Taxpayer Advocacy  

Question:     What’s worse than paying taxes????

Answer:        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.

Motor Vehicles – 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.

Business Personal 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 info@CTTFB.com