August 16, 2013

It’s no secret, many states are broke and looking for ways to recoup revenue. Of course, most states have a long list of taxes owed by residents. New York state – which actually has an impressive collection rate of 96% — is in hot in pursuit of the those who haven’t paid up. The remaining 4% are on a list of 16,000 residents who each owe in excess of $10,000 in back taxes. Combined, they owe $1.1 billion. To collect, Governor Andrew Cuomo is pulling out a big hammer: he’s suspending their driver’s licenses until they make good on their tax debts.

This is part of the current year budget initiative passed by the state legislature back in March. It’s expected to increase collections this fiscal year (ending March 31, 2014) by $26 million, and another $6 million annually in subsequent years.

Governor Cuomo said in a press release: “Our message is simple: tax scofflaws who don’t abide by the same rules as everyone else are not entitled to the same privileges as everyone else. These worst offenders are putting an unfair burden on the overwhelming majority of New Yorkers who are hardworking, law-abiding taxpayers. By enacting these additional consequences, we’re providing additional incentives for the state to receive the money it is owed and we’re keeping scofflaws off the very roads they refuse to pay their fair share to maintain.”

Say what you will about equity, it’s a money thing. After all, not everyone who owes taxes drives a car, and not everyone who drives a car owes taxes.

“As more and more states experience cash shortfalls, they’re looking for ways to replenish their coffers,” observed CPA Robert A. Raiola. Raiola heads the Sports & Entertainment Group for the New Jersey–based accounting firm of Fazio, Mannuzza, Roche, Tankel, LaPilusa, LLC. “As a result, we may see more states following New York’s lead with stricter enforcement of existing laws.”

How the Suspension Works

Round one of warning notices gives recipients 60 days to pay up. For those who do not respond, round two warnings will be issued, with 15 days to comply. After that, the taxpayer’s license is suspended.

Anyone caught driving on a suspended license will pay a mandatory fine of $200 to $500, depending on the circumstances, and could face jail time or probation up to 30 days. Those caught in a second offense could be subject to much stiffer penalties, including the loss of a vehicle.

New York Commissioner of Taxation and Finance Thomas H. Mattox said in a press release: “It’s in every taxpayer’s best interest to pay all tax bills in full. If you can’t pay in full, our staff is available to help you arrange a payment plan that will satisfy your debt.”

Some may also be able to obtain restricted licenses which will allow them to continue commuting to and from work.

What’s the lesson?

Whether it’s a matter of a government desperate for revenue or out to achieve equity… states have big hammers. Nobody has to get to this point, but you’ll probably need the help of a trusted tax adviser early on.

Photo:  aftab