Households and businesses behind on their state taxes might want to take advantage of the latest tax amnesty program launched by Gov. Ned Lamont and the General Assembly.
Because while Connecticut bends the rules for delinquent taxpayers more frequently than just about any other state, Lamont’s top tax administrator says that could change very soon.
“We recognize it’s been done before,” Department of Revenue Services Commissioner Mark Boughton told the CT Mirror on Friday. “We don’t think we’ll be doing one in the future.”
The program launched last week, which runs through Jan. 31, is Connecticut’s seventh amnesty program since 1990 — an average of roughly one every four years.
The latest amnesty program allows for a 75% reduction in interest and a waiver of all other penalties for individuals and businesses that have not filed a tax return; have filed but failed to report all taxes owed; otherwise already have an unpaid tax liability; are under audit by the department; have a protest pending before the agency; or are suing DRS.
Filers can seek amnesty involving the state income, sales, corporation, other business, cigarette, gift, estate and motor vehicle fuels taxes.
The Lamont administration, which endorsed the amnesty program as part of its last state budget proposal in February 2020, estimates easing penalties in these areas will generate extra filings worth about $80 million across this fiscal year and next. [Although the deadline for amnesty applications is Jan. 31, some cases may take months afterward to negotiate and resolve.
Connecticut entered 2021 tied with Louisiana and Massachusetts for easing penalties on tax delinquents most frequently over the past three decades, according to the Federation of Tax Administrators, a coalition of states’ top tax offices.
They have been popular with governors and legislatures in Connecticut because they often are a quick way to boost revenue — in the short term — without increasing tax rates.
But critics of the program charge that by offering amnesty so frequently, the state provides a disincentive for taxpayers with major obligations to pay on time. Such programs also chiefly benefit high-end earners with major tax obligations, rather than working-class households.
Leaders of the Republican minority on the legislature’s tax-writing Finance, Revenue and Bonding Committee — Sen. Henri Martin of Bristol and Rep. Holly Cheeseman of East Lyme — questioned last March whether Connecticut’s frequent breaks for tax delinquents were becoming problematic.
“There’s this tendency to look for the money under the sofa cushions” when times get tough, Cheeseman said. “Are we actually getting the tax dollars in return?”
The state also has rolled out amnesty programs in 1990, 1995, 2002, 2009 2013 and 2017.
Given that history, “could an accountant advise his client: ‘Why don’t you just hold off’ paying your overdue taxes?” Martin asked. “That could well happen.”
Boughton, who became tax commissioner in December 2020, inherited an agency that relied too heavily on physical records.
“In a paper environment, when you ran a tax amnesty program, … it’s very difficult to mine the data,” Boughton said. “The governor’s instructions to me were: I want a tax policy that’s easy to use, and I want to engage as many residents as we can.”
The revenue services department is in the midst of a three-stage process to place a much greater emphasis on tax trend forecasting and data-based analysis.
An online tax-filing portal already partially implemented and set to be completed by September 2022 will enable households and businesses to file returns and remit payments on all types of taxes electronically.
More importantly, Boughton says, the department will have a five-member analytical unit in place in 2022 that will use the data from this amnesty and from other filings to monitor trends — both in Connecticut and in other states — and keep the state in touch with former late taxpayers to help them from falling behind again.
“We’ll know if there’s a trend that starts in Massachusetts or Colorado or New York,” Boughton added. “We’ll be able to tell you: We better figure out a plan five years from now or there’s going to be a problem.”