Transcript Fee Report Concerns - Virginia Association of Counties

Considerations for a Tax Amnesty Program
Approaches and Best Practices
Chad Wilson
Senior Director of Operations
Contingency Services, Pioneer
What is a Tax Amnesty?
What is Tax Amnesty?
• A tax amnesty is a an accelerated revenue-generating strategy
allowing specific taxpayer groups to pay past due tax obligations
over a limited period of time in exchange for the forgiveness of a
portion of certain tax liabilities, including interest, penalties and/or
criminal prosecution
• In some cases, tax amnesty legislation imposes harsher penalties on
those who are eligible for amnesty but do not participate in the
amnesty program, generally deemed a “carrot-and-stick” approach
• Amnesty programs have been implemented at both the city and
state levels of government
Tax Amnesties: Good or Bad?
• The answer is: both
• Tax amnesties can be used to pay for critical
municipal services, plug budget holes, or refill a
“rainy day” fund
• However, some see amnesties as questionable
public policy
– Can be viewed as an “out” for serial delinquent
taxpayers
– Does not necessarily promote voluntary taxpayer
compliance
So, Why Use It?
Why Run a Tax Amnesty Program?
• Tax amnesties are traditionally a politically-driven, shortterm strategy to accelerate revenues to provide
additional time to repair structural deficit problems
• Revenue from an amnesty can help municipalities avoid
politically unpopular cost-cutting alternatives, such as:
–
–
–
–
Raising taxes
Deep spending cuts
Reduction of vital government services
Furlough of employees
Consider…
•
A National League of Cities Report 1 entitled “City Fiscal Conditions in 2011” from September
2011 stated that the “The nation’s city finance officers report that the fiscal condition of cities
continues to weaken in 2011 as cities confront the persistent effects of the economic
downturn… In response, cities are continuing to cut personnel, infrastructure investments and
key services.”
•
“Findings from the National League of Cities’ latest annual survey of city finance officers
include:
– “As finance officers look to the close of 2011, they project declining revenues, with
corresponding spending cutbacks in response to the economic downturn; …
– “Ending balances, or “reserves,” while still at high levels, decreased for the third year in a row
as cities used these balances to weather the effects of the downturn;
– “Confronted with these pressures and conditions, cities are making personnel cuts, delaying or
cancelling infrastructure projects and cutting local services — cuts that have implications for
jobs and national economic recovery.”
•
“2011 reveals a number of continuing and troubling trends for city fiscal conditions… The
local sector of the economy is now fully in the midst of realizing the effects of the recession
from 2007- 2009 and the, to date, anemic economic recovery… (emphasis added)
– “Large state government budget shortfalls in 2011 and 2012 will likely be resolved through
cuts in aid and transfers to many local governments;…”
1.
National League of Cities, “City Fiscal Conditions in 2011” By Hoene & Pagona, September 2011
Why Pioneer?
How Are Governments Reacting?
Reacting with Tax Amnesty Legislation
•
Governments are including tax amnesty as part of their deficit mitigation
strategies
•
Amnesty programs typically require legislative authority to implement,
generally allowing for:
–
–
–
–
Authority to waive penalties, interest, and release tax liens
Ability to waive criminal prosecution for delinquent taxes
Establishment of program start-date and duration
Ability to identify and approve back-end enforcement tools, such as additional
assessments for not taking part in an amnesty
•
Legislation identifies specific tax types and qualifying tax years of unpaid tax
liabilities for amnesty eligibility
•
Most recent amnesty legislation applies to all known and unknown tax
liabilities (assessments, delinquencies, deficiencies, under-filers, non-filers and
protested accounts) in order to generate maximum revenue
City and State Tax Amnesties
•
Since 1982, 45 states have conducted more than 90 successful tax amnesty programs
recovering more than $10 billion 1
•
Approximately 66% of these amnesties have been broad-based programs
•
Broad-based amnesties have generated ten (10) times the revenue as compared to
restricted or targeted amnesty programs
•
Five states have never run a tax amnesty program: AK, MT, TN, UT and WY
•
Amnesty revenues have ranged from $300k (Idaho) to more than $4 billion (California)
•
19 states conducted tax amnesty programs during 2002-2003 (Driven by the “dot.com”
recession of 2001)
•
There were nine state tax amnesty programs in 2010 and three in 2011
•
Los Angeles, Toledo, Philadelphia, Richmond, and other cities have run amnesties.
