Deals For Delinquents

United States money graphic taxes
States strapped by a slowing economy are turning to delinquent taxpayers to help balance tight budgets.

Ohio for three months is offering taxpayers who owe taxes — but have not been caught — the chance to come forward and pay the taxes they owe, minus half the accumulated interest and with no penalties. It is the first time the state has offered such a program.

After the amnesty ends, the state is promising to pursue delinquent taxpayers with a beefed-up auditing division.

"We're getting delinquent taxpayers on the roll, it's not costing us much money, and then they're on the rolls forever," said Thomas Zaino, commissioner of the Ohio Department of Taxation.

Ohio, Arizona, Louisiana, Maryland, Michigan, Nevada and New Hampshire all recently proposed or held such amnesties, estimating they can raise at least $224 million. Supporters say states are able to recoup money they likely would never see otherwise, while opponents argue people who least deserve it are getting a break.

At least 39 states and the District of Columbia previously have enacted tax amnesties since Arizona raised $6 million in a two-month program beginning in November 1982, the first such program recorded by the Washington, D.C.-based Federation of Tax Administrators.

"For this office, they are a leading economic indicator," said FTA spokeswoman Verenda Smith. "When we start to hear talk of amnesties in the state legislatures, we know there are some serious budget problems facing state governments."

This time around, some states — like Ohio — are targeting individuals and businesses. Others, like Nevada, are offering the deal mainly to businesses. Louisiana's program, open to everyone from individuals to major corporations, expects to raise as much as $150 million.

"We're going to give up a little penalty and interest, but we're going to get the tax and get them off the books," said Danny Brown, spokesman for Louisiana's Department of Revenue.

Ohio lawmakers approved the amnesty in June as the economy began to slow and the state's Medicaid costs soared. The amnesty, which started Nov. 15 and ends Jan. 15, had raised $17.13 million as of Jan. 4, exceeding the original estimate of $17 million.

So far, more than 14,000 taxpayers have applied with back payments ranging from under $10 to more than $1 million.

Among other states:

  • Arizona hopes this month and next to raise $10 million by allowing any taxpayer registered as delinquent to pay their taxes without fear of penalties. The money is needed to balance the state's $1.5 billion budget deficit.
  • Beginning in May, Michigan hopes to raise $15 million to $50 million by accepting delinquent taxes without added penalties.
  • Maryland raised $39.2 million in September and October last year, about $30 million of which will be used to make up shortfalls in the state's mental health programs.
"When you look at it from the standpoint of not having to cut education anhealth care as much, it's a balance, and what we thought would be a fair and just tradeoff with this economic picture right now," said Michigan Rep. Marc Shulman, a suburban Detroit Republican and chairman of the House Appropriations Committee.

Some lawmakers, such as Michigan Republican Rep. Randy Richardville, oppose letting delinquent taxpayers come in from the cold.

"It's unfair to the average taxpayer who goes out there and pays his bills on time," Richardville said.

Ohio Senate President Richard Finan also opposed the idea and came close to opposing Ohio's proposal.

"Why should we even semi-reward people who don't do what the rest of us do regularly?" said Finan, a Cincinnati Republican. "The only reason I finally agreed to this is the commissioner looked me in the eye and said 'Senator, these are people we would never catch anyway."'

In Columbus, a client came to accountant Lisa Trachevski recently with a confession: He owed about $475 in back taxes for most of the second half of the last decade.

Trachevski told him about Ohio's tax amnesty. Her client, a former factory worker now employed in the meatpacking industry, wants to participate and is trying to scrape together the money.

"If he can save a couple of hundred dollars in penalties, he's going to try really hard to get a check together," Trachevski said.

By Andrew Welsh-Huggins
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