PUBLIC HEARIBNG, SB 480

 

TAPES 36 A-B, 37 A

 

SENATE REVENUE COMMITTEE

FEBRUARY 15, 2005   8:30 AM   STATE CAPITOL BUILDING

 

Members Present:                  Senator Ryan Deckert, Chair

                                                Senator Rick Metsger

                                                Senator Floyd Prozanski

                                                Senator Charles Starr

                       

Members Excused:                 Senator Gary George

 

Witness Present:                    Debra Buchanan, Oregon Dept. of Revenue

                                                Jody Wiser, Tax Fairness Oregon

                                                Arthur Towers, Service Employees Union Local 503

 

Staff Present:                          Paul Warner, Legislative Revenue Officer

                                                Barbara Guardino, Committee Assistant

 

 

TAPE 36, SIDE A

005

Chair Deckert

Calls meeting to order at 8:33 a.m. Committee will discuss what to include in the tax amnesty bill. Directs members’ attention to SB 480 Tax Compliance (EXHIBIT 1).

 

PUBLIC HEARING, SB 480

026

Paul Warner

Discusses exhibit 1, key elements of redraft of SB 480, which will be developed as an amendment. Two distinct parts: abusive tax shelters and general amnesty. Unlike California’s amnesty program, suggests they be run concurrently.

 

046

Warner

Abusive Tax Shelters:

·         Personal & corporate taxpayers

·         Listed and tax shelter transactions as defined in IRS code

·         DOR sets rules for transactions with “no economic substance”

 

072

Chair Deckert

Asks, what does “no economic substance” mean?

 

075

Warner

It means the transaction was carried out strictly to avoid taxes. Answers follow-up questions.

 

080

Sen. Prozanski

State needs to give non-filers as much latitude at first as possible.

 

089

Chair Deckert

Is comfortable with giving extra latitude at first.

 

094

Warner

·         Promoter (of questionable transactions) must register in Oregon if they have registered in other states

 

115

Sen. Prozanski

Asks questions concerning registering these promoters here.

 

118

Warner

Responds, DOR wouldn’t have to carry out a separate compliance and monitoring system. They will get information from other states.

Responds to follow-up discussion.

 

145

Chair Deckert

Promoters in California are probably registered here already.

 

150

Sen. Prozanski

Raises more points about registering promoters.

 

158

Debra Buchanan

If Oregon is able to piggyback on what another state is doing, it relieves Oregon of the obligation to tell promoters what they must do. It requires less work load. Also DOR can bring back as part of its report that they captured the majority of promoters.

 

 

 

178

Warner

·         Penalties set at 20% per transaction – cumulative for three types

·         Voluntary Compliance Initiative (will return with estimates)

Different from California is that there would be no appeal rights.

 

 

 

245

Chair Deckert

Agrees that those already identified by the system should be given amnesty as another carrot.

 

260

Sen. Prozanski

Comments, trade-off is they couldn’t appeal after entering program.

 

276

Warner

Notes, July 1, 2006 start date would give Dept. of Revenue time to gear up for it, including publicity (EXHIBIT 2).

 

289

Chair Deckert

Questions whether program should begin closer to enactment of law.

 

297

Buchanan

Responds, proposed start time shouldn’t coincide with tax season.

 

270

Chair Deckert

Asks how early could DOR begin?

 

290

Sen. Prozanski

Why not enact an emergency clause?

 

315

Warner

Does not believe an emergency clause is possible.

 

326

Chair Deckert

Would like to consider enactment within 90 days of sine die – September or October.

 

349

Warner

General Amnesty:

·         Same period as Voluntary Compliance Initiative

·         Personal income taxpayers only

·         Non-filers eligible

·         Amended returns to correct deduction overstatement or income understatement

 

369

Warner

·         DOR has the right to place applicants under abusive tax shelter program

·         Those contacted by DOR can apply

·         Interest & penalty waived for those with no contact with DOR

·         Those that have contacted DOR can have penalties waived but not interest (two-tiered)

 

399

Warner

·         Eligible tax years for amended returns: 02-03-04

·         Post amnesty penalty at 25% of ordinary penalties – sunset in 2010 for non-filers

·         Public listing after amnesty period: Top 100

·         Waive criminal & civil penalties

 

431

Warner

·         Establish installment payment program – DOR sets terms

·         Direct DOR to review whistleblower program

·         Require amnesty participants to pledge future compliance

 

471

Chair Deckert

Comments on issues of perpetuity, waiving interest and penalty for tax protesters. Requiring them to pledge could be a deal-breaker. Favors waiving this requirement.

