Tri-State Update

Tri-State Update
CPAs Hear from Tax Officials

By Jay Dismukes and Simon Eskow

Modernizing elements of the tax structure and increasing voluntary compliance are topping the 2005 list of things to do for the New York State Department of Taxation and Finance.

Speaking before attendees of this year’s Tri-State Taxation Conference on Jan. 6, State Tax Commissioner Andrew S. Eristoff said voluntary taxpayer compliance has become the “number one” strategic objective at his department, which hopes to identify more opportunities to make this happen.

Eristoff said his department is also looking into streamlining New York’s sales tax, with the state continuing to consider whether it should conform it’s statutes to the Streamlined Sales and Use Tax Agreement, intended to simplify those two tax regimes.

“This would mean a complete top-to-bottom overhaul in (the state’s) sales tax,” Eristoff said.

Referring to sales and use tax, Eristoff noted that last year’s implementation of Line 56 netted about $20.8 million in unpaid tax. Approximately 385,000 returns included an amount on the line, resulting in an average of $54 per return. This figure, Eristoff said, is two to three times higher than that of any other state in the first year that the reporting requirement has taken effect.

The state’s taxation of financial services may also need to be updated, Eristoff, said. The department is especially interested in looking at the treatment of investment capital.

“This is a critical thing to address,” Eristoff said. “It’s time to modernize our tax structure, especially with respect to financial services.”

Other tax department initiatives and interests include more information-sharing arrangements with other states and the Internal Revenue Service; possible revisions to guidelines for withholding tax audits; and, of course, e-filing. This growing practice raised a number of issues and concerns by the attendees who queried the commissioner on everything from security considerations to taxpayer signatures to assurance of timely filing. While addressing these questions, Eristoff noted that he thinks it would be appropriate for a taxpayer to be able to opt out of e-filing his return should it become required.

In Connecticut, there currently are proposed regulations that would require tax preparers with 200 or more 2004 state income tax returns to file 2005 returns electronically. Preparers with 100 or more 2005 returns would have to file 2006 returns electronically, while practitioners with 50 or more 2006 returns would have to file their 2007 returns online. Preparers with fewer than 50 returns would not be affected by the regulations.

According to Stacey Pavano, tax attorney with the Connecticut Department of Revenue Services, the proposal only concerns individual returns at this time and includes a five dollar penalty for each paper return that is supposed to be filed electronically.

The department does not anticipate any problems with approval of the regulations, which Pavano said are expected to be taken up this month.

New York City and New Jersey

New Jersey Director of Taxation Robert Thompson updated the conference on his department’s efforts to increase compliance and revenues to fill a multi-billion dollar budget gap.

“The state, as you’ve read, will be faced with a $4 billion hole, $2 billion…left over from last year’s borrowing that was ruled unconstitutional,” Thompson said. “(The state) needs to come up with some big solutions…The (Acting Gov. Richard) Codey budget should be something to behold. I hope he’ll make those difficult decisions that incumbents aren’t usually willing to make.”

Currently, the state is trying to increase revenue through efforts such as tying licenses to business tax compliance, or applying a consumption tax on elective cosmetic surgery. That tax so far has shown disappointing results, Thompson said, coming in at $1 million below estimate. The business tax compliance effort, otherwise known as License Suppression, is now in its second year.

“People are beginning to understand that their license is tied to taxes,” he said.

Other compliance efforts are reaping benefits for the state. An amnesty program last year netted just under $30 million, almost five million more than expected. Fines and bills for “simple things” like taxpayers taking net operating losses they shouldn’t have, brought in $7.5 million.

Finally, Thompson said the state is now requiring professionals who file more than 200 tax returns a year to e-file, saving the state money in processing fees and cutting down on errors. The error rate for paper filings is as high as four percent; for electronic filings, that rate drops to .33 percent.

Representatives from New York City’s Department of Finance reported on their department’s programs to modernize revenue collection and coordinate audits with state and federal agents.

The department has changed the property tax billing to a quarterly basis, with bills based on credit card statements for easier reading.

Aside from coordinating audits, led by Assistant Commissioner Pauline Hyles, the department has also closed satellite audit offices in Chicago and Los Angeles.

There are also programs starting to “level the playing” field in cigarette tax enforcement, and to make it easier for businesses with many parking violations to settle their debts in the city and avoid time-consuming and costly efforts to fight them.

The NYSSCPA’s New York, Multistate and Local Taxation Committee, chaired by Steven Jay Eller, sponsored the Foundation for Accounting Education conference. Committee member Alan J. Preis served as chair of the event.