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WASHINGTON – Reps. Jim Moran, D-Va. 8th and Tom Davis, R-Va. 11th introduced legislation (H.R. 1865) today that would allow local governments to collect past-due taxes by reducing the federal tax refunds of those who owe.
This proposal would build on the Federal Offset Program, which already allows taxing authorities in 37 states to collect by attaching federal tax refunds. In 19 states, local governments can submit unpaid tax claims to their state governments for action.
The legislation calls for a pilot program that would allow localities in three to five states, selected by the Secretary of the Treasury, to participate in 2009 and 2010. For those states, it would be simply a matter of turning over the information to the federal Financial Management Services for action. If the program succeeds and goes national, only localities in the 37 states that participate in the Federal Offset Program can take part in this program.
Localities would use the tool to collect tax debts, not traffic tickets, overdue library book fees or other assessments. Localities still would be required to take all the steps they now take to collect taxes before they turn it over to their state. States will act as the clearinghouses for their local governments and turn over the account number, name of the taxpayer and amount owed to the federal Financial Management Service for action.
Local governments would be fifth in line to collect unpaid taxes from federal refunds, following: federal income tax, state child-support agencies, federal government agencies, and state income tax. FMS would receive a fee for each account match it processes. This money would be paid by the states, which would collect it from local governments. If it is found the citizen does not owe the money, FMS would reimburse the amount collected to the citizen but not the fee to the local government.
“It’s not fair to those of us who pay all our taxes that some don’t pay their share and get away with it,” said Davis. “We pass a lot of bills that cost local governments money without providing federal funding. This is a small thing we can do to at least help them collect the money due to them. This wouldn’t cost honest taxpayers a dime.”
“Too often, people take advantage of the limited resources of local governments to stay outside the law,” Moran said. “This legislation allows taxpayers to dispute charges they don’t think they owe. But it allows local governments to collect the revenues they need to provide the services we all depend on.”
The idea for the legislation came from Frank O’Leary, who has served as treasurer of Arlington County, Va., for 23 years. O’Leary estimates that Arlington County could collect up to $2 million, Fairfax County could collect as much as $5 million and all Virginia localities could collect as much as $70 million in the first year of the program.
“When the states were first allowed to participate in the federal offset program in 2000, I thought why not let us play too,” O’Leary said. “Local governments should be allowed to participate in the program. It is a logical progression.”
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