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Taxpayer financial privacy outweighs third-party efficiencies

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Another tax season has passed and of the millions of law-abiding taxpayers who filed, many had to wonder if their private financial information would remain secure. There is ample evidence to justify taxpayer concerns about confidentiality and security. In 2013, Maricopa Community College District notified over 2 million individuals of a massive data breach and there are countless other examples that have occurred across the country.

Several proposals have come before the Arizona Legislature to loosen confidentiality protections and this year’s session brought yet another challenge under SB1242. The bill would allow the release of confidential taxpayer information to a third party to assist government in performing its tax administrative duties.  Privatizing government services is generally a good idea but not when it ignores potential consequences from a taxpayer’s perspective.

Jennifer Stielow

Jennifer Stielow

SB1242, which passed the state Senate and was awaiting a vote in the House as of May 4, was advanced on behalf of a California-based company, HDL Companies, which is seeking to expand its business to Arizona. The company advertises that it will “maximize local government revenues by providing a variety of audits, analytical services and software products.” HDL wants to contract with Arizona’s cities and towns to oversee and ensure the Arizona Department of Revenue (ADOR) accurately distributes the collection of sales tax revenues. This proposal comes on the heels of the 2013 sales tax simplification legislation that made ADOR the single point of sales tax collection and administration for all Arizona’s cities and towns. Whether ADOR is performing up to par has yet to be determined since January 2017 was the first reporting period.

ADOR is protective of confidential taxpayer information for legal and ethical reasons and taxpayers have an expectation their confidential information remains private. The potential erosion of taxpayer confidence in tax administration is too risky to sacrifice for the efficiencies being promised.

This typical “foot in the door” legislation usually results in additional requests for expanded authority in the future. If legislation such as SB1242 were to pass, the next demand would likely be to audit taxpayers.

Privatization can improve efficiencies of some government services. Tax administration should not be one of them. Policymakers should be looking to improve the security of taxpayers’ private financial data rather than creating new vulnerabilities.

— Jennifer Stielow is vice president of the Arizona Tax Research Association.

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The views expressed in guest commentaries are those of the author and are not the views of the Arizona Capitol Times.

One comment

  1. This large-taxpayers’ lobby doesn’t want its members subject to audits. Paraphrasing the author, there’s ample evidence that this too is an indication of something — that is, the large taxpayers are hiding something individually and closed books collectively. So transparent. Sigh.

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