Computer technology is making it harder for Hawaii residents and businesses to skip out on their taxes.
The state collected more than $50 million in delinquent excise taxes since June 30, 2008, thanks to a computer program that links data from federal tax returns to state tax filings.
The state Department of Taxation has been checking federal tax returns of Hawaii residents to see if they claim business income. If they do, the state then looks to see if the same residents filed state excise tax returns. Those who didn't were sent warning letters, and many responded by paying what they owed.
The boost in delinquent tax collections comes at an opportune time for the state, which is facing a budget deficit of about $1 billion through June 2011.
However, not all the $50 million collected went to the state. The company contracted to run the project, Fairfax, Va.-based CGI Group Inc., was paid $16 million.
CGI Group was awarded a noncompete contract to collect delinquent taxes. The company got the contract because it had previously installed the tax department's $53 million Integrated Tax Information Management System.
That system, along with recent upgrades, is making it easier to ferret out those not paying their taxes.
"It's getting harder and harder (to dodge taxes) because of what technology can do," said Lowell Kalapa, director of the Tax Foundation of Hawaii. "What used to take days to research can now be done in seconds."
From June 2008 through August 2009, the delinquent tax project collected $50.4 million, primarily from those who hadn't filed general excise tax returns during the 2001 through 2007 tax years. Focusing on delinquent tax collections is an attractive way for the state to raise money because it doesn't require increasing or creating new taxes.
The tax department said it targeted excise tax nonfilers by cross-referencing federal tax return business income data with Hawaii excise tax filings.
"If they report that they have business income in their federal return, they're supposed to be filing" excise tax returns, said Titin Sakata, a tax department special assistant. "Before we just didn't have the ability to program the computer to do that matching."
The tax department sent out about 69,000 letters asking taxpayers to file their excise tax returns. Many were sent multiple letters. In response, 22,600 taxpayers paid $50.4 million in taxes, while another 12,900 canceled their excise tax licenses.
Those who remit taxes before being sent an assessment aren't charged penalties or late fees, Sakata said.
Future delinquent tax collection initiatives include targeting businesses that don't withhold payroll taxes. The tax department also plans to link data from computers at the Internal Revenue Service, the Department of Commerce and Consumer Affairs, and city and county computers in an effort to identify additional sources of delinquent tax revenue.
Taxes are considered delinquent once they're more than 30 days past due. The state's total delinquent tax balance was $398.3 million as of June 30. There is no time limit on how long the tax department has to collect back taxes.
Under its contract signed Jan. 22, 2008, CGI Group paid all up-front costs associated with running the project, including computer upgrades and postage fees. In return, the company gets one-third of those collections up to $25 million through June 30, 2011. The department expects the project to generate at least $75 million before fees.
The CGI fees seem reasonable considering the amount of tax revenue the company is generating for the state, Kalapa said.
"To me it's money well spent because you wouldn't have gotten it anyway," he said. "Any kind of movement to computerize the state system to make it more efficient is money well spent because of the return on investment there."