Massive Tax Giveaway Hidden in Senate Amendments
(thanks to a Budget Watch commenter who dug up this little gem)
One little-noticed Senate amendment to the budget is a requirement that the Tax Department grant a use tax amnesty until 2013. [Section 757.42 of temp law starting on line 152723 of the bill. It's also item TAXCD20 in the LSC comparison doc.]
First, some definitions:
The use tax is a tax paid by a consumer of goods or services where taxes were not collected at the time of purchase. For instance, when buying from an out of state seller that doesn’t collect Ohio taxes, one must file and remit the tax to the state. Individuals are required to pay the use tax (you’re all fessing up to all those Amazon purchases every year, right??), but the big money is going to be owed by businesses who are buying from out-of-state or internet/catalog suppliers.
A tax amnesty is a program that allows anyone who owes back taxes to come forward, admit the error, and pay their back taxes in exchange for reduced or waived penalties and interest. It’s a great way for the State to save on the expense and time required to conduct audits and it juices up revenue collections in the period it occurs, bringing in revenue that it may have otherwise taken some years to collect.
But the Senate provision is huge and unprecedented, and here’s why:
- Normally a tax amnesty is only available for a month or two, creating a sense of urgency to taxpayers to come forward quickly; this one is open until 2013. Two years is unheard of.
- Instead of simply waiving penalties and partial interest, as is typical, this tax amnesty actually waives the taxes themselves.
- And, instead of looking back at 3 to 7 years worth of back taxes owed, this program only requires delinquent taxpayers to report what they owed for a single year – 2010 – everything before that is instantly forgiven and forgotten. In other words, if you haven’t paid use taxes for ten years, you can pay your taxes for 2010 and the state will write off the other nine!
This thing is an outrage on so many levels.
First, it rewards tax cheats and gives them plenty of time to take advantage of the amnesty. It’s a slap in the face to companies that follow the law and pay their taxes.
It’s also going to cost the state enormously. The Tax Department had embarked on an ambitious data mining project called the Tax Discovery project in which it invested in complex software and programming resources to dig through taxpayer data and identify those companies most likely to have unpaid tax liability. The last budget appropriated $2 million per fiscal year to the project, and this budget kicks in another $5 million over two years. That’s over $9 million of investment in a program that was expected to net tens, if not hundreds of millions of dollars in back taxes for the state that will now never receive. What a waste.
Everyone I have talked to suspects this provision came about because a company with expensive lobbyists realized they goofed and forgot to pay their taxes & faced a huge bill, so they preemptively sought a friendly Senator who would make their problem go away. No one suspects that the administration (or at least the Tax Department) was involved because it’s such horrible policy.
So now, the question is, will the amnesty be removed in Conference, and if not, will the Governor veto it when the bill comes to his desk? Or will tax cheat profit at the expense of the taxpayers who invested in the project in the first place and create an incentive for other taxpayers to drag their feet and get a lobbyist when the tax bill comes due? Among the thousands of items in the bill, hardly anyone’s noticed this one, but we’ll be keeping an eye on it.