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The Carrot & The Stick
DRS head Gavin explains state s tax amnesty program
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Business New Haven
9/30/2002
By: BNH
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Gene Gavin of Westport is commissioner of the state s Department of Revenue Services, which through November 30 is offering amnesty to delinquent state taxpayers.
What is the Connecticut tax amnesty program?
It is an opportunity for individuals and businesses to pay certain Connecticut back taxes between September 1 and November 30 and avoid penalties and criminal prosecution. It also offers for the first time a 25-percent reduction in interest. The program [applies] to any taxable period ending on or before March 31, 2002.
What s the history of the program?
Almost 40 states have offered tax amnesties; Connecticut was one of the last. When I became commissioner in 1995, I thought the amnesty would be a great idea because we had just put in the personal income tax in 1991. Our goal was [collecting] $31 million [in delinquent taxes], and we received $46 million. In 2002 Connecticut is offering a third tax amnesty. The goal is $24 million, my personal goal is $30 million and I think by early October we re going to beat [that]. Most of the money comes in the last two weeks of the program. This program should be a great success for the people who owe taxes, whether they know it or not, because they get this great break. Secondly, honest taxpayers should also encourage this program because we need to get that [delinquent] money so that taxes don t increase for everybody.
What do you mean by Œgreat break ?
In 1990 when we had the first amnesty, the only [incentive] offered was no penalties and no criminal prosecution. In 1995, there was a slight interest break. In 2002 we re going to take 25 percent off the [12-percent] interest rate. If you don t come in under this program the 12-percent tax ‹ and the penalties that can range from ten to 25 percent ‹ will be fully imposed after November 30. We ve just invested $62.5 million on a new computer system, called ITAS [Integrated Tax Administration System] that s going to help us find everyone that owes taxes over time.
As Mick Jagger sang, ŒTime Is on [Our] Side. Everyone knows that whether it s the IRS or the DRS, when you re talking about a tax agency, time is on their side. We re going find you and I encourage everyone who thinks or knows that they would fall under this program to come forward by November 30, because it s a great deal.
Speaking of which, if Mick Jagger comes to play at the Meadows, is he subject to state taxes?
Yes, he is. Whether it s Mick Jagger, or Lennox Lewis in the boxing arena, if they perform in the state of Connecticut, they are subject to taxes in Connecticut. Why not? They earned it here.
Is that covered by the tax amnesty?
Every tax we administer is covered [under the program] and we administer over 42 taxes. If Mick Jagger hasn t paid his fair shares to Connecticut, maybe you should advise him to come under this program. If not, as he knows, time is on our side.
I ll mention it to him at lunch. When entertainers perform at Indian casinos, are they liable for Connecticut taxes?
Yes. We re very lucky to have a great relationship with the Indian tribes in Connecticut. They do withhold or pay the appropriate amount of taxes for any performers or boxing matches [at their facilities].
How much would Connecticut realize if everyone paid their taxes completely?
There is a term called the tax gap. One [illustration of the gap] is the sale of cigarettes over the Internet. We re losing about $11 million a year because Connecticut sales and use taxes are not being paid on those cigarettes. From 2000 to 2005, we re talking approximately $80 million ‹ if we don t do our job. We ve been working with the Attorney General s office and the federal General Accounting Office and the Alcohol, Tobacco & Firearms division of the federal government. We ve just recently had an arrest of someone who bought 59 cartons from an Indian reservation, not in Connecticut, and he was arrested because he didn t pay the cigarette excise and use taxes. We have local vendors who are trying to make a living. It s just wrong to put them at a competitive disadvantage to mail-order or Internet sales. If you re buying your cigarettes over the Internet and you re not paying the taxes, then you can be arrested and subject to a $1,000 file and or one year in prison.
Isn t there a federal tax law that covers Internet sales?
The Internet Tax Freedom Act on the federal level says that states cannot impose any new and additional taxes. It didn t say that the taxes that are in effect can t be collected. We have a sales tax and everyone understands that. If you go into a store and buy a computer you pay your tax of six percent. If you buy it over the Internet from out of state you owe a use tax, the same six percent. It s not a charge on the vendor; it s on the user. If you re using the product in the state, you re subject to the use tax. It s very difficult to collect, to be totally honest. We focus on big-ticket items. Under the tax amnesty program so far we got a check from one individual ‹ it has to be for more than one computer ‹ for $450,000 and another for $250,000.
Do out-of-state vendors have to report sales?
No, they don t. It s up to the tax department of each state to try and find out, that s why it is difficult to administer. There is a federal initiative called the ŒStreamline Sales Tax project that is being studied by the states. The issue is if a vendor has no presence in Connecticut, are they required to collect a tax from the consumer? The answer continues to be no and that is the right one. Does it mean the tax is not owed? No, it has to be self-assessed by the consumer. We re asking if you can deliver a product into the state, shouldn t you be able to collect the tax that is due? It is a very hot topic.
Is a retailer that collected sales taxes but didn t remit them covered by the amnesty?
It is a crime, but it is covered by the amnesty unless we found you in advance. If we didn t find you, now is the time to come froward and get these breaks. The situation you raised is one of the worst: They collected tax from a consumer and kept that money. They are eligible for this program and no criminal prosecution.
Looking out three to five years, what issues do you think state taxation will face?
Every government needs a certain amount of money to operate. Since 1995 the economy has been very good, and that s why over $2 billion in [state] taxes has been eliminated over the last seven years. If the economy turns around, there s not going to be a major impact on too many people. We want to make sure that everyone pays their fair share. One way is to make sure the sales and use system doesn t break down.
Why did so many years elapse from the last tax amnesty until now? Was it reintroduced because the budget was so tight?
Yes, I don t think it should be offered that often. I was not in favor of third tax amnesty at this time. I want people to pay their fair share of taxes on time, so the good guys don t become bad guys waiting for the tax amnesty. I don t think [an amnesty] should be offered every five years. But recognizing that many states are doing their second or third amnesty, I m going to try and make this a great success. The good guys win and don t have to spend the resources to find [delinquents]. And [delinquents] not only pay their back taxes, but if they re non-filers get on the tax rolls, they re going to be good taxpaying citizens in the future and in good standing with the Department of Revenue Services. And they re going to feel better about themselves.
In summation?
The tax amnesty program is a great opportunity for people who know they owe taxes. People that have a question contact us at 800-382-9463 or visit our Web site at www.ct.gov/taxamnesty.
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