatest influence.
At the municipal level, you
will find cheating in two primary areas, motor vehicles and business personal
property taxes. Unfortunately, most municipalities do not provide their
assessor with sufficient resources to properly address these areas. Few are
aware of the wide-ranging demands and statutory responsibilities placed on the
local assessor. The tax cheats know and rely on the assessor’s overwhelming
state of affairs. As one CPA testified…”We simply play the audit lottery.”
That said, let’s take a look at each area.
– Many Connecticut residents register their vehicles in other states to avoid
paying sales taxes and local property taxes. These vehicles are easy to spot,
displaying the different state license plates. You’ll find them in your
neighbor’s driveway, in front of you at the local bank drive-thru, and parked at
your favorite restaurant. There is one place where you will never see them.
You’ll never see them waiting in line for a Connecticut emissions test!
An even bigger problem,
many Connecticut residents register their vehicles in Connecticut but use an
address/tax town other than their residence where the vehicle is located. These
are what we refer to as “stealth” cheats because they are not readily visible.
This is most prevalent in the Cities where mil rates are high and where
insurance premiums are double that of the suburbs.
Property – Businesses are required to
declare their personal property every year to the local assessor where their
property is located. (Most individuals don’t have to do this because an
individual’s property is usually exempt, e.g., clothes, furniture, money, etc.)
The process used to collect the data from businesses relies on the honor system
and rarely are any but the largest companies ever audited. Many businesses,
such as out-of-state leasing companies, never file a declaration nor are they
detected as a non-filer by the local assessor. Since the State has a
decentralized property tax system, each municipality is left to fend for itself
in addressing compliance matters. Therefore, the cost effectiveness of any
enforcement program has to be carefully considered. When no action is taken,
you can be assured that compliance drops considerably.
One can assume that there
is a certain bias in our comments because we are designers and providers of
commercial solutions in these areas. We offer detection technology; we
offer enforcement support services; and we have also, in certain areas,
made it easier to comply. We have gained a wealth of first hand
experience in these areas over the years. We’ve seen more than cheating as
well. In some cases, local government will not support the assessors in an
enforcement program because of the potential loss of votes, i.e., they don’t
want to stir things up! In addressing motor vehicle tax violations, for
example, we have found elected and appointed officials with out-of-state
registered vehicles; we have found members of the local board of assessment
appeals with cars registered in another tax town, and we have even found an
elected official with a stolen registration insert on his unregistered vehicle.
Even more disturbing, we have found municipalities that absolutely refuse to
address these areas of property tax. They always say they do, but they don’t.
It is sad to say that we
have found a mixture of apathy, complacency, and incompetence in our travels.
Since we are quite often ignored when we try to speak out on these matters, we
searched for a tax advocacy group in order to vent our frustrations. When we
couldn’t find one, we decided to add this feature to our web site. So now we
are leaving it up to you, the taxpayer, to do your part. Ask questions of your
governing officials. Find out what initiatives they are undertaking in
supporting a tax system where everyone pays their fair share. Let us know your
experiences and/or frustrations so that we may publish them right here.
We would love to hear from
you. Let us know your feelings. Send us an e-mail at