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To Fix Broken Budgets, Some States Tell the Tax Man to Get Tougher

To Fix Broken Budgets, Some States Tell the Tax Man to Get TougherBy DAVE GRAM, Associated Press


MONTPELIER, Vt. -- Dentist Frank Illuzzi was stunned when Vermont tax collectors began demanding a 6% sales tax on the value of toothbrushes and floss he hands out to patients. Senior care facility operator Jay Grimes was similarly surprised to get a $350,000 bill slapping a 9% restaurant tax on the meals served to residents in the dining room. Landscaper Richard "Buckwheat" Lowe got $18,000 in bills taxing him for the first time ever on the mulch he sells.

Vermont is among a handful of cash-strapped states getting more aggressive about collecting every tax owed -- hiring more collectors, hounding scofflaws and exploiting corners of their tax laws that haven't been enforced in years. It's an effort to avoid what politicians from both parties are dead set against: raising taxes.

"You don't want to raise taxes until you're very sure the taxes that people are supposed to pay are being paid," said Rep. Janet Ancel, chairwoman of Vermont's House Ways and Means Committee.

Under adamant no-new-tax Democratic Gov. Peter Shumlin, Vermont has added about 10 new tax compliance auditors and has stepped up efforts to scour records in rural areas, and add greater scrutiny to businesses ranging from auctioneers to Internet-based cloud-computing services.

But for all its aggressiveness, Vermont's results have been mixed. The state reaped about $57 million during the 12 months that ended in June, up from about $50 million five years earlier -- a net gain of $7 million. That's a tiny fraction of the state's $1.3 billion general fund, but it has helped lawmakers close a budget gap that at the beginning of this year was projected to be $46 million.

Other states have had much more success.

Idaho hired 48 temporary auditors and collectors in fiscal 2011 as part of Gov. C.L. "Butch" Otter's effort to boost revenues without raising taxes and narrow the so-called "tax gap" -- the amount of taxes in the state that are due but go unpaid, either by error or by intent.

The added staff brought in more than $26.3 million, more than double the original estimate of $11.5 million. All the positions were made permanent this fiscal year.

Idaho's additional tax receipts are just a sliver of its roughly $2.7 billion budget, but they helped the state post a budget surplus for the first year since the Great Recession began in 2008, money that helped give state workers their first raises in five years.

Oklahoma added about 30 people to its tax collection staff since 2010 in an effort to help close a $900 million budget shortfall. The state collected nearly $35 million in delinquent taxes during the 12 months that ended in June, and overall sales tax revenues jumped by about $159 million from the first 10 months of fiscal 2011 to the same period in fiscal 2012.

States have a variety of strategies for following up when audits find tax scofflaws. One tactic in California is public shaming: The state publishes lists of individuals and businesses behind on income or sales taxes.

Others take a kinder approach. New York responded to the recent recession by stepping up its program to forgive parts of back payments due from taxpayers in economic distress.

Gale Garriott, executive director of the Federation of Tax Administrators, a Washington-based group that tracks state tax policy, said the handful of states that have taken a tough approach by hiring more auditors have generally been rewarded with more revenue.

"The return on investment is quite good. They bring in several times more than their salaries," he said.

Vermont's get-tough approach, however, is measured in hard feelings as well as dollars. Some aggrieved taxpayers have been contacting lawmakers, and debates in which legislators try to rein in what some see as an overzealous tax department have become a regular occurrence.

Illuzzi, a Brattleboro dentist, complained to his brother, state Sen. Vincent Illuzzi, about the demands for sales tax on the free toothbrushes, toothpaste and floss he gave out.

He won an amendment to a tax bill just before the Legislature adjourned in early May -- a bill Shumlin later signed into law -- that exempts the dental goods from the sales tax.

"Some dentist wants to give a kid a toothbrush and they want to tax it. That's outrageous," the senator said.

A similar legislative change came after The Gables at East Mountain, an independent living community for seniors near Rutland, was hit with a $350,000 back-tax bill dating back eight years, with the state saying the meals it served should have subject to the 9% state meals tax for restaurants.

Lawmakers protested that the Gables' dining room wasn't like a restaurant, because it served residents of the facility, and people aren't taxed when they eat at home.

As lawmakers changed the law affecting the Gables going into the future, the state canceled its past tax bill.

"We were obviously flabbergasted to get a tax bill like this the week before Christmas," said Grimes, executive director at the Gables. "It was absolutely crazy."

