State tax collectors to come knocking
If you owe Connecticut back taxes, get ready for a knock on your door, along with an offer that you had better not refuse.
State officials expect to collect $85 million in delinquent taxes over the next two years in a statewide effort to seek payment from non-filers, taxpayers who under-report their earnings and those who cheat on what they owe.
Included in Gov. Dannel P. Malloy’s budget proposal, the voluntary “Fresh Start” program is not an amnesty. Delinquents would be eligible for reductions in interest and penalties, but could forfeit any of the breaks if they fail to comply for the next three years.
“They get certainty. We get money,” said Commissioner of Revenue Services Kevin B. Sullivan. “It’s money we probably would spend years chasing in order to get 100 percent on the dollar. If you owe us $100 million, we’ll take $75 or $80 million. We have to chase every penny.”
Currently the state is owed about $470 million, more than 95 percent of which is overdue by 90 days or more. The new program is estimated to generate $60 million in the first year and $20 million the second.
While Sullivan’s plan seems likely to become part of the two-year budget that starts July 1, Sen. L. Scott Frantz, R-Greenwich, co-chairman of the legislative Finance, Revenue & Bonding Committee, said it appears to be a dire scramble for cash.
“It seems like they’re trying to squeeze blood from a rock,” Frantz said last week, adding that recent tax amnesties and other enhanced collection tactics over the last several years should have maximized the remittance of overdue revenue. He said that the image of state employees going door-to-door to collect taxes is “a little scary.” The state is facing a $1.7-billion budget deficit.
“The reality is, if you look back at the long history of this agency, you can see opportunities where the agency has simply moved along these debts, year after year as they grow and grow, because every year it’s interest, penalty,interest penalty, interest penalty,” Sullivan said.
While tax fraud and evasion law include fines of up to five years in prison and $5,000 fines, they are rarely pursued.
“Eventually you just write it off, so instead of maybe a $200 million debt owed to the state of Connecticut, by the time you get around to collecting it, the company is out of business, they have no assets, they’re gone. The alternative is you put them out of business by trying to collect it, when you might have been able at some point earlier to say okay, if you do the following things for the next three years we’ll settle with you.”
The “Fresh Start” would dovetail with a recent enhancement in the state’s efforts to collect sales taxes that are not being paid by online and other out-of-state retailers.
Sullivan announced last week that while compliance for those sales taxes has increased significantly in recent years, taxes totaling about $70 million a year are being evaded, mostly by big retailers.
Tim Phelan, president of the Connecticut Retail Merchants Association, said it’s a matter of simple fairness. “All that our main street retailers expect is a chance to compete fairly,” Phelan said. That’s not happening when out of state on-line retailers and other sellers of goods operate tax free online.”
Sullivan said that “Fresh Start” will focus on people and businesses who have not paid taxes, under-reported or who the DRS is confident they are under-reporting. Actually showing up at homes and businesses is a new tactic that he hopes will result in faster payments.
“We need some money for overtime and temporary employees, promotion and mail,” Sullivan sasid. “We’ll send some folks out into the street, going actually door-to-door, ’knock, knock, knock, we have been after you for years now and it’s time to finish this.”
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