1 Federation of Tax Administrators, “State Tax Amnesty Programs: November 22, 1982 to Present”
Updated September 2011
Our Recent Experience
PROGRAM
Indiana
Client’s Goal: $65 million
Timeframe: 60 days
Metrics: •1.2 million+ telephone
attempts
•700,000 pieces of
targeted mail
•183 hours of
supplemental call center
operations support
•68,000 participants
Results: $255 million
recovered
% of Goal
Recovered:
390%
Oklahoma
Delaware
Philadelphia
$21.8 million
$10 million
$25 million
56 days
60 days
45 days
•744,000+
telephone attempts
•300,000+ pieces of
targeted mail
•289 hours of
supplemental call
center operations
support
•170,000+
telephone attempts
•79,500+ pieces of
targeted mail
•192 supplemental
hours of call center
operations support
•400,000+
telephone attempts
•83,000 Web site
hits
•7,500+ walk-in
visitors
•27,000 participants
$129 million
recovered
$30 million
recovered
$72 million
recovered
590%
Why does this matter?
Running it right means driving up your revenues!
300%
280%
What’s Allowed in Virginia
• Tax Amnesty programs are allowed in Virginia
– The General Assembly must legislatively approve
any amnesty program
• Senate Bill 1533 in 2009
– Established the Virginia Tax Amnesty Program
• House Bill 796 in 2010
– Established the Richmond Tax Amnesty Program
Why Pioneer?
Tax Amnesty Types and Strategies
Two “Types” of Tax Amnesty
BROAD-SCOPE vs. RESTRICTED
As governments continue to evaluate strategies to help close budget shortfalls, they face a number of
decisions as to which combination of revenue generating tools will prove most financially helpful. While
broad-scope tax amnesties are widely accepted strategies used by nearly every city and state to
generate needed revenues during difficult economic times, an alternative restrictive and narrower
voluntary compliance initiative is also being considered by some cities and states. The primary
difference between a broad-scope and a narrower, more restrictive program can be best characterized
by the following:
Broad-Scope Amnesty
Restricted Amnesty
Generates far greater revenue than alternative
compliance initiatives because this program targets
both known and unknown tax liabilities.
Generates far less revenue when compared to broadscoped tax amnesty programs because these
generally target unknown tax liabilities.
With this approach, any taxpayer who is delinquent
on their taxes, or has not filed or under-reported their
earnings, can participate in the amnesty program.
Under a restrictive tax amnesty program, only
unknown taxpayers who have not filed returns for
taxes owed, under-reported their earnings, or have
utilized abusive tax avoidance transactions are eligible
to participate in the amnesty.
Tax Amnesty Program Strategies
Locked-In Approach
Proactive Strategy
•Reassign and deploy internal staff, diverting
resources from current compliance efforts
•Supplemental approach to offset limited resources
through a short-term public-private partnership
•Alert tax professionals
•Outreach strategy designed to maximize public
awareness and participation during a limited window
of opportunity
•Organize media campaign
•Establish and maintain regular business hours, 9:00
am – 5:00 pm, Monday - Friday
•Publish program details on city, county or state
website
•Experienced and highly trained tax amnesty
personnel, supported by broad-based operational
strength
•Alert, train and prepare staff for in-bound traffic
•Powerful tools and strategies that locate, educate
and support taxpayers through an accelerated
amnesty process
•On occasion, incur additional cost to hire small team
of temporary personnel
•Contingency fee structured to incentivize exceeding
the city’s, county’s, or state’s goals
Comparison of the Two Approaches
Recent amnesty activity from cities and states that either projected
or collected more than $30 million.
State
Amnesty End
Date
PublicPrivate
Partnership
Goal
Collections
Philadelphia
6/25/10
Yes
$25m
$72m
Virginia
12/5/2009
Yes
$48m
$103m
Delaware
10/30/2009
Yes
$10m
$33m
Louisiana
10/31/2009
Yes
$150m
$466m
New Jersey
6/15/2009
Yes
$100m
$725m
Oklahoma
11/14/2008
Yes
$21.8m
$129m
Indiana
11/15/2005
Yes
$65m
$255m
Pennsylvania
6/18/10
No
$190m
$261m
New York
3/15/2010
No
$250m
$50 m
Connecticut
12/31/2009
No
$75m
$56.7m
Iowa
10/31/2007
No
$54m
$28.2m
Michigan
6/30/2011
No
$88m
$76m
Total Goal
$419 million
Total
Recovered
$1.783
billion
=
425%
$657 million
$472
million
=
72%
Why Pioneer?
