Audit verifies huge tax gap

Published 2:42 pm Wednesday, April 11, 2012

STARKVILLE — Readers, pardon an old reporter and allow me just one more long, satisfying beating of what for many readers is a dead horse.

A couple of months back, for the fourth time in the last four years, this writer examined once again the maddening reality that in these years of tight state budgets, budget cuts, state retirement system woes and other economic manifestations of the confluence of declining growth in state revenues caused by the global recession, state government is doing an ineffective job of collecting the taxes due and payable under the state’s existing tax structure.

That reality creates, according to State Auditor Stacey Pickering and his staff, a “tax gap” of as much as $624 million in taxes due and payable by Mississippi taxpayers — individual and corporate — that isn’t collected because the State Department of Revenue (the agency most people remember as the State Tax Commission) lacks the resources and staffing to close that gap.

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The OSA performance audit is entitled “Reducing Lost Revenue and Improving Performance at the Department of Revenue: Adding Effectiveness Back to Efficiency.”

The situation is akin to a business having accounts receivable on the books that go uncollected by the business because they don’t have the resources or staff to devote to collecting those funds.

Since 2009, the state’s growing “tax gap” has been a captivating issue. The existence of the “tax gap” isn’t really at issue. The size and scope of it, before the OSA study, was a matter of some conjecture.

Back in 2009, the alarms began sounding in earnest at the old State Tax Commission over a real and immediate threat to government at all levels in Mississippi. The agencies computer system was on life support and without legislative intervention, the collapse of that system was a real probability. Such an event would have been catastrophic for state, county and municipal governments.

Cooler heads prevailed. State Commissioner of Revenue Ed Morgan told lawmakers that Mississippi’s antiquated computer system was, in fact, leaving vital state revenues that should be collected on the table at a time when the state could least afford not to collect every penny.

The Legislature invested $35 million to replace the aging computer system. But lawmakers didn’t address the concurrent request that Morgan made for additional Department of Revenue agents and analysts to take the new wealth of computer data and convert it into closing the “tax gap” between the tax revenue owed under the existing tax structure and the actual amount collected.

Both former Gov. Haley Barbour and current Gov. Phil Bryant have asked lawmakers for an additional $4.5 to $5 million for the Department of Revenue to fund additional personnel to beef up tax collection efforts and close the “tax gap.”

Barbour said: “We cannot let tax cheats deprive the state of revenue it is owed already. I propose increasing the budget of the Tax Commission so it can hire additional auditors to collect money the state is already owed.”

Bryant, one of the architects of the computer fix legislation along with former House Speaker Billy McCoy, repeated that funding request when he became governor.

Here’s what the OSA report flatly states: “Mississippi is facing a growing tax gap. Reasons for the growing tax gap may be as innocent as not understanding the complex tax code or as illegal as intentional misreporting. OSA has estimated that the gross tax gap for the state may be as high as $624 million for the last fiscal year. While we know it exists and they have identified several million owed, they do not have the resources — specifically funding and staff — to decrease the current tax gap.”

Mississippi should never discuss tax hikes of any kind on any taxpayer until the “tax gap” issue is addressed and corrected.

(Sid Salter is a syndicated columnist. Contact him at 601-507-8004 or