Idaho is leaving $250 million in tax revenues on the table, and could get up to a third of that money by employing more auditors, according to the chairman of the Idaho Tax Commission. Royce Chigbrow said auditors are collecting $42 million in taxes that aren’t being filed, but more auditors could bring in $64.5 million in additional revenue to the state. Some groups facing funding reductions in the next budget, including advocacy groups for public schools, have called for additional funding for tax auditors in lieu of spending reductions in the next budget.
Chigbrow believes “$1 million invested in this division will return up to $10 million in additional collections. Unfortunately, the equation works in reverse… Cuts to our budget will result in a loss in revenue.” Idahoans file $2.99 billion on their tax returns during the budget year that ended last June, but Chigbrow said another $414 million should be filed. “Some is innocent and due to lack of knowledge,” he said. “Some is deliberate.”
The audit division of the State Tax Commission has gotten close to $2 million for extra tax enforcement. Gov. Butch Otter gave $1.5 million from his budget stabilization rainy day fund in September with the challenge to raise $10 million in additional funding. “We are well on our way to that,” Chigbrow said. He said those additional auditors have collected close to $6 million. “This $1.5 million should return close to $12 million in revenue.” The tax commission has 74 temporary auditors working to narrow the tax gap. Chigbrow also said that hiring more auditors leads to higher voluntary tax filings, perhaps due to fear of being audited. “There’s a ripple effect,” he said.
Gov. Otter is recommending continuing the $1.5 million for extra auditors in the next budget, but that money would come from general state spending, not a rainy day account. “Our solution is to increase staffing to ensure that compliance takes place,” Chigbrow said. The governor and the Legislature will make the final decision on how much to go after tax scofflaws. Idaho auditors could collect up to $64 million in a cost-effective manner, based on studies by the IRS.
Rep. Maxine Bell, R-Jerome, isn’t sure how much more revenue extra auditors can bring to Idaho. “I believe there’s a tipping point where the law of diminishing returns kicks in,” she said. She’s one of the chairs of the Joint Finance-Appropriations Committee, which puts together the state budget. She isn’t sure any additional money in the next budget will go to auditors. “Can I afford to have more auditors? No.” She said many state agencies are facing reductions. “Everybody’s taking such tremendous cuts in government.”
Lawmakers are likely to debate the issue before finalizing a budget. Rep. Wendy Jaquet, D-Ketchum, said finding money for additional auditors could be the right thing to do. “We need to have additional staff people if they think it will make a difference,” she said. “I think we have an obligation to make sure that our tax system is fair.”
The auditors, like the rest of the commission, have also been hit by reduced state spending. “The audit staff shared in the furlough days,” Chigbrow said. In the current budget, all tax commission employees have taken seven unpaid furlough days, and the commission has imposed a hiring freeze, except for the temporary auditors. Chigbrow said he took his seventh furlough day last Friday. The tax commission faces a budget reduction of less than 1 percent in the next budget, largely coming from personnel costs.
There are several specific areas where the state could bring in additional tax revenue it is legally owed. Idaho is also losing roughly $30 million a year in sales tax from Internet sales, according to a study from the University of Tennessee. Idaho lawmakers are considering a plan to sign onto a Streamlined Sales Tax Compact that would push for nationwide reform so that sales could capture some of the revenue from Internet sales. “This is a new arena,” Chigbrow said. The state could also bring in an estimated additional $4 million a year by collecting on sales of Idaho real estate by out-of-state residents. “It’s an area that should be pursued,” Chigbrow said.
The Idaho Tax Commission also announced Wednesday that it is providing links to free income tax filing software, available to qualifying individuals, on its website.