 

TAPE 37, SIDE A

036

Sen. Metsger

Comments on pledge signing. DOR would know to look for someone once they have been brought into the system.

 

042

Warner

Cites an article concerning a Michigan amnesty case, where 68% remained in the system without signing a pledge.

 

066

Sen. Prozanski

Signing your name doesn’t serve a purpose. Once they are in the system they are in.

 

066

Chair Deckert

Agrees.

 

072

Vice Chair C. Starr

Believes signing a pledge could deter some people from stepping forward.

 

091

Chair Deckert

Committee members favor removing this provision 3-to-1. Also would prefer to waive interest and penalties.

 

096

Vice Chair C. Starr

Agrees.

 

099

Chair Deckert

Removing interest is a bigger carrot, followed by a bigger stick.

 

115

Jody Wiser

Presents written testimony paraphrased (EXHIBIT 3). Includes Questions and Suggestions. Tax Fairness Oregon did not suggest a general tax amnesty in its legislative agenda. There is no evidence in most states that it brings in new tax dollars.

Questions:

Departments have to divert their normal work load to amnesty. Asks committee to consider increasing DOR budget 15% in order to collect these delinquent taxes.

 

158

Wiser

Continues testimony with questions: Speeding revenue that would otherwise be collected anyway? When does a “notice of deficiency” get issued in the audit/collection process? These people should not be eligible for amnesty.

 

185

Wiser

What are the current penalties which taxpayers are being relieved from? Questions implementation time frame.

 

200

Wiser

Suggestions:

Comments on advertising before amnesty period.

 

220

Chair Deckert

Comments concerning advertising.

 

233

Wiser

Asks committee to leave in the segment about people who re-fall out of the system – make them pay penalties. Make them pay penalties or they’ll think they won.

 

266

Wiser

Urges committee to increase DOR’s budget and consider leaving in a penalty and instigate a way to track people.

 

299

Chair Deckert

The penalty is the big question.

 

322

Sen. Prozanski

Suggests looking at a nominal penalty.

 

339

Buchanan

Currently, the first level of penalty is 5%. After 3 months there’s an additional 20%. If it goes on longer, it goes up to 50%. Three consecutive years of noncompliance, there’s a 100% per year penalty.

 

358

Warner

Adds, if DOR finds taxpayer hasn’t complied, there’s a 125% penalty.

 

365

Sen. Prozanski

Suggests leaving penalty at 5%. Majority of those captured will be individuals. Corporations would also pay 5%.

 

379

Chair Deckert

Responds, this is a one-time deal and in some ways it is the wrong message to the 95% of taxpayers who are playing by the rules. Would be open to a nominal fee, perhaps $10 or $50.

 

413

Sen. Prozanski

Is at the will of the committee on this issue.

 

423

Chair Deckert

Asks how much would the average non-filer owe?

 

432

Buchanan

Some will be hard-core non-filers who believe tax paying is illegal. There are also those who forgot to file and are afraid. It’s hard to carve out something that’s fair for everyone. Keeping a small penalty structure for everyone could make sense.

 

456

Sen. Prozanski

Might DOR want discretion on this?

 

470

Buchanan

Would prefer legislature set the policy.

 

 

TAPE 36, SIDE B

030

Sen. Prozanski

Would be comfortable with a maximum 5% penalty. Would also support no penalty.

 

035

Wiser

Asks for clarification whether DOR collected $20 million in penalties.

Follow-up questions.

 

040

Buchanan

Those were penalties that were set up on the system, not those collected. This doesn’t reflect waivers or those who file and don’t owe tax.

 

050

Chair Deckert

Data suggests state won’t get that $20 million.

 

065

Arthur Towers

Union Local 503 represents front-line workers who collect the taxes. The workers generally favor the tax amnesty program idea. They have insight into mechanics of how the program would work. They are concerned about staffing and the period after amnesty to make sure the stick is big enough. Workers would like to testify before the committee next week.

 

083

Chair Deckert

Would like to hear from them as soon as possible.

 

096

Chair Deckert

Adjourns meeting at 9:35 a.m.

 

 

 

 

 

 

Tape Log Submitted by,

 

 

 

Barbara Guardino, Committee Assistant                                                      

 

Exhibit Summary:

1.      SB 480, Tax Compliance, Warner, 1 pp.

2.      SB 480, It Was Probably Just an Oversight, Warner, 1 pp.

3.      SB 480, Questions: Do you wish this to be a general and abusive tax shelter amnesty program …Wiser, 3 pp.