There’s good news and bad news on the horizon for Ohio citizens and business who have been lax in paying their taxes during part or all of the last six years.
The good news: For the fourth time in the last 15 years, Ohio will launch a Tax Amnesty program beginning Jan. 1 and ending Feb. 15.
Under tax amnesty, qualifying individuals or businesses with unreported or underreported tax debts have the opportunity to settle those debts without penalties, while also paying only half of the interest normally charged.
The bad news: You finally have to pay your taxes.
Tax debts can be individual Ohio income tax; school district income tax; employer withholding tax; employer withholding for school district income tax; pass-through entity tax; sales tax; use tax; commercial activity tax; financial institutions tax; cigarette and other tobacco products tax, and alcoholic beverage tax.
Amnesty applies only to those individuals and businesses with tax debts that are unknown to the Ohio Department of Taxation, and only for taxes that were due and payable prior to May 1, 2017.
“The whole point of this is to get people to come in who have fallen behind and who haven’t been picked up by the department,” said Joe Testa, Ohio’s Tax commissioner since 2011.
“Surprisingly, we don’t find a lot of fraudulent activity. A lot of it is innocent — people move, people forget, they have a business startup, their business changes names, they get acquired, they change accountants,” Mr. Testa said. “Things just fall between the cracks and taxes don’t get paid.”
The Ohio General Assembly authorized the upcoming tax amnesty program last July as part of the state budget-balancing process.
Historically, Ohio has done well with its tax amnesty programs.
In 2001 to 2002 a 13-week tax amnesty put $37 million into state coffers.
In 2006, a six-week amnesty brought in $55 million.
Most recently, a seven-week amnesty in 2012 prompted 2,700 individuals and businesses in tax arrears to come forward, generating $30.4 million. After all accounting was done, about $1.4 million was returned to local governments while $29 million went to the state.
This year, the General Assembly authorized a six-week tax amnesty with the expectation that it will collect about $20 million — a figure that will be used to balance Ohio’s budget.
In truth that figure may be conservative, Mr. Testa said. There’s just no way to know how much tax debt the state has overlooked or how many citizens and businesses will step out of shadows to shed tax burdens.
“Twenty million was built into the budget. I would probably expect it to be more, but I wouldn’t expect it to be a lot more than that,” Mr. Testa said.
“The thing is, it’s hard to predict. ...To be eligible for amnesty, you have to not have been identified. You have to be totally unknown to us at the tax commission, and it’s difficult to accurately estimate how many people out there haven’t paid their taxes,” he added.
The legislature provided $1 million to promote the upcoming amnesty. It also gave the state tax commission a $500,000 budget to administer and run the program, said Gary Gudmundson, the tax commission’s spokesman.
In November, the tax commission launched a statewide awareness campaign — “Ohio Tax Amnesty: Your Move Forward” — that included TV, radio, email, social media, paid search and digital display advertising, special events, and outreach to tax preparation practitioners.
A website was set up (ohiotaxamnesty.gov) as well as an phone number (1-800 304-3211) to help answer questions and determine eligibility.
Everything that could be done to encourage compliance, the top priority, was done, Mr. Testa said.
Less emphasized was an implied threat: After Feb. 15, if the Tax department discovers you, expect the full weight of penalties and interest to apply, not to mention the taxes that still must be paid.
“For now, we’re saying come forward, file the application, and get a break on penalty and interest. Hopefully you’ll be compliant,” he said.
If an amnesty program can generate $20 million to $50 million, many might wonder why the state doesn’t authorized such programs annually.
Mr. Testa said the answer is annual amnesties would encourage scofflaws.
“You don’t want to do these things frequently because people may wait for the one next year and skip paying their taxes,” the tax commissioner said.
Zach Schiller, a spokesman for Policy Matters Ohio, a left-leaning think tank, said while encouraging scofflaws is a big concern, the problem is no one really knows how long the period between amnesties should be.
Should it be every six years? Or would 10 years be better, he said.
The fact that the legislature expects only $20 million in revenues suggests the program is “seeing diminishing returns,” Mr. Schiller wrote when the amnesty was announced.
Mr. Schiller said last week that the idea of doing amnesty only once in a very great while makes sense.
“These were not seen as something that looked to be a regular event, so I have some question in my mind as to whether we aren’t doing them a little too often,” he said.
The fact that the amnesty was added towards the end of the budget process suggests it may have been added merely to address a revenue squeeze,” he said.
“The budget wasn’t as bad as 2011 but they were seeking ways to balance the budget because there was a revenue expectation and then they downscaled the budget. So they did find themselves with a budget hole they had to address,” he said.
Policy Matters’ position, Mr. Schiller said, is that there are other tax strategies the state could and likely should pursue to generate more tax revenue from people that can well afford to pay.
“This same budget added ...new tax breaks for people that don’t need them. We think there are ways to close other loopholes that would be more productive than (tax amnesty),” he said.
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