Between recent reports and presentations at the open-to-the-public [and rarely seen in attending] Mesa City Council meetings, as well as projected deficits in unfunded public employee liabilities, increases in the city employee healthcare and benefits package, shortfalls in revenues and operating/maintenance costs of city-owned facilities - and who know knows what else? - City Manager Chris Brady is now having to look for more money somewhere to clean up and scrub the books any way he can to bring in revenue.
There Receivables Balance [an accounting term] as of last year July 31, 2016 and not yet collected is a TOTAL = $2,925,558.15.
Maybe you missed it at last week's 3-minute Study Session for the Mesa City Council, but in the Meeting Agenda was a presentation for a Tax Amnesty Program Proposal.
Council Report
Date: March 23, 2017
To: City Council Through: Michael Kennington, Chief Financial Officer
From: Ed Quedens, Business Services Director
Patti Oskvarek, Revenue Collections Supervisor
Subject: Transaction Privilege Tax Amnesty Program
The purpose of this report is to propose a Tax Amnesty Program.
The Tax Audit & Collection Division would administer an amnesty program that would run for a two month period from June 1, 2017 through July 31, 2017.
The proposal was recommended by the Audit, Finance and Enterprise Committee on March 6, 2017.
With the state Tax Simplification initiative, the collection of Transaction Privilege Tax, Transient Lodging Tax and Use Tax is being done by the Arizona Department of Revenue as of January 1, 2017.
The City Collections Unit will continue to pursue collection of delinquent tax returns and tax accounts receivable balances from prior to January 1, 2017. A tax amnesty program will bring revenue in and clean up aging tax accounts receivable balances and clear delinquent tax returns.
Cities such as Tucson have been quite successful with their tax amnesty programs, where they waived all penalty and half of the interest due. Their first amnesty program was from May 1, 2009 through June 30, 2009 had 598 businesses that applied for amnesty and $806,418.18 of the total $928,241.58 billed which was paid to the City of Tucson. Their second amnesty program was from September 1, 2015 through October 30, 2015 and had 618 accounts were resolved and $2 million was collected. They waived $300,000 of penalty and $71,000 of interest.
The State of Arizona’s amnesty program in 2015 recovered more than $55 million, where they were projecting only $15 million recovery. Due to the success of 2015’s tax amnesty the State of Arizona announced a 2016 tax amnesty program that ran from September 1, 2016, through October 31, 2016. ADOR waived all civil penalties and interest for tax liabilities that were or could have been assessed during a specific
period.
The biggest change to the 2016 amnesty program was that ADOR allowed taxpayers to pay the tax over three years, if they paid 30% percent by October 31, 2016. It should be noted that taxpayers whose tax liability was the subject of an ADOR audit were ineligible for the State of Arizona’s amnesty program.
The proposed Mesa amnesty program is a waiver of 100% penalty and 50% interest.
Here are the tax due accounts Receivables balance as of 7/31/16 = $666,864.27,
Penalties due is $1,653,522.74 and interest = $605,171.14
TOTAL = $2,925,558.15.
While the amnesty program will not result in the collection of all the amounts due to the age of some of the outstanding liabilities, it is believed that we may be able to collect a significant portion.
QUESTION: Why have this gone un-collected?
QUESTION: Why have this gone un-collected?
Collections at 60% Tax,
interest and penalty $1,755,334.89 Less: Penalties and 50%interest waived $1,173,664.99
Amount Collected $581,669.90
Collections at 40% Tax,
interest and penalty $1,170,223.26
Less: Penalties and 50% interest waived $782,443.32
Amount Collected $387,779.93
Receivables created as the result of an audit will not be eligible for the program due to State of Arizona audit administration. Payment under the amnesty program doesn’t prohibit Mesa from conducting an audit for those periods which were included in the program.
The amnesty program is being proposed
- to bring in tax revenue,
- to clear up tax accounts receivable balance and
- to smooth the transition to State tax administration.
This program will also increase future revenue when taxpayers comply and are paying going forward.
Alternatives
Without an amnesty program, we will continue as we have been with collections personnel placing phone calls, sending letters, and visiting taxpayer’s business locations in order collect past due tax returns and balances.
THE DRAFT ORDINANCE
ORDINANCE NO. _______________
AN ORDINANCE OF THE CITY COUNCIL OF THE CITY OF MESA, MARICOPA COUNTY, ARIZONA, AUTHORIZING A TRANSACTION PRIVILEGE AND USE TAX AMNESTY PROGRAM.
