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Pioneer Editorial: Time to go after state tax evaders

Not too long ago, Minnesota lawmakers struggled with having to fill a $4.5 billion state budget hole. The resulting headache saw major cuts in spending to programs affecting nearly all Minnesotans. And it came at the insistence of a governor that state taxes not be raised.

What would lawmakers have done if they had known that nearly a quarter of that deficit could be made up by just collecting the taxes owned the state in the first place?

That question arises from a report issued Thursday by the Office of the Legislative Auditor which concludes that the state is missing out on more than $1 billion a year in income and sales tax payments from individuals and businesses, based on tax data from 1999 and 2000. The report estimates that the state annually is not collecting $604 million in income taxes owed it and $451 million from sales taxes not turned over to the state.

"It is difficult to say exactly how much more revenue the state could bring in through more encouragement of voluntary compliance and more vigorous detection of noncompliance," says Legislative Auditor James Nobles. "But we think the amount is significant -- certainly enough to make the effort worthwhile."

The report lists several recommendations, but one is clear. The state Revenue Department needs to be beefed up in order to be in a better position to capture tax evaders. As the report notes, for every state dollar spent on tax audits, the state recovers $5 to $7. The old adage of it takes money to make money comes to mind.

But the report also recommends that audits be targeted better and develop more sophisticated databases that could make it easier to spot tax evaders, such as requiring employers to file wage reports in a common electronic format. Other recommendations include that the Revenue Department simplify the steps involved in pursuing debt collection cases and put more emphasis on collecting high-dollar debts, and that the department improve the quality of assistance it provides to taxpayers who call or write with tax compliance questions.

There is much political opposition that comes with either cutting program spending or in raising taxes to balance the state budget. It only makes sense that every effort be made to collect the taxes that are due to the state in the first place. Especially when the income tax and sales tax together account for nearly three-fourths of the $15.5 billion a year that the state needs to fund state government.

And especially when that tax gap is more than $1 billion a year.