High-Tech Humiliation Helps States Nab Tax Cheats
More than a dozen states are banking on public humiliation on the World Wide Web to shame businesses and individuals into paying millions of dollars in overdue state taxes. Using catchy names such as CyberShame and Debtor's Corner, states are electronically publishing the names of tax delinquents.
Publicly embarrassing taxpayers in cyberspace is one novel tactic cash-strapped states are using to come up with enough money to balance their books. Tax amnesty programs are another approach many states try to shake more money from taxpayers' pockets.
"States need to corral every dime they can," said Sujit M. CanagaRetna, a tax and budget expert at The Council of State Governments who says fiscal 2005 is shaping up to be a lean year for state budgets. The National Conference of State Legislatures reported in February that 31 states will have budget gaps totaling $35.6 billion for fiscal 2005, which starts this July 1 for all but four states.
Georgia is the latest state to publish a Tax Delinquent List on the Internet. The state targeted 420,000 taxpayers who owed $1.6 billion in unpaid state taxes. In the process, it flushed out eight state lawmakers with delinquent state tax bills. All eight paid up once they were notified and before their names could be posted on the Web site, but not before the Atlanta Journal-Constitution got wind of it and published a report. More than $300,000 was collected in the first six weeks of launching the site in February, said Charles Willey, a spokesman for the Georgia Department of Revenue.
Connecticut, whose Top 100 List is the longest-running online tax delinquent program in the country, has collected more than $161 million in overdue tax debts in the past seven years and expects another $21 million from payment plans worked out with debtors, said Sarah E. Kaufman, spokeswoman for the state's Department of Revenue Services.
Maryland has collected $10.5 million since the state launched its Caught in the Web list in June 2000. But surprisingly, nearly all of that money comes from people and companies not outed on the Internet list. Most of those who paid were notified and coughed up back taxes in time to keep their names from going up on the Web site, said Michael Golden, a spokesman for the state's comptroller, who is responsible for the site.
State officials said the lists are not violating privacy laws because tax delinquents are a matter of public record. The states simply make it easier for the public to see the records of taxpayers who have tax liens. States that publish delinquent lists on the Internet say they give businesses and individual taxpayers several opportunities to settle their accounts before posting their names.
States with more creative names include: CyberShame (Louisiana); DelinqNet (Minnesota); Project Collect Tax (North Carolina) and Debtor's Corner (South Carolina).
Other states with online tax delinquent lists include California, Colorado, Illinois, New Jersey, Rhode Island and Washington.
States update their online lists of tax scofflaws at various times, not necessarily after the federal government's April 15 filing deadline. State tax deadlines vary widely.
While the "stick" approach of publishing Internet tax delinquent lists is relatively new, more common is the "carrot" approach of letting taxpayers fess up and pay overdue taxes without penalties.
The downturn in the economy has resulted in an uptick in the number of states turning to tax amnesties for quick budget fixes. "It's an easy way to generate revenue," said Steve Slivinski, an economist at the Tax Foundation, an anti-tax group. He said state amnesty programs come and go with the economy. When times get tough, states turn to amnesty programs for some quick cash.
Since the early 1980s, roughly 40 of the 50 states have offered amnesties at various times for some or all categories of taxes, said Pete Sepp, a spokesman for the National Taxpayers Union, a group that advocates overhauling the U.S. tax code. Sepp said amnesties are good for both state governments and taxpayers in that states can collect a big chunk of overdue taxes without spending a lot of money to do it. At the same time, taxpayers can pay up without the "financial and emotional toll of civil or criminal prosecution," he said.
States, however, can't go to the amnesty well too often or taxpayers may purposely start to hold off paying until the next program, Slivinski said.
Here are the payouts of some recent amnesties:
- Arizona collected more than $73 million from a tax amnesty program that ended in November, nearly twice the level anticipated.
- California has netted $167 million so far from its Voluntary Compliance Initiative that allows taxpayers who used an "abusive tax shelter" to underreport their income tax liability to correct their taxes and avoid penalties. The program ends April 15.
- Florida received at least $75 million from its amnesty program that ended last October.
- North Dakota added nearly $7 million from a program that ended Jan. 31.
- Texas expects to collect more than $50 million from its "Project: Pay Up" amnesty program that ended March 31, said Sheila Clancy, a spokeswoman for the Texas Comptroller.
- Virginia collected $98.3 million, more than double the initial goal of its amnesty program that ended last November that allowed tax debtors to pay online.