But Grimes said he was pleased with the outcome after local legislators intervened.

Lowe, the landscaper, hasn't been so lucky. He operated his landscaping business for nearly all of its 36 years with the understanding that bark mulch, soil additives and similar products he sells were exempt from Vermont's 6% sales tax.

That changed in 2006, but no one told him, Lowe said, until he got past-due tax bills for $18,000 last year, which he is now fighting.

"You don't just change the taxes and laws and not tell somebody," he said.

Steve Jones, owner of the Metowee Mill Nursery in Dorset, said he also missed the 2006 tax law changes that removed the agricultural exemption from sales tax for several of the products he sells. Vermont's tax department sent out a letter at the time talking about changes affecting beer and footwear, he said, nothing about garden products.

He said he didn't realize there was a tax until he got a letter demanding $41,000 in back taxes, interest and penalties in December.

"Just educate me, tell me. I want to pay my fair share," said Jones, who is appealing the bill.

State Tax Commissioner Mary Peterson acknowledged some taxpayers might be confused about the changes, and she said her agency is working on improving how it educates the public about tax policy. But she also defended the tougher tax collections.

"It certainly is your responsibility when you have a business to be keeping up on the rules," she said.

___

Associated Press Writers John Miller in Boise, Idaho; Sean Murphy in Oklahoma City; Judy Lin in Sacramento, Calif.; and Michael Virtanen in Albany, N.Y., contributed to this report.


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Gumby

We probably will stop buying lottery tickets after all..

May 31 2012 at 2:52 AM Report abuse rate up rate down Reply
R.H.

Anything to postpone doing what needs to be done. Reduce spending

May 30 2012 at 2:39 PM Report abuse rate up rate down Reply
1 reply to R.H.'s comment
chris1011

Or grow the economy and thus increase revenue

May 30 2012 at 11:05 PM Report abuse -1 rate up rate down Reply
phil.smith2

Plus, some states are stealing money from accounts such as personalized license plate programs and using for other projects.

May 30 2012 at 12:43 PM Report abuse +2 rate up rate down Reply
ragtopdaz

Of course they need to raise more tax money...


Then we have Politicians who commit crimes out in the open because its legal for them to do so like:
Nancy Pelosi Blocked Credit Card Reform While Investing Millions in Exclusive Visa Stock Offering


Former Speaker of the House–and current Minority Leader–Nancy Pelosi apparently bought $1 million to $5 million of Visa stock in one of the most sought-after and profitable initial public offerings (IPO) in American history, thwarted serious credit card reform for two years, and then watched her investment skyrocket 203%.

Then we have:


Rita Crundwell, the comptroller and treasurer of the small Illinois town of Dixon, was arrested Tuesday on charges of embezzling $33.2 million from city coffers, the Chicago Tribune

Crundwell, who is also a championship horse breeder, reportedly bought more than $300,000 worth of jewelry with the money, but sank most of it into running her horse breeding business, Meri-J Ranch, including a $2.1 million motor home, according to International Business Times. In fact, her successful horse business, which boasts 52 champion horses on its website, may have served as a cover for her alleged criminal activity, according to MSNBC.

I'm sure our founding fathers are so proud of what this nation has become....

May 30 2012 at 12:14 PM Report abuse +2 rate up rate down Reply
lahim

If you think this is bad, WAIT, As government gets smaller, more costs will be passed onto the states. Remember the states get a portion of our tax dollars. Some more than others.

When states don't have enough revenue to handle their budgets (even when controlled by the GOP), they will cut and slash and push costs onto local governments, who then will go after the residents of their locals.

Someone will pay the tax collector for any service that is provided by the local government..

Now let's also analyze what else will happen---unemployment will climb. When the Federal government cuts and slashes and forces retirements, not all will be eligible. So unemployment among government employees occurs and reduced services. They push responsibilities onto states.

When the State cuts, once again unemployment and reduced services and they push onto local governments.

When local cuts, unemployment and reduced services and then homeowners taxes are raised on property and those that have wage tax, then on wage tax.

The GOP needs to be very prudent when deciding they are going to cut and slash, or the economy will suffer even more than they have caused it to date.

People need to wake up and chart the effects of each entity and how it will eventually fall on them to pick up the bills. Schools need to be funded. Without Federal, and cuts in states, local becomes responsible.

The GOP can keep parading about yelling cut, cut, cut; but there is a much larger effect than just cut. If you don't believe me, get a piece of paper and outline it.

