For The Love of Money: States Rely on Aggressive Tax Collection Strategies to Boost Their Budgets

At the San Gennaro Feast festival held in Las Vegas in early September, uniformed revenue officers from the Nevada Department of Taxation approached participating vendors and informed them that they must collect sales tax from customers. The officers provided the vendors with signs saying “sales tax included in price” to hang in their booths, and the department arranged for the event promoter to provide out-of-state vendors with sales tax returns, instructing them to submit the returns along with the tax collected at the end of the festival. They did not stop there, however. When the festival ended, the revenue officers were positioned at the vendor exit to collect the sales tax and completed tax returns.

This manner of tax enforcement is mandated by the Nevada Legislature and has been utilized since the department’s inception, according to Paulina Oliver, deputy director for compliance for the Nevada Department of Taxation. As a popular location for national conferences and festivals that attract vendors from all over the country and even the world, Nevada is perpetually at risk of losing significant tax revenue from businesses with no other significant contacts with the state who either fail to collect the tax or fail to hand over collected tax to the state. Nevada does not have an income tax, and sales tax revenue represented approximately 27 percent of the state’s revenue in the last fiscal year. Given this, the state has a strong interest in minimizing its vulnerability to tax evasion.

While this particular Nevada tax enforcement methodology may seem aggressive, states throughout the country are increasing their efforts to collect revenue to address budget shortfalls. Some states have employed tax amnesty programs, which generously waive penalties, interest, or both in many cases, if taxpayers pay their delinquent tax bills or establish aggressive payment plans. Both Louisiana and Massachusetts have announced tax amnesty programs for 2014 – the Massachusetts program began on Sept. 1 and the Louisiana program begins on Oct. 15 – and Louisiana expects to raise at least $100 million through its program.

Opponents of these programs argue that they encourage recurring tax delinquency because taxpayers expect that there will always be a future opportunity to circumvent the harsh financial penalties associated with tax delinquency. Perhaps to discourage this thinking, both the Louisiana and Massachusetts tax amnesty programs place limitations on participants’ eligibility to participate in future programs.

Additionally, numerous states have implemented anonymous reporting systems through which citizens can report unlicensed businesses as well as their personal knowledge or suspicion of tax evasion and fraud. States are also utilizing voluntary disclosure programs through which tax evaders can self-report their tax owed, pay the tax, and agree to pay all future tax in exchange for waiver of penalty and in some cases, criminal prosecution.

While many states focus their tax enforcement programs on reactionary measures to address existing tax delinquency, Nevada’s aggressive pursuit of tax dollars pre-delinquency may be the most effective strategy of them all.

By Jequetta Byrd

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Should states direct more resources toward developing effective pre-delinquency tax enforcement methods?

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