Key Points to Consider
Key Takeaways
• “Netback” should be the starting point in your
decision-making process when considering a
tax amnesty program
– Try not to think in terms of what an amnesty
program will cost your department or agency
• “This program will cost our department $5 million”
– Instead, think in terms of what the “netback” to
your department or agency will be
• “This program will have a net back to our department
of $35 million”
Key Takeaways
• A well-run amnesty will be very short term, 45-60 days
– This narrow window will nudge taxpayers towards action
– And this brief timeframe minimizes disruptions to normal, day-to-day
department operations
• Use print, online, and radio marketing to build a sense of urgency
– Alert taxpayers that amnesty is coming, but will only be available for a brief
time
– Promote the ability to “wipe the slate clean”
– Also promote the “stick” of the amnesty, the fact that penalties will be
assessed for those eligible who don’t take part
– Possible increased enforcement for non-participants
• The money will come in, but it will come in late in the program
– Our experience has shown that people participate in the amnesty as the
program runs, but with a flurry towards the end
Why Pioneer?
Our Tax Amnesty Best Practices Recommendations
Tax Amnesty Best Practices Recommendations
All the following recommendations support the public policy goals of maximizing a municipality’s
revenue and not unduly undermining existing voluntary compliance initiatives.
•
Timing: Mid-September to Mid-November or Mid-April to Mid-June.
– At the outset a city, county or state must consider at what point during the calendar year is the optimal time
to conduct a tax amnesty. Cities and states have experienced successful tax amnesties in the fall, and also in
the spring following the traditional tax filing season. Though, in most instances, we recommend the fall time
period because it is not during peak tax season and is at a time of year when taxpayers are likely to be less
preoccupied with other activities, such as summer vacation or holidays.
•
Duration: 45 - 60 days.
– This is a standard amnesty period that is long enough to give taxpayers time to learn about the program and
short enough to create a sense of urgency. This length is also ideal for the taxpayers who have to file.
•
Eligible Debt Types: Make the broadest array of debt types (individual and business) eligible.
– The more debt types eligible increases the likelihood for greatest revenue recovery. It is also very important
to make sure the program will be open to “known” and “unknown” taxpayers, which creates the greatest
opportunity for revenue generation.
•
Age of Inventory: Limit participation to those whose debts have become delinquent since the last amnesty period,
if applicable. Typically, a greater look-back period equates to greater revenue recovery.
– Standard practice for cities, counties and states that have previously conducted an amnesty program. Also,
many cities, counties and states do not incorporate limitations such as this and allow taxpayers to
participate in the upcoming program even if they did not participate in a prior amnesty offering.
Tax Amnesty Best Practices Recommendations
•
Incentives to encourage taxpayer participation: Consistent with standard
amnesty practice, waive all penalties—both civil and criminal. Consider
waiving some accrued interest and releasing liens and garnishments, too.
– Greater incentives lead to greater participation.
•
Post-amnesty compliance initiatives: Increased back-end penalties for eligible
taxpayers who do not participate in a tax amnesty.
– A “carrot” (waived penalties) and “stick” (increased penalties and/or enforcement if you
are eligible and do not participate) approach generally leads to higher participation rates
and increased revenues.
•
Payment Plans: We recommend that payments plans be offered as they are
beneficial to taxpayers who might not to able to afford a lump-sum payment.
However, we recommend that payment plans associated with a tax amnesty
should not be longer than six months. Additionally, if payments plans are
authorized, then they must be appropriately monitored during the post-amnesty
period to ensure compliance.
Why Pioneer?
Tax Amnesty Takeaways
Tax Amnesty: Things to Remember
•
Tax amnesties are very infrequent events with major revenue at stake, revenue that can be
used to plug budget gaps or pay for vital government services
•
Get your administration involved to promote the unique value of the tax amnesty program
•
Get involved in the process to help craft program guidelines and structure that set you up for
success
•
Seek funding flexibility to administer program and meet revenue objectives
•
Appoint an internal Tax Amnesty Program Director to oversee project
•
Create an internal team or task force from key stakeholders within your department who will
be involved with the project
•
Consider a partner since tax amnesties are large, brief accelerated programs that requires
excellent planning, implementation, and follow-through
•
And last, hang on and enjoy the ride!
Why Pioneer?
Questions?