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Department of Revenue: Newsroom

Funding for State Services Relies on Taxpayer Honesty
01/30/2009
SALEM—The Oregon Department of Revenue issued a report about personal income tax compliance to the House Revenue Committee of the Legislature today. The report contains findings about how Oregon citizens do, or don't, comply with personal income tax laws.

Tax "compliance" refers to reporting and paying Oregon personal income tax voluntarily and on time; "noncompliance" refers to anything else.

"Our tax system relies on voluntary compliance," said Revenue director Elizabeth Harchenko. "We do all we can to help taxpayers understand their obligations and pay what they owe, but taxpayers are the only ones with all of the information to know what they truly owe."

The complexity of tax laws leads some to unintentionally make mistakes. Others understate what they owe by small amounts on purpose.

If 100,000 people understate their taxes by ten dollars, it adds up to $1 million.

"Taxes are the tool that citizens use to share the cost of services that they cannot provide for themselves," said Harchenko, "When people don't pay what they owe under the law, it affects everyone."

Personal income tax revenue funds schools, services for the elderly and disabled, and police protection.

See the full report and director Harchenko's presentation materials at http://www/oregon.gov/DOR/
 
 
 
Income Tax Compliance Report Fact Sheet
 
The Department of Revenue has found that measuring the gap between the amount of tax that citizens should report and the amount of tax that they actually pay is difficult. Oregon's tax system relies on voluntary compliance. Only the taxpayer is able to measure their true tax debt. The 2009 personal income tax compliance report provides the best estimation possible about personal income tax compliance.
 
Department initiatives
 
The Department of Revenue's report on personal income tax compliance suggests several initiatives to improve compliance. With current resources, Revenue will:
  • change how we use private collection agencies;
  • extend collection hours;
  • use additional third-party information;
  • improve audit methods and increase training for auditors;
  • work with licensing boards to increase tax compliance;
  • increase compliance by state contractors;
  • develop tools for tax education programs in schools;
  • develop a proposal for increased criminal prosecution of tax crimes; and
  • explore self-service options for taxpayers through web-enabled software and encrypted e-mail.
The report also includes recommendations on future policies and resources that improve compliance.


Estimates of compliance
 
Some interesting excerpts:
  • The Department of Revenue estimates that nearly 82 percent of all personal income tax owed to Oregon is paid voluntarily and on time each year.
o 99 percent of employed people who receive W-2s and have taxes withheld comply with personal income tax laws.
o According to a Government Accountability Office study, 46 percent of self-employed individuals report all of their income, file, and pay on time.
  • For the year ending June 30, 2008, department auditors identified, on returns already filed, an additional $60 million in tax, penalty, and interest owed to Oregon.
  • Revenue staff contacted more than 14,600 individuals about 20,400 past-due returns. As a result, 6,600 new returns were filed.
  • Between July 2007 and June 2008, Revenue helped more than 280,000 taxpayers on the phone or through our website, and responded to approximately 15,000 e-mails from taxpayers.
  • Revenue received about 1.8 million personal income tax returns for the 2007 tax year. Of those, 83 percent were filed by April 15, 2008 and the rest were filed on extension by October 15, 2008.

Taxpayer attitudes and behaviors
 
How do Oregon residents feel about filing and paying personal income taxes?
  • Taxpayers believe not paying taxes is serious, and that they will be caught if they cheat by large amounts.
  • The use of professional preparers and software has increased in recent years and this may have increased taxpayer compliance.
  • The more a taxpayer's income is subject to third-party reporting and withholding, the more compliant they are.
  • The complexity of the tax code contributes significantly to noncompliance.
  • Unintentional behavior, like not understanding the taxability of certain income, can be improved with education and assistance.
  • Intentional behavior, like not reporting cash income, is corrected through enforcement.
 
Page updated: January 30, 2009

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