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F I S C A L I M P A C T R E P O R T

SPONSOR Tripp

DATE TYPED 2/16/05

HB 985

SHORT TITLE Tax & Revenue Debt Collections

SB

ANALYST Rosen

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Taxation and Revenue Department (TRD)

SUMMARY

Synopsis of Bill

House Bill 985 allows TRD, by competitive bid, to select attorneys or collection agencies to as-

sist in collection of obligations due to the state, provided the obligation is at least one hundred

twenty days past due. This bill provides for compensation to attorneys and collections agencies

in this regard equal to thirty percent of the obligation collected. Notwithstanding any contract

for collection of an obligation, TRD shall retain authority to settle obligations or accept pay-

ments on obligations.

Significant Issues

It is not clear why TRD should be constrained to pay a particular percentage of the collected ob-

ligation as compensation to attorneys or collection agencies. If TRD is able to contract for debt

collection on more favorable terms it should not be constrained by stature.

PERFORMANCE IMPLICATIONS

Indeterminate

House Bill 985 -- Page 2

FISCAL IMPLICATIONS

TRD reports fiscal impacts resulting from the bill will likely be insignificant.

ADMINISTRATIVE IMPLICATIONS

TRD reports the bill will impose no significant administrative impacts on the Department.

TECHNICAL ISSUES

According to TRD, there are several technical issues to consider:

1)

Under current law, attorneys and collection agencies cannot receive a percentage of the

tax delinquency collected as compensation, because taxes, penalty and interest are due to

the state. If the collection agency receives a percentage of the amount collected, then a

portion of the tax, penalty, and interest is not being paid to the state. See, for example, §

7-1-67(A): “If a tax imposed is not paid on or before the day on which it becomes due,

interest shall be paid to the state . . . ” (emphasis added). The bill’s compensation provi-

sion would violate this requirement.

2)

If the collection agency receives a percentage of the amount collected, the department is

compromising a tax liability. Under the Tax Administration Act, the department cannot

compromise a tax liability unless the secretary has a good faith doubt as to the taxpayer’s

liability. See, § 7-1-20, “At any time after the assessment of any tax, if the secretary in

good faith is in doubt of the liability for the payment thereof, the secretary may, with

written approval of the attorney general, compromise the asserted liability for taxes by

entering into a written agreement that adequately protects the interest of the state.” Un-

der the bill, there is no requirement of good faith doubt as to the liability.

3)

The bill states that the department “retains the authority to settle an obligation” (page 2,

lines 4-7). This makes no sense, because the department has no existing statutory author-

ity to “settle an obligation”. As stated above, the department can only compromise a li-

ability if the secretary has a good faith doubt as to the taxpayer’s liability. The depart-

ment has no authority to compromise a tax liability based on any other factor, such as a

taxpayer’s inability to pay, or a taxpayer’s offer to pay a lesser amount in satisfaction of

the total amount due.

4)

For the reasons above, any compensation to the collection agencies must come from other

sources, such as appropriation from the legislature. In fact, payment to an outside collec-

tion agency based on a set percentage of past due taxes collected may be illegal.

5)

Setting a percentage of payment collected as the fee in advance circumvents the pro-

curement process, as bidders would not have to compete with regard to rates for the state

business.

6)

Lastly, 7-1-8, 'Confidentiality of returns and other information,' would need to be

amended to authorize the Department to provide taxpayer information to an attorney or

collection agency.

JR/yr