WHEREAS, the City of Mesa collects Transaction Privilege and Use Taxes (“TPT and Use Tax”) in accordance with Title 5, Chapter 10 of the Mesa City Code;
WHEREAS, the Arizona Department of Revenue, as authorized by the Arizona State Legislature, operated a tax recovery (amnesty) program for the purposes of abating and waiving civil penalties and interest for unpaid tax liabilities; and
WHEREAS, the City Council believes that the creation of a tax amnesty program in the City of Mesa will provide revenue to the City of Mesa, resolve aging tax accounts receivable balances, clear delinquent tax returns, and allow for delinquent taxpayers to have certain civil penalties and interest liabilities abated.
NOW THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF THE CITY OF MESA, MARICOPA COUNTY, ARIZONA, AS FOLLOWS:
SECTION 1. Notwithstanding the requirements of Title 5, Chapter 10 of the Mesa City Code, a Tax Amnesty Program is established for the City of Mesa for the period of June 1, 2017 to July 31, 2017. SECTION 2. The Tax Collector is authorized to administer the Tax Amnesty Program and to create requirements and make such decisions as are reasonably needed in the administration of the program so long as, at a minimum, the Tax Amnesty Program meets the following requirements: A. The program shall apply to any taxable period prior to January 2017. B. To participate in the program, a taxpayer must submit an application to the Tax Collector’s Office prior to July 31, 2017. C. If a taxpayer complies with the requirements of the program including, but not limited to, the payment of delinquent taxes identified in the application, then the entirety of the civil penalties and 50% of the interest due and owing for the taxable periods and tax liabilities identified in the taxpayer’s application will be abated and waived. D. A taxpayer cannot qualify for the program if: (i) the taxpayer’s tax liability resulted from an audit; (ii) the taxpayer fails to file all delinquent tax returns through December 2016; or (iii) the taxpayer fails to submit to the City payment in full by July 31, 2017, in the form of certified funds, for all tax balances owed. E. The term “tax” for the purposes of the program means any tax or surcharge administered or collected by the City of Mesa as provided under Title 5, Chapter 10 of the Mesa City Code.
SECTION 6: RECITALS. The recitals above are fully incorporated in this Ordinance by reference.
SECTION 7: EFFECTIVE DATE. The effective date of this Ordinance shall be thirty (30) days following adoption by the Mesa City Council.
SECTION 8: PRESERVATION OF RIGHTS AND DUTIES. This Ordinance does not affect the rights and duties that matured, penalties that were incurred, or proceedings that were begun before the effective date of this Ordinance.
SECTION 9: SEVERABILITY. If any section, subsection, sentence, clause, phrase, or portion of this Ordinance or any part of the material adopted herein by reference is for any reason held to be invalid or unconstitutional by the decision of a court of competent jurisdiction, such decision shall not affect the validity of the remaining portions thereof.
PASSED AND ADOPTED BY THE CITY COUNCIL OF THE CITY OF MESA, MARICOPA COUNTY, ARIZONA, this _____ day of ________, 20__.
APPROVED:
____________________________________ Mayor
ATTEST:
__________________________________ City
Here's a quick summary
> Tax Amnesty program for a two-month period from June 1, 2017 through July 31, 2017. > Generate revenue by collecting aging tax account receivable balances and encourage taxpayers to file and pay on unfiled/delinquent tax returns.
Business Services Department Tax Audit & Collections
Why the program proposal?
With the Tax Simplification Initiative, collection of Transaction Privilege Tax, Use Tax & Transient Lodging Tax is now being administrated by the State as of January 1, 2017.
A Tax Amnesty Program will assist the collections unit, clear pre-transition delinquent tax accounts receivable balances and delinquent/missing tax returns
Proposed Tax Amnesty Program
Waiver of 100% penalty and 50% interest.
Estimates:
60% Collection -$1.75M A/R debt cleared -$581K net proceeds
40% Collection -$1.17M A/R debt cleared -$387K net proceeds
Plus: Unknown amount from unfiled returns and unlicensed businesses
Who can participate?
Licensed businesses with delinquent tax returns
Taxpayers with outstanding tax account receivables
Unlicensed businesses that are liable for Mesa Transaction Privilege, Use & Transient Lodging Tax through December
Who may not participate?
Receivables created as the result of an audit will not be eligible for the program due to State of Arizona audit administration
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