Enhanced Revenue Enforcement Creates Fairness, Raises Millions in Revenue

February 28, 2017

Enhanced Revenue Enforcement Creates Fairness, Raises Millions in Revenue

Elliott Hibbs with contributions from Dave Wells

 

Executive Summary

In comparison to other states, Arizona has much leaner staffing in its Department of Revenue, even though the tax code for the income tax with its myriad of tax credits, deductions, exemptions, and other income treatment,  and a transaction privilege tax with numerous goods and services subject to tax are both rather complex to administer.  Compared to 2001, Arizona has less than half as many people in the department relative to the state’s population, an enormous drop.

Other states don’t show comparable declines and they currently have staffing levels frequently twice as high as Arizona.  The number of corporate auditors has reportedly dropped to four as a result of 52 employees being laid off at the end of fiscal year 2016.

When it comes to state tax administration, certain things are both obvious and evident.  First, without a vigorous tax enforcement presence, some people and businesses will underpay their share of state taxes. Second, when the state needs added revenue without raising taxes, investing in added enforcement staff results in a substantial return on investment of $4 to as much as $25 for every dollar spent, depending on the enforcement function funded.

The Department of Revenue can expect to increase state revenue by at least $70 million for FY2018 by increasing staffing for audit, collections, and licensing enforcement.

In one scenario examined, the Department of Revenue can expect to increase state revenue by at least $70 million in the first year and more so in subsequent years by increasing staffing for audit, collections, and licensing enforcement. Many Arizonans would like to find a means of funding priorities like education without raising taxes. Investments in the Department of Revenue would be the most logical first step.

Auditing Pays Off