1. Collecting Taxes Troy University PA6650- Governmental Budgeting Chapter 12

2. Why Do We Pay Our Taxes? Withholding works Exaggerated consequences Low rates Consensus on government Complexity hurts Tradition

3. Why Do We Pay Our Taxes? Compliance rate holding steady at slightly above 83% Shooting for 90% voluntary compliance Not always intentional…ambiguity and complexity

4. Taxpayer Active or Taxpayer Passive? Active – taxpayer does most of the work –Income tax Passive - Collectors do most of the work –Real estate –Sales

5. Core Functions of Tax Collection Taxpayer Registration and Service Declaration or Assessment Revenue and taxpayer accounting Delinquency Control Audit Enforcement Appeal or Protest

6. Taxpayer Registration Service Tax collectors need: –An up-to-date roster –A system of identifying taxable flows “…in tax year 2004, 60.35 percent of all income tax returns were completed by a paid preparer.”

7. Declaration or Assessment Two accounting tasks: –Revenue accounting Deposit, recording, and distribution of payments –Taxpayer accounting Posting of return information to files (For Real estate, there is inventory of tax eligible property, valuing of the holdings, review of transactions, and computation)

8. Delinquency Control, Compliance, and Collections Returns received are compared with master files Delinquencies are addressed How do you feel about private collections?

9. Audit Maintains the balance between honesty and dishonesty Obtains revenue Enforces voluntary compliance Measures administrative effectiveness Audit data...Page 502 Table 12-1

10. Appeal or Protest Ultimately may help clarify the laws Refines the tax system and improves it Courts make the final determination

11. Enforcement Actions include: –Seizure –Attaching wages –Selling assets –Prison terms –Foreclosure and auction

12. Total Collection Cost Includes both: –Cost incurred by the government, and –Cost incurred by taxpayers and their agents Collection cost = compliance cost + admin cost Share of the collection cost varies –Sales tax…taxpayer bears most of the cost –Property tax…government bears most of the cost –Table 12-2 on page 507 shows collection cost comparisons

13. Conclusion Tax collection requires effort by both the taxpayer (compliance cost) and the government (administrative cost) Voluntary compliance works reasonably well