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GG 28
Establish an Amnesty Program for All Taxes Administered by the Texas Comptroller of Public Accounts

Summary

Many taxpayers who owe taxes to the state are reluctant to report taxes owed because they would also owe penalties and interest on the tax due. The state may never discover these tax liabilities because its audit coverage is limited. An amnesty program would allow noncompliant taxpayers to pay their debt to the state without penalties and interest and re-join the tax rolls.

Background

Taxpayers find themselves owing delinquent taxes for various reasons, and their initial failure to report taxes due may not have been intentional. Historically, half of all tax audits conducted by the Comptroller’s office find additional taxes owed. Common reasons for such instances include clerical errors, ignorance of the tax laws, misinterpretations and under-reporting.

Even if some these taxpayers wish to comply, the accompanying penalties and interest may pose a financial obstacle for them. If the state were to offer to waive penalties and interest, many taxpayers might voluntarily come forward and pay the taxes they owe. Such incentive programs generally are called amnesty programs.

The Comptroller’s office has the discretionary authority to waive penalty and interest if the agency determines that a taxpayer has exercised reasonable diligence to comply with state tax laws.[1] If the Comptroller’s office establishes an amnesty program, it will assume that all taxpayers who come forward within the prescribed time period have exercised reasonable diligence for waiver purposes.

An amnesty program is not a new concept in Texas. In 1991, Texas offered an amnesty program providing taxpayers with a short window (February 11, 1991 to March 1, 1991) to voluntarily come forward to remit taxes due to the state. The program generated almost $92 million in additional revenue.

Recommendation

The state should offer an amnesty program for all taxes administered by the Comptroller’s office.

Fiscal Impact

The 1991 tax amnesty generated nearly $92 million in state taxes and an additional $16.8 million in local sales taxes. The estimate adjusts for higher collections in the 1991 amnesty related to newly taxable services to yield a conservative estimate of a $50 million gain to general revenue in fiscal 2004, assuming a September 1, 2003 effective date.

In addition to gains to general revenue and local sales taxing authorities, minor gains to the Highway Fund could result.

Fiscal Year Gain to General Revenue Gain to Local Units of Government
2004 $50,000,000 $9,000,000
2005 $ 0 $ 0
2006 $ 0 $ 0
2007 $ 0 $ 0
2008 $ 0 $ 0


Endnotes

[1]Tex. Tax Code Ann. §111.103.