by Tom Yamachika, President Hawaii Tax Foundation
This week, while our Legislature is still in pandemonium mode, I wanted to focus some attention on our Department of Taxation, which conducts audits to make sure that people are complying with Hawaii tax laws.
When I began my career as a tax practitioner and started representing taxpayers, I became acquainted with the Department’s official audit completion notices, called Notices of Proposed Assessment and Notices of Assessment. They are issued to inform taxpayers and their representatives what the Department thinks is wrong with the taxpayers’ returns, and what it would cost to make it right.
In the old days, the taxpayer would receive an envelope with a number of these notices, one for each year, and maybe a letter would be with the notices explaining the auditor’s adjustments.
Recently, the Department adopted a different practice. Audits typically cover multiple years, but each notice for each year is mailed in a different envelope. So a taxpayer with 12 open years, which could happen if the taxpayer hadn’t been filing returns, would be sent 12 separate envelopes. Obviously this increases the likelihood that one or more of the envelopes may get misdirected, but let’s move on.
Somewhere along the line, it was decided that the Department would mail important information to each taxpayer with the official notices. In particular, taxpayers are sent a copy of the “Taxpayer Bill of Rights,” which is one sheet of paper printed front and back, and a copy of Tax Information Release 2002-1 that explains a taxpayer’s appeal rights, which is six pages long meaning three printed pages, front and back.
The powers that be decided that notice is a good thing. So a copy of both of these documents is included in EACH envelope. In our example of a taxpayer with 12 open years, when the Notice of Proposed Assessment goes out the taxpayer gets 12 envelopes, 12 copies of the Taxpayer Bill of Rights, and 12 copies of TIR 2002-1. The taxpayer’s tax practitioner representative also gets the same thing, namely 12 envelopes, 12 copies of the Taxpayer Bill of Rights, and 12 copies of TIR 2002-1. (Any tax practitioner worth their salt should already know what a taxpayer’s appeal rights are before being inundated with all of this paper.) Assuming that the taxpayer and the Department don’t reach agreement, the Notices of Final Assessment then go out. The taxpayer gets 12 more envelopes, 12 more copies of the Taxpayer Bill of Rights, and 12 more copies of TIR 2002-1; the taxpayer’s representative also gets 12 more envelopes, with 12 more copies of the Taxpayer Bill of Rights, and 12 more copies of TIR 2002-1.
This repetitive idiocy can cost lots of taxpayer money very quickly. Paper and printing costs are typically dwarfed by the cost of postage. In the old days, one envelope would go out to the practitioner and the taxpayer. A 12-year assessment would be about 40 pages, which would weigh about seven ounces. Those two envelopes would cost less than $5 today. Instead, 24 envelopes go out with a total of 168 pages. The postage on each envelope is 70 cents, so total postage is $16.80. That’s four times the paper and triple the cost. In fiscal year 2015 the Department conducted over 17,000 audits. Not all of them involve 12 years, but it’s easy to see that there could be a fair amount of waste.
On this issue, can’t we go back to the practices of the good old days? Or can someone explain the need to send out oodles of envelopes with tons of duplicative paperwork?