Please, Pay Your Taxes
By Penelope Lemov

Philadelphia made news last week with its decision to garnish the wages of city employees who owed back taxes. Clearly, compliance is topic Number One at state and local departments of revenue, and why not? If there's one tax issue that's bipartisan even in these partisan times, it's this: If a tax is due, it should be collected. One state that's been particularly creative in its collection approach is Washington. Rather than strong-arm or threaten taxpayers who have failed to pay up, it has perfected the gentle nudge toward voluntary compliance.

I talked to Janet Shimabukuro, program manager at the Department of Revenue's Taxpayer Services Division, and John Wack, tax information specialist at the Taxpayer Services Division, about their targeted-education program that pins its hopes on voluntary compliance. Here are highlights of the points they made.

How do you target a particular tax for a voluntary compliance effort?

We did a compliance study a few years ago where we looked at why there's noncompliance with specific taxes. The use tax was right up there. It's a business tax that's complement to the sales tax: If a business purchases a product that, say, is grown in Oregon, where there is no sales tax, and they bring it back here, they owe a use tax. Or if they purchase something online and don't pay a sales tax on it, they owe a use tax. The sales and use tax are particularly important for us because we rely heavily on them -- we don't have an income tax.

Our study told us that one of the main reasons for noncompliance with the use tax is ignorance. It's commonly misunderstood. So it was ripe for the opportunity to do targeted letters to let business know they may have obligations.

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What kind of response does the targeted-education program get?

We started out with a special-notice format that looked like bulk mail. We found, however, that since it looked like bulk mail, it was often discarded. So we transformed the format into an official-looking letter on letterhead that was mailed in a window envelope. The official look made people want to open it. The letter used plain language to explain the tax and tell recipients that they should review their records to see if they owed the tax or not. These initial efforts were mildly effective, so we worked to get better at this. Last year we sent out a less-traditional letter that uses techniques that map out the information for the reader.

We also knew that some businesses getting these letters would say, "It's a lot of work to go through my records and see what I owe." So, we looked at what the average company in each recipient's industry owed, and we told them that if they didn't want to go through all their purchases, they could use this annual table that shows annual gross business income and average annual use tax reported. A company with $250,000 gross income, for instance, tends to report $563 in use tax. They could use this to get current rather than go through their records. We are still meeting our goal if they use the table. And, not only do they respond to our letter and pay the use tax for past periods, they continue reporting over time. Keep reading >>

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