You will pay, either at the Federal level, state level, or local level; but you will pay.

My suggestion to cut government is 1 Senator and 1 House Rep per state, cut their staff, remove 6 of the 9-12 security guards that the Speaker has 24-7, and only pay this inept crew for what they accomplish.

May 30 2012 at 12:13 PM Report abuse -1 rate up rate down Reply
lahim

If you think this is bad, WAIT, As government gets smaller, more costs will be passed onto the states. Remember the states get a portion of our tax dollars. Some more than others.

When states don't have enough revenue to handle their budgets (even when controlled by the GOP), they will cut and slash and push costs onto local governments, who then will go after the residents of their locals.

Someone will pay the tax collector for any service that is provided by the local government..

Now let's also analyze what else will happen---unemployment will climb. When the Federal government cuts and slashes and forces retirements, not all will be eligible. So unemployment among government employees occurs and reduced services. They push responsibilities onto states.

When the State cuts, once again unemployment and reduced services and they push onto local governments.

When local cuts, unemployment and reduced services and then homeowners taxes are raised on property and those that have wage tax, then on wage tax.

The GOP needs to be very prudent when deciding they are going to cut and slash, or the economy will suffer even more than they have caused it to date.

People need to wake up and chart the effects of each entity and how it will eventually fall on them to pick up the bills. Schools need to be funded. Without Federal, and cuts in states, local becomes responsible.

The GOP can keep parading about yelling cut, cut, cut; but there is a much larger effect than just cut. If you don't believe me, get a piece of paper and outline it.

You will pay, either at the Federal level, state level, or local level; but you will pay.

My suggestion to cut government is 1 Senator and 1 House Rep per state, cut their staff, remove 6 of the 9-12 security guards that the Speaker has 24-7, and only pay this inept crew for what they accomplish.

May 30 2012 at 12:11 PM Report abuse -2 rate up rate down Reply
ragtopdaz

Did you know that illegal immigrants all over the United States are using a massive scam to receive tax refunds from the federal government that are often in excess of $10,000? It is estimated that 2 million illegal immigrants are filing fraudulent tax returns each year and that they are pulling in more than 4 billion dollars in tax refunds every year that they are not entitled to. They are doing this by abusing the additional child tax credit and the IRS knows all about it and yet they refuse to do anything to stop it. Illegal immigrants are filing tax returns that sometimes claim 10 or 12 nieces and nephews as dependents, and most of the time those nieces and nephews do not even live in the United States. So while you and I are being taxed into oblivion, many illegal immigrants are often pulling in tax refunds that are well into five figures. At a time when the federal government is absolutely drowning in debt, this is the type of fraud that desperately needs to be cracked down on, and





Last year, the whistleblower alerted the IRS to dozens of examples of illegal immigrants using this scam.

So what happened?

Absolutely nothing.

The IRS took no action.

But they seem to have plenty of time to come after you and I, don't they?

The WTHR investigation mentioned above discovered one instance in which it was claimed that a total of 20 children lived in one trailer in Indiana.

Because of tax credits for those children, a total of $29,608 was paid out to several illegal immigrant workers.

But when a reporter from WTHR went to the trailer, he found that only one girl actually lived there.

May 30 2012 at 12:05 PM Report abuse +2 rate up rate down Reply
ragtopdaz

Politicians are like leaches, they will suck all the life blood from you, then ask your children and their children to give up theirs as well...
Politicians: You can elect them but not control them, only the lobbyist's who hold their leash can do that, most are all bought and paid for...

May 30 2012 at 12:00 PM Report abuse +4 rate up rate down Reply
cdavecrz

You want to see blue states in action???? Dems have no comprehension of the word budget,,,none. Their control over states leads to one thing,, spending,,, uncontrollable spending. But they sure know how to tax,,,,, wow,,,, just like obama and the federal government. Thank god for the house controlled by the GOP,,, to ,put a stop to spending by obama. Lets get them all out of office this november.............

May 30 2012 at 11:32 AM Report abuse +3 rate up rate down Reply
usapaydirt

It's beyond sad when Government cannot comprehend the fact that most people and businesses are on very tight constraints in their budgets, tight roping between just keeping a roof over their heads treading water and impending bankruptcy, while their Governments work feverishly devising ways to extract evermore and destroying the very foundation their built upon, all because they won't reel in their spending like the rest of us........vote, vote, vote Liberals and poor economies do not mix.................

May 30 2012 at 10:44 AM Report abuse +1 rate up rate down Reply