The agency in charge of making sure the state has the resources to operate at “the speed of business,” as Gov. Doug Ducey wants it to, has only four auditors monitoring thousands of corporations, the agency’s former chief economist said today.
Georganna Meyer, who is now a senior economist at the Maguire Company, said the Department of Revenue typically has 30 corporate auditors watching between 50,000 and 60,000 companies.
“Yesterday, I got a response that they’re down to four corporate income tax auditors, which says to me that basically, there is no corporate income tax auditing occurring,” she said.
DOR spokesman Sean Laux confirmed that his agency is down to four corporate auditors and one manager on the corporate income tax side, but he disputed Meyer’s assertion that low staffing might lead to a dramatic reduction in collections.
“We were certainly as surprised as you all in the room to hear Georganna’s comments,” Laux said. “We don’t buy it.”
Laux said the reduction in staffing stems from having cumulatively $7 million less in DOR’s budget than last year.
The agency has had to make some “difficult choices,” and it boiled down to keeping the “lights on” for the tax system or laying off personnel, he said.
But Laux insisted that it’s not going to impact his agency’s audit work.
Not counting revenues from last fiscal year’s amnesty program, corporate income tax collections in FY2016 were 230 percent higher than the agency’s objective, he said.
“We continue to outperform both our projections and our year-over-year numbers,” he said.
DOR’s firing of about 50 workers (not all of them are corporate auditors) happened in June, which was at the end of FY2016. So, whether it had an effect or not and to what extent on revenue collections in that same fiscal year is difficult, if not impossible, to ascertain.
Laux noted that the agency’s staff is down overall by 27 percent since January of 2015.
“[But] we haven’t seen any drop off in our ability to enforce the state’s tax laws, either on the audit side or the collection side,” he said, adding that DOR has been streamlining its processes and has more tools today than it had before.
DOR laid off 52 workers in June. The majority of them were collectors and auditors in its education and compliance division.
Richard Stavneak, chief of the Joint Legislative Budget Committee, raised the issue during the Finance Advisory Committee hearing this morning.
Stavneak said its revenue impact is “unknown.” But he noted that in 2011, the state added 78 full time and contracted collectors, and that their hiring was expected to increase the state’s collections by $53 million. If the calculations were correct, each additional staffer increased collections by as much $780,000.
Stavneak cited the revenue department as saying it is focused on improving voluntary compliance.
Sen. Don Shooter, chairman of the Senate Appropriations Committee, said Meyer’s revelations were news to him, and, if true, troubling.
“It’s the first I’ve heard of it, so I’ve got to go look,” he said. “It’s insane… it’s a bad trend.”
The revelations that DOR might be down to four corporate income auditors came on the heels of the Ducey administration announcing a tax amnesty program for 2016.
Lawmakers earlier approved the amnesty, requiring the department to waive all penalties and interest payments for tax liabilities for tax years 2013 and before, if the unpaid taxes are not under audit.
Under the law, taxpayers could pay off their tax liabilities at once in FY17 or over three years. This is the second tax amnesty program implemented under Ducey’s term.
Last year’s tax amnesty program brought in $55 million, raising the specter that the amnesty program is masking the cost of having fewer auditors and collectors.
Meyer said she doesn’t know exactly how much the auditors, when they are at their historical staffing levels, contribute to revenue collections, but she attributed between $50 million and $100 million to their enforcement activity.
Meyer said the auditors exist to keep corporations, particularly the larger ones, honest about their tax filings. Every few years, those companies – the “really, really big guys” – get audited, she said.
“That can’t possibly be happening now due to the limited staff,” she said. “I worked for the Department of Revenue for 30 years. There’s a population out there that it is important to monitor because what they can get away with, they will. Human nature, right?”