Practice and Procedure: Can a Personal Touch Prompt Taxpayers to Relinquish the Bucks?

After a successful property tax collection effort which relied on sending handwritten notes to delinquent taxpayers, Syracuse, New York, may be tempted to embrace personalized tax collection strategies across all tax types.

The city partnered with a behavioral science think tank at Syracuse University, called X Lab, to increase property tax collections and decrease foreclosures. The lab analyzed research on human communicative tendencies and determined that a handwritten letter conveys a personal touch that the reader deems worthy of attention. In contrast, the standard form letter in a printed envelope is generalized as junk and easily ignored by the recipient.

To test its findings, X Lab and the city divided delinquent taxpayers into three groups and sent three different letters. One group, the control group, received standard form letters in a regular envelope. The other two groups received handwritten letters, with one group receiving them in a regular envelope and the other group receiving them in an envelope with a handwritten note on the outside.

The control group had the lowest tax collection of the three groups. The group that received handwritten letters and a note on the envelope paid 88 percent more than the control group and the group that received handwritten letters with no note on the envelope paid 50 percent more. These results support X Lab’s position that personalization has a positive correlation to a recipient’s awareness of and response to mail.

On the other end of the spectrum for tax collection is the IRS strategy of using data mining to prove taxpayer fraud. As Siri Bulusu explains in her Daily Tax Report article, the IRS has signed a new contract with Palantir Technologies, owned by tech billionaire Peter Thiel, that will give the agency “new firepower to pursue tax cheats by connecting the dots in millions of tax filings, bank transactions, phone records, and even social media posts.” The contract is worth almost $100 million over seven years.

While stealthy investigations and the somewhat threatening form letter will likely continue as the most common tax collection strategies, the Syracuse exercise shows us that maybe there is room for a little kindness.

Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Is personalized tax collection like the strategy employed by Syracuse viable as a primary collection strategy? Why or why not?

Get a free trial to Bloomberg Tax: State, a comprehensive research service that provides deep analysis and time-saving practice tools to help practitioners make well-informed decisions.