Executive Summary
Department of Tax and Revenue

Issue Area 1: Many Late Sales Tax Returns with Little or No Tax Liability Cause An Inefficient Use of the Department's Resources to Pursue These Taxpayers.
By statute, taxpayers of the state sales tax are required to file either quarterly or monthly returns depending on their monthly tax liability. A sample of sales tax accounts indicates that nearly half of the accounts (over 34,000) had at least one return filed more than 30 days late (see Table 1). For monthly filers, 5 of 12 returns were delinquent and nearly 3 out of 4 quarterly returns were delinquent. The average time from the due date the delinquent returns were late was nearly 4 months for monthly returns and nearly 3 months for quarterly returns.

Table 1
Statistical Analysis of Monthly and Quarterly Consumer Sales Tax Accounts
Total Population 29,782 44,049
Percent of accounts that were delinquent* 44% 49%
Delinquent Returns as a Percent of all returns due by all taxpayers.



Average number of returns delinquent among delinquent filers.

5 of 12 Returns

3 of 4 Returns

Average time from the due date the delinquent tax return was filed.

3.7 Months

2.8 Months

Percent of delinquent tax returns with no tax liability.



* Accounts were considered delinquent if at least one return was filed more than 30 days late.

The delinquency rate is relatively high. However, it is also misleading because an estimated 65% of the delinquent returns have no tax liability. The cost of filing 4 to 12 tax returns a year with little or no tax liability is one cause for the high delinquency rate. Nevertheless, the Department of Tax and Revenue is required to obtain these returns. The administrative expense associated with pursuing these taxpayers is an estimated $160,618. This is an inefficient use of the Department's resources.
A solution to the problem is to increase the filing threshold for monthly and quarterly returns, and to allow small sales tax accounts to file once a year. The Department made such a proposal during the 1999 Legislative session which did not pass. The Legislative Auditor estimates that the loss of interest revenue of the proposal is about $16,467. However, the administrative expense of pursuing delinquent tax returns with little or no tax liability is $160,618. Eliminating the need to pursue these taxpayers would free time for revenue agents to be more productive in collecting delinquent taxes.

Issue Area 2: Compliance Division Does Not Monitor the Total Number of Accounts and the Total Amount of Revenue that are Likely Uncollectible.
The Compliance Division is responsible for collecting delinquent or unpaid taxes due the state. The Division collected over $80 million in tax revenue in 1998 from taxpayers who were delinquent in paying their taxes. The Division does well in monitoring the amount and the number of accounts that have been collected from. However, the Compliance Division does not monitor the total number of accounts and the total amount of revenue that is likely uncollectible. Given the considerable amount of delinquent revenue collected each year, it is important to know the amount of delinquent revenue that will likely not be collected each year. Having this information would show the extent of the problem of uncollectible items and whether the problem is rising or decreasing. This would in turn indicate some performance issues within the Compliance Division, as well as some remedial action needed system wide.