All of the taxes in the world don’t mean a thing if you can’t collect on them – or so many states and localities are figuring out these days. Taxing authorities from Tennessee to New Jersey are reporting shortfalls and lags in collections activities just as cuts from federal funding are being felt.
Some taxing authorities are saying enough. Alternative, aggressive and controversial new proposals are popping up all over in an effort to fill budget holes.
Consider Philadelphia. The City, with Revenue Commissioner Keith Richardson taking the lead, is considering a measure that would allow the City to seize personal property to settle tax debts. Specifically, Richardson is “looking at a company that may help us to start taking people’s cars” in an effort to help collect some of the more than half-billion dollars in outstanding taxes in the city.
Philadelphia’s neighbor to the south, Delaware, is considering similarly aggressive techniques. As school districts fight for more funding, Delaware lawmakers may allow school districts and counties to secure unpaid property taxes from a person’s income tax refund. The system would be similar to the offset program already in place for priority debts like child support.
A county in North Carolina is going even further: in Jackson County, North Carolina, if you don’t pay your taxes, you could lose your house. County tax collectors are using the threat of foreclosure to collect outstanding taxes, a tactic the county hadn't used since the early 1980s. While effective – the county has collected about $1.2 million in payments from 85 individual tax delinquents – that level of aggressive collections is considered so contrary to public policy that even the Internal Revenue Service has been discouraged from the behavior.
The state of North Carolina is also being aggressive when it comes to certain kinds of personal property taxes. All county tax offices in the Tarheel State are now required to be linked to the state Division of Motor Vehicles (DMV) so that the DMV could block registration renewals on vehicles with delinquent taxes. And in Wake County, county tax officials are clearing out bank accounts in order to resolve outstanding tax liabilities on vehicles.
In Mississippi, the government has actively been seizing properties for non-payment of real estate and personal property taxes; the Secretary of State’s Office now holds more than $66.2 million of such property. Last year, the state stepped up efforts to return those properties to those willing to pay by auctioning off the properties. The state is now accepting bids, a win-win for the state: the state is paid for the properties and they get them back onto the tax rolls.
Other states and localities are making noise about collections campaigns. This year, Illinois joins the ranks of states warning that they are “aggressively focusing upon collecting” taxes. It’s a stark contrast to the more taxpayer friendly alternative, tax amnesty programs, being touted as all the rage just a few years ago.
Why take these positions? It’s simple. Taxing authorities need revenue. That essentially leaves governments with two choices: collect existing taxes or push new ones. Which one do you think is most popular?
There is a danger with these kind of tactics, however. While taxpayers and tax pros tend to agree that folks need to pay their “fair share” (whatever that means), there are serious concerns about about tax assessments and tax bills which are clearly inaccurate. The concerns are heightened when you consider that many government and tax authorities are hiring third party debt collectors to resolve outstanding taxpayer obligations. Third party debt collectors are generally paid as a percentage of taxes collected and thus have little incentive to assist taxpayers in understanding their tax debts, the appeals process or alternatives which may be available. Additionally, what is at stake with tax debt tends to be much higher than other personal debts; unlike credit card debt, for example, where the worst case scenario is often a lien or court judgment, tax debts can result in the seizure of personal property, levying of accounts or wage garnishes.
Despite those kinds of concerns, tax collection efforts are likely to become more, not less, ambitious, as the economy remains fairly flat – especially with sequestration. Revenues have to come from somewhere. Seizing cars, homes, bank accounts, wages and other property may be an easy way to collect in the short term. The real question is whether putting the squeeze on those who might not be able to pay will result in more problems down the road.
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