More tax delinquents caught in 2005
By Greg Wiles
Advertiser Staff Writer
By Greg Wiles
Hawai'i's tax coffers are fuller than they've ever been as the state tracks down more people who haven't paid what they owe.
State collections of delinquent taxes reached a record $234.3 million in the last fiscal year, surging 50 percent from the prior year.
The tax department adopted a more aggressive stance last year that appears to be paying off. It hired more auditors and collectors and benefited from new computers and software that help identify those who haven't been paying.
"They caught a lot of people," said Lowell Kalapa, president of the Tax Foundation of Hawaii. "It's good because delinquent taxpayers or nontaxpayers do so at the expense of everyone else."
The state Department of Taxation added 26 positions in fiscal 2005, which ended June 30. It also started getting results from software that among other things finds people entitled to income tax refunds yet owe general excise tax. The computer system spits out delinquent billings notices daily versus the department's former process of posting them manually once every 30 days.
"We are trying to hit areas where we think there's been under compliance," said Kurt Kawafuchi, department director. That includes people working on a cash basis, such as those in the construction business, flea markets or in bars. "Word is getting out on the street that we're trying to be more vigilant."
The tax department has stepped up collection of the state income tax, general excise tax, use taxes and the transient accommodations tax. Most of the added revenue has come from delinquent general excise taxes.
Hawai'i's buoyant economy also helped fuel delinquent payments as more people had money to pay debts.
The collections also are proving to be a surprise for the state Council of Revenues, a seven-member group whose forecasts are used by legislators to determine how much money is available for programs. In January, the council told the Legislature that revenues were growing faster than expected and revised its forecast up by $84 million.
"We should all be so lucky to have something come in higher than you thought," said Paul Brewbaker, head of the Council of Revenues and chief economist for Bank of Hawaii.
Kawafuchi, a tax attorney and certified public accountant, attributed the climbing revenue to hard work and efficiency gains by his staff. He has recently hired more people, including a senior auditor position for the Neighbor Islands that typically identifies $1.5 million to $5 million annually in delinquencies, and a senior collector for O'ahu, a position that averages about $2.5 million in annual collections.
"These are positions that more than pay for themselves," said Kawafuchi, who has headed the tax department for about three years.
The $53 million computer system and software has already paid for itself, Kawafuchi said. The computer, among other functions, helps fulfill an agreement with the Internal Revenue Service that calls for the state or the IRS to hold refund payments when the other is owed money by the taxpayer.
Some of the increased vigilance has some people wondering about the department's aggressiveness. Last year several people contacted The Advertiser wondering why they received letters reminding them they hadn't filed annual general excise tax forms and needed to do so if they were still in business. A Kane'ohe man said he received a letter saying he owed $600 for a 16-year-old excise tax assessment.
Kawafuchi said he personally pays attention to whether the department is overzealous. While tax liens, or claims against taxpayer assets after collection attempts fail, are higher than Kawafuchi's predecessor, the number of agreements for taxpayer payment plans has more than doubled. The number of garnishments of wages or bank accounts also has declined.
"I always try to be fair and make sure we're not over-reaching," Kawafuchi said.
The growth in delinquent collections may not be sustained because the number of deadbeat taxpayers declines with each of the state's successes, Brewbaker said.
Kawafuchi acknowledged the amount collected this year won't be as robust as last. But coming years may see gains as recently hired collectors and auditors are trained and gain more experience.
"We have just scratched the surface," Kawafuchi said.
Reach Greg Wiles at email@example.com.