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State needs to do more to collect $552 million in unpaid taxes, auditor says

By Lisa Riley Roche, KSL | Posted - Sep 18th, 2018 @ 7:33pm

SALT LAKE CITY — State legislative auditors said Tuesday that more should be done to collect unpaid income and other taxes owed that add up to $552 million over the past five years.

"I was surprised," Senate President Wayne Niederhauser, R-Sandy, said after the Utah State Tax Commission audit was reviewed by the Legislative Audit Subcommittee. "It's a lot of money."

But both Niederhauser and House Speaker Greg Hughes, R-Draper, said while lawmakers want to ensure the state collects what's owed, they also want to make sure it's not done too forcefully.

"We don't want to be too draconian in our practices," the outgoing speaker said. "It's a balancing act. When I saw the charts, while I think there's always room for us to do better, we've got to think of our taxpayers as well."

Niederhauser, who is also not seeking re-election this year, said the state probably could collect more money by being tougher with delinquent taxpayers, but that can result in bankruptcies and other problems.

"So we've kind of pared back an aggressive approach so that the tax commission doesn't look like the IRS," he said. Taxpayers "want everyone to pay their fair share, obviously. But they don't want an extremely aggressive tax commission, either."

The $552 million cited in the report by the Legislative Auditor General's Office represents 19 percent of delinquent taxes over the same five-year time period, when Utahns owed $42.6 billion in taxes overall.

"It's a small percentage of the total taxes due," said Scott Smith, tax commission interim executive director. Smith said that percentage "stays pretty constant. That is not a surprise."

He said Utahns tend to pay their taxes at a higher rate than residents of other states, so delinquencies are lower. State income taxes owed by individuals account for about 60 percent of the unpaid taxes, Smith said.

John Valentine, tax commission chairman, told the subcommittee the agency agrees with the recommendations made in the audit, which include hiring more collection agents as well as more outside collection agencies.

Valentine said the tax commission made cutbacks during the economic downturn, just as other state agencies had to do, and are still catching up on the backlog created.

"Now, we're still paying the piper for that," he said.

Using tax commission agents to go after taxes owed costs about 2 cents to collect each dollar, Valentine said, compared to paying 14 cents to 19 cents in commissions for each dollar brought in by outside collection agencies.

House Minority Leader Brian King, D-Salt Lake City, said while the number of unassigned delinquent tax cases is increasing, it's "a bit of a no-brainer you're going to have a more efficient collection system" relying more on internal agents.

He said a greater investment in the tax commission would be to allow more cases to be pursued sooner at a lower cost. The audit found that because there are so many cases, tax commission agents never get to some of them.

State law currently prevents the tax commission from sending cases to an outside collection agency for a year. The audit recommends reducing that waiting period, noting the Utah Office of State Debt Collection has no such requirement.

The audit also suggests using multiple outside collection agencies to promote competition. Currently, the tax commission uses only a single vendor, while the state debt collection office uses six.

The audit found that the number of cases assigned to tax commission agents has decreased from 2013 to 2017, from about 29.5 percent to just under 23 percent, while cases going to outside collection agencies is climbing.

"The longer something sits around, the less collectible it is," King says. "It seems to me there's a lot of potential to both collect and save taxpayer money" by hiring more agents.

Utah Taxpayers Association Vice President Billy Hesterman called on the Legislature to give the tax commission what it needs to collect the unpaid taxes.

"These tax cheats increase the pressure on those following the law to pay more," Hesterman said. He said the business-oriented association has always held the position that all taxpayers should pay the tax they legally owe.

"The Legislature should appropriate additional funding to the state tax commission to give it the tools it needs to go after bad actors who are selfishly choosing to avoid paying their fair share while increasing the tax burden on the rest of us."

Lisa Riley Roche

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