Ex-revenue official: Lack of corporate tax auditors could cost state $100M

Georganna Meyer, who had been the agency’s chief economist, said there normally are 30 corporate auditors.

“They now have four,” Meyer said.

“There basically is no longer any corporate activity at the Department of Revenue,” she told members of the state’s Finance Advisory Committee on which she serves. “That’s going to have a significant impact on any enforcement revenues we’ve seen in the past.”

Pressed later to put a figure on that, Meyer pegged the potential loss at between $50 million and $100 million.

That is doubly significant because corporations already are paying less now than they did last year, and less last year than the year before that. And that trend is going to continue for several years as a series of significant corporate tax cuts enacted years ago by the Republican-controlled Legislature take effect.

Put in real numbers, staffers of the Joint Legislative Budget Committee said if the tax laws were left untouched, corporations would have paid a total of about $549 million in 2020. But the cuts will trim that to just $281 million.

And that is presuming corporations pay all that they owe — a question brought into sharp focus by Meyer’s disclosure.

All this comes as legislative budget staffers said the tax collections they are expecting this coming year will leave less than $200 million to divide up between new and expanded programs and for any tax cuts that Gov. Doug Ducey and lawmakers want to enact.

There are potential political implications for who gets those dollars.

Voters approved Proposition 123 earlier this year that will generate an estimated $300 million a year for the coming decade for public schools. But that figure is less than what the schools would have received had lawmakers not ignored a voter-mandated requirement to boost funding annually for inflation.

Ducey, in pushing the measure, said that funding would be “just the first step.” But the governor has yet to propose any new dollars beyond that despite his promise.

Then there’s the question of higher education.

Universities got an additional $32 million this year, partly restoring the $99 million taken from them the prior year.

But $19 million of that was one-time funding. If that is not restored, the three universities actually would lose $15 million this coming year even with enrollment growth.

Daniel Scarpinato, the governor’s spokesman, said his boss has a commitment to higher education but said it’s premature to discuss what the governor will recommend in university funding.

On the revenue side of the picture, Scarpinato brushed aside the sharp drop in the number of corporate auditors. He said state revenues and tax collections are up.

Department of Revenue spokesman Sean Laux backed that up, saying corporate audit collections this past year were 200 percent higher than projected.

But Laux acknowledged those figures predate the June 30 layoffs of about 50 employees overall after the agency’s budget was cut by $7 million. Those cuts left the department with one corporate audit supervisor and four corporate auditors.

Still, he said fewer auditors checking tax returns does not necessarily mean that less money will be collected. “We have better tools now,” Laux said.

“There is data analytics, there is software that exists that make us a lot more efficient than we used to be,” he continued. “So it makes the process of identifying and conducting audits a lot more streamlined than it used to be.”

Meyer said it’s not that simple. “Corporate auditing is hard,” she said. “It’s very difficult and complicated.”

She said that’s why there needs to be trained people there to keep an eye on the more than 50,000 corporations in the state. More to the point, Meyer said if there are not enough trained auditors her experience tells her that companies will cheat.

The disclosure of the fewer auditors — and the possibility of reduced collections — comes as the panel of economists predicted state revenues will grow this coming fiscal year by about 4 percent. That should result in collections of $9.66 billion, the first time it has been that high since the bottom dropped out of the state and national economy in 2007.