Wednesday, July 8, 2015

Voluntary tax compliance?

A question that gets thrown around from time to time in discussions of government aid, do-goodery etc. is, "would you pay your taxes voluntarily?" Well, this is not that. But it is a story of a government taking a softer approach to tax collection. Governing has an interview with officials from Washington state about their efforts at "voluntary tax compliance." Basically, Washington has something called a "use tax" which is a little bit obscure, and which a lot of businesses don't pay. The state wanted to step up collection of the use tax. But instead of auditing people or sending out threatening letters, it decided to undertake a public information campaign, informing businesses of the existence of the tax, and giving them a heads up that they may owe some money. It worked:

Voluntary tax compliance?

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A question that gets thrown around from time to time in discussions of government aid, do-goodery etc. is, "would you pay your taxes voluntarily?" Well, this is not that. But it is a story of a government taking a softer approach to tax collection. Governing has an interview with officials from Washington state about their efforts at "voluntary tax compliance." Basically, Washington has something called a "use tax" which is a little bit obscure, and which a lot of businesses don't pay. The state wanted to step up collection of the use tax. But instead of auditing people or sending out threatening letters, it decided to undertake a public information campaign, informing businesses of the existence of the tax, and giving them a heads up that they may owe some money. It worked:

Back in 2003 when we started this program, the response rate was 43 percent. Now we're at 57 percent. Overall, collections that can be attributed to this program have been in excess of $17 million over the past five fiscal years. It's reasonable to say the targeted-education program is behind why businesses are paying a tax they previously didn't pay.

Of course, at the end of the day this "voluntary compliance" campaign is backed up by, well, involuntary compliance -- you have to pay your taxes in Washington. But it does sound like business owners appreciate an approach in which they're not treated like delinquents right off the bat. It's more respectful, and in a lot of cases, that respect is appropriate. Clearly a lot of these folks don't intend to cheat on their taxes.

Speaking of which, we wonder if something like this could help out with collections of the Business Privilege Tax, the details of which can be surprising. Thoughts?

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Every year, city government spends slightly more than $4 billion. Where does all that money come from? More importantly, where does it go? Are we getting the most bang for our tax buck? “It's Our Money” is a joint project between Philadelphia Daily News and WHYY, funded by the William Penn Foundation, designed to answer these questions.

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