State sales tax delinquencies up 17 percent

CEDAR RAPIDS - Sales tax delinquencies increased substantially in fiscal 2011 while collections plummeted, according to figures released Thursday by the Iowa Department of Revenue.

A union leader blamed Gov. Terry Branstad for eliminating state employees' jobs and hobbling the effort to collect the taxes.

The governor's spokesman, meanwhile, characterized the rise in delinquencies as “a reflection of our fragile economy (that) further illustrates that our businesses are struggling within our tax and regulatory environment.”

Although the state fiscal year ended June 30, the revenue department continued to calculate collections and to make adjustments through October. When the process was completed, sales and use tax delinquencies totaled $84.2 million - a 17.1 percent increase over the $71.9 million owed a year ago.

Sales tax makes up the overwhelming majority of the sales-use deficit.

Also, the number of delinquent accounts jumped 8.8 percent, from 19,347 to 21,041; new liabilities topped $100 million for the first time; and collections of delinquent accounts fell by 26.4 percent, or $13.1 million - meaning only $36.4 million was collected from delinquents.

The combination of growing delinquencies and falling collections spurred Danny Homan, president of the Iowa council of the American Federation of State, County and Municipal Employees, to take issue with Branstad.

“This is nothing more than this governor trying to downsize state government to the point it can't function,” Homan said. “That's what they've done with revenue folks. ... If anything, they should increase staff in that department to get the money that is owed to the people of the state of Iowa.”

Homan said reductions in revenue department staffing allow “people who have a history of not paying to continue to not pay their taxes.”

But Tim Albrecht, the governor's spokesman, said the department has increased staffing in collections and compliance and is working with delinquents to collect the debts without pressuring the businesses to close.

“It would be foolish to say staff cuts or any one factor contributed to the drop” in collections, said Victoria Daniels, spokeswoman for the revenue department.

According to the new figures, the department also wrote off a record $52.1 million in assessments filed against delinquent taxpayers. An unspecified but substantial portion of that adjustment involved inflated estimates made when businesses failed to file or remit.

Each component of the $84.2 million delinquency is a legal obligation until the taxpayer responds and works with the state to determine the tax due.

Because the state imposes penalties and monthly interest, businesses have an incentive to remit promptly. Nevertheless, about 13,000, on average, fail to remit on time each quarter, the revenue department says.

State sales tax and consumer's use tax are applied to the receipts from sales of tangible personal property and taxable services. The rate for each is 6 percent.

Businesses collect sales tax from consumers at the time of sale. The businesses are responsible for reporting and remitting the tax. Use tax is imposed after the sale and only on goods and services for which sales tax was not collected.