Gov. Scott Walker is proposing to increase funding for an enhanced tax auditing program that generated nearly $27 million in additional revenue last year — more than enough to cover the cost, but about $4.6 million short of its goal.
Business groups are closely monitoring the Audit 2020 initiative, which the Walker administration promoted two years ago as focusing on out-of-state companies. The auditors are keying on corporate and sales tax collections, and not individual income taxes.
The latest budget adds 46 four-year project positions with the expectation they will generate $64 million in revenue over the next two years. The goal of 102 permanent positions in the last budget was to collect $113.5 million more over two years.
The Department of Revenue reported to the Legislature last month that in the first year of the biennium the new positions and related expenses — such as expanding offices in Minnesota, Illinois, Madison and Appleton — cost $9.2 million out of a budgeted $11.8 million. The rest of the money paid for additional audit bureau staff and a bureau reorganization.
The positions generated $26.9 million in new revenue, though the goal was $31.5 million. The report noted the agency’s compliance bureau, which collects delinquent taxes, exceeded its agency goal by $22 million, more than making up for the shortfall in the auditing program. Some of those extra delinquencies were generated by the additional audits.
The program’s corporate auditors also billed companies $15 million that weren’t collected last year, but are due in the current year.
Wisconsin Manufacturers & Commerce, the state’s largest business lobby, opposes the new program. Scott Manley, WMC’s vice president of government relations, said members have reported the audit process is “very long, cumbersome and expensive in terms of investment of time and employee resources to comply.”
“WMC does not support the additional auditor positions, nor do we believe that hiring more tax collectors will help improve our business climate or show the world that Wisconsin is open for business,” Manley said.
Walker spokesman Tom Evenson said the state’s business climate has gone from one of the worst in the nation to one of the best under Walker, and emphasized the new program is focused on taxes owed by businesses outside Wisconsin “to ensure that the tax burden does not fall unduly on Wisconsin taxpayers and businesses.”
Manley noted that Walker vetoed a provision added by the Legislature that would have required the Department of Revenue to track the number of audits conducted and how much revenue came from out-of-state versus in-state businesses. At the time Walker said he vetoed the provision because it might violate taxpayer privacy.
DOR was unable to provide historic data on the number of audits it conducts each year, but the number of higher corporate tax assessments increased from 429 in 2014 to 670 in 2015 to 981 last year, according to DOR spokesman Casey Langan. The number of higher sales and use tax assessments increased from 1,195 in 2014 to 1,201 in 2015 to 1,256 last year.
Steve Baas, vice president of government relations for the Metropolitan Milwaukee Association of Commerce, lauded Walker’s goal of recovering more money from tax cheats to help reduce taxes elsewhere.
“The implementation of strategies to meet that goal, however, need to be carefully monitored to see when/if the DOR reaches a point of diminishing return where the marginal increase in collections will be outweighed by the cost of funding the additional auditors,” Baas said in an email.