Owe Back Taxes? This Could Be Your Lucky Year
Turns out it's a pretty good time to be a tax cheat.
Desperate to bring in revenue in the middle of a recession, states across the country are adopting tax amnesty programs, offering to let people pay their past-due tax bills with little or no penalties or interest.
"Something is better than nothing," said Dino DiCianno, executive director of the Nevada Taxation Department. DiCianno said Nevada gave up more than $14 million in penalties and interest to collect nearly $41 million between July and October.
Oklahoma, like Nevada, generated about twice as much as it expected from its offer of amnesty, raising $82 million through its 90-day Clean Slate program for businesses and individuals. New York has a program under way, and Connecticut and Massachusetts are drawing up theirs. California debated one before rejecting it in favor of stiffer penalties. Delaware's incoming governor campaigned on the idea. A similar program is being considered for Louisiana when its lawmakers return in April.
State after state is facing a disastrous drop-off in tax revenue because of the stock market collapse and the recession. Many states have already cut their budgets and started laying off employees.
"Anything you can do to speed up cash flow is cheaper than your alternatives, like borrowing," said Verenda Smith, spokeswoman for the Federation of Tax Administrators.
Many states are reluctant to offer amnesty, arguing that its rewards cheaters, discourages honest taxpayers and poaches revenue the states will collect in the future—especially as they improve the databases they use to catch delinquents.
They worry, too, that people will hold back on their taxes and simply wait for the next amnesty.
"If the attitude is we're going to hand out get-out-of-jail-free cards, people's attitudes can change," said Paul Warren of the California Legislative Analyst's Office. "You can have a breakdown in compliance."
An Oklahoma City lawyer challenged his state's amnesty program all the way to the state Supreme Court, arguing that the Oklahoma Constitution prohibits forgiving a state debt. The court rejected his claim in a one-sentence ruling.
"It is a slap in the face to all law-abiding Oklahomans who pay their taxes as required by law," said lawyer Jerry F. Fent.
New York, which has a $1.5 billion deficit, began a limited amnesty last January that covers income, corporate and sales taxes. The state has collected $11 million so far and hopes to take in $30 million.
Connecticut Gov. Jodi Rell has warned that the state faces nearly $6 billion in deficits over the next two fiscal years. The state is hoping to generate $40 million by instituting a 56-day tax amnesty program next spring. It will let taxpayers pay their late state taxes without penalty, and with a 25 percent reduction in interest.
"States are trying to reach for every tool in the toolbox right now," said Connecticut Senate President Pro Tem Don Williams.