TAX NEWS - JUNE 2010

U.S. Tax: Kansas City tax collections fall short, audit says

by LYNN HORSLEY, 02 June 2010 -- Kansas City Council members always say they want the city to collect every dollar of revenue owed.

But a new audit out today finds the city falls far short in that function.

The report by City Auditor Gary White and his staff found that the city averaged between 121 days to 241 days after taxes were due to identify delinquent taxpayers. And once identified, it can take months or even years for the city to notify those taxpayers of their potential delinquency.

"The findings are very disturbing," Councilman John Sharp said, adding that if the city can't improve its delinquent tax collections, it has no business asking residents for any more tax increases.

The audit looked at the effectiveness of the taxpayer service division's efforts in collecting outstanding profits, earnings, convention and tourism taxes and business license fees from 2004 to 2008.

Among the key findings:

- For 16,000 businesses that owed 2007 profits taxes, first notices had not been sent by May 2009. By summer 2009, about 23,000 business delinquency cases were waiting to be assigned to a taxpayer specialist, the cases dating from 2004 to 2008.

- Total involuntary business tax revenues from delinquent cases dropped from about $5.2 million in 2004 to $4.9 million in 2008.

- The Revenue Division did not include performance standards or measurable outcomes in the city's contract with a collection agency. The city in 2008 gave its collection agency $3.8 million in potential profits and withholding tax cases to pursue. But the agency collected only $151,000, or 4 percent of the value of those cases.

- Employee morale in the division is low, with more than half reporting in a survey that they are not satisfied with their work environment. Some staff reported shouting arguments and antagonistic behavior. And more than one third agreed the staff uses offensive or inappropriate language. Some staff also said work assignments, rewards and discipline are unfair.

Randy Landes, the city's long-time treasurer who was appointed finance director in January, pointed out that there's been significant turnover and turmoil in both the finance director and revenue commissioner positions over the last 10 years. He said the city has had little consistency in its revenue reform efforts, and staffing levels have dropped significantly in the taxpayer services division in recent years.

But Landes agreed with the audit's findings and said he is working hard to address the problems and to provide a more professional work environment.

Council members said they have confidence in Landes and they want a progress report in a few months.