Not many people like to pay taxes, but nevertheless, they do it. In fact, in the United States in general, and here in Montana as well, we count on people to pay their taxes voluntarily, and we have what tax experts call a high level of voluntary compliance.
But there are, of course, always exceptions: taxpayers who simply fail to file, or misrepresent their true tax liabilities, or figure out ways to shift their income out of Montana and to a place where it will be taxed less or not at all. Montana has done a pretty good job at finding and collecting these evaded taxes. Last year, for example, the state recovered over $80 million from its audit activities; for every dollar the Department of Revenue spends to audit for and recover unpaid taxes, in collects 8 dollars.
Making sure that these taxpayers pay what they owe is partly a matter of fairness: when individuals or businesses don’t pay their taxes, it’s not fair to the vast majority of taxpayers who do. Moreover, as the collections data indicates, there is some significant state revenue involved here, and at a time when budgets are tight, revenue really matters.
There are some things we can do to make the collection of unpaid taxes even more effective.
For example: when non-residents sell property in Montana, they often owe income taxes on the capital gains they realize from the sale. But unless they file a Montana return – which they frequently don’t, either because they don’t want to or don’t know they need to – those taxes won’t get paid. The Department of Revenue notifies these folks about their potential tax liability, and as a result some of them file returns. But others don’t, and tracking them down is time consuming, difficult and expensive. A simple solution is to withhold income taxes at the time a property is sold by a non-resident. Withholding from sales by residents isn’t necessary because almost all of them will be filing Montana income tax returns in any case. Again, it’s a matter of fairness: non-residents should pay the same taxes on Montana based capital gains income and residents do.
In 2011 I carried a bill that provided for withholding of Montana taxes on income from sales of Montana property by non-residents. It was rejected by Republicans who saw it as a tax increase, rather than as a way to give a little help to Montana taxpayers who do pay what they owe. I will sponsor the same bill again in 2013.
Another example: corporations here and all over the world are supposed to pay Montana taxes on the share of their total profits that they realize in Montana. There are complex formulas and tax provisions that are used to determine that share, but corporations have discovered a number of ways of getting around those provisions and realizing profits in a country where taxes are very low. In other words, they shift taxes out of the United States, including Montana. This of course means that small corporations, operating only in Montana end up paying more, and multi-nationals less.
In 2011, Sen. Ron Erickson introduced a bill that would have helped Montana collect its fair share of the taxes owed by multi-national corporations operating in the state. I supported Ron’s bill, but it was rejected by the Republican majority on the grounds that it was “anti-business.” It’s hard to see why making international corporations pay their fair share is bad for the thousands of businesses that already pay what they owe. Giving international corporations a competitive advantage over Montana home grown businesses makes no sense, and I will carry a bill like Ron’s in 2013, to try to make sure that Montana businesses get a fair shake.