$80 million in sales tax kept from state coffers by non-paying firms

Kiley Russell

Friday, Jan. 22, 1999 | 5:42 a.m.

CARSON CITY -- Nevada has a sales tax collection problem that's costing the state and its local governments about $60 million a year in lost revenue, Taxation Director Michael Pitlock said Friday.

Pitlock told a joint budget committee the loss stems from the fact that about 4.4 percent of the money due in sales taxes isn't paid.

"It's fairly typical of the states I've looked at to have from 2-to-5.5 percent noncompliance," Pitlock added.

The loss actually is about $80 million a year, but Taxation Department auditors are able to recover about $20 million of that, Pitlock said. He added that with more auditors he could recover even more tax dollars.

With that in mind, Pitlock asked the legislators to approve eight new positions for his agency.

"I am asking for eight total at a cost of about $50,000 per year. And in general each auditor will bring in about $350,000 every year (in recovered sales tax)," Pitlock said. "They are revenue producers. They are a net benefit to the state."

The legislators seemed to take his point.

"It's a no-brainer," said Sen. Bill O'Donnell, R-Las Vegas.

Assemblyman Lynn Hettrick, R-Gardnerville was a bit more critical of Pitlock's department.

"(Pitlock) said we need more auditors because we have more businesses. My comment was 'If you have more businesses and the rate of noncompliance is the same, and if your collections per business are dropping, then you are looking at the wrong businesses,"' Hettrick said. "You ought to be finding more wrong with more businesses."

While he isn't necessarily opposed to giving the department more auditors, Hettrick said he doesn't want Pitlock to "just add warm bodies."

"For a good deal of time we collected $400,000 a year per auditor. I just think we could be doing a better job," Hettrick said.

Between fiscal 1997 and 1998, Nevada took in about $2.5 billion in taxes overall, a 6.5 percent increase from fiscal 1996-1997. The 7 percent sales tax made up about $1.7 billion of that.

Another concern brought up by the budget committees is the software for the department's flawed Automated Collection and Enforcement System, or ACES.

Best Consulting Inc. of Boise, Idaho, designed ACES to help the department process sales and business tax returns, and is now being sued by the state because of the system's faults.

O'Donnell wanted to know if the system was up and running despite its reported problems.

"We have not had an adequate opportunity to test it to date. The Department of Information Technology is having a difficult time attracting new programmers. They still don't have a full staff of programers working on the problems," Pitlock told the committee.

The system is still not Y2K compliant, among other things, Pitlock said.

"You cannot with the budget you're given attract good people to this state," O'Donnell told Pitlock. "Your problem is exemplary of all the agencies in this state. With regards to technology we are falling seriously behind in our salaries. We are doing ourselves a huge disservice."