Voluntary Compliance #1 Goal for 2013, Reports Hawaii Department of Taxation
The Hawaii Department of Taxation has announced its goals for 2013, and the #1 goal is to increase voluntary compliance. The Department is going to focus its outreach and enforcement efforts on non-compliant groups, including non-residents and persons "new" to the tax system.
The Hawaii Department of Taxation informed the Hawaii Legislature of its 2013 objectives on January 16, 2013. (Report is here from the Hawaii Department of Taxation Website)
Goal #1 is to increase “voluntary compliance.” [“Voluntary compliance” generally refers to the system of allowing taxpayers initially to determine the correct amount of tax and file returns, as opposed to the government undertaking that initial step.]
To increase “voluntary compliance” the Department intends to:
• Educate taxpayers about their Hawaii tax obligations; including new filers and problem segments and initiating “targeted” presentations for those groups.
• Determine reasons for non-compliance and enforce the tax laws, including criminal sanctions, against under-reporters and non-filers;
Other goals included improving processing abilities and times and improving employee productivity. The Department asserts the making compliance easier in terms of filing and payment will aid voluntary compliance efforts.
The Department’s main objective appears to be to identify new taxpayers and bring them into the system. “New” taxpayers include out of state persons subject to Hawaii taxation, and persons that are “new” to the system by virtue of being new to Hawaii (“immigrants”) or new to the process of filing and paying taxes.
It is likely that out of state real property owners (landlords) will be one of the Department’s main targets. This segment is subject to General Excise and Income requirements, and may be subject to Transient Accommodations tax. Those taxes have relatively high rates and are relatively easy to assess. Due to the nature of Hawaii’s tax system, however, many of these folks may be honestly unaware of their duties and obligations under Hawaii’s law. In 2012, the Department attempted to reach non-resident state transient accommodation property owners by imposing reporting duties upon them and their condominium/homeowners’ associations. See, Act 326 of 2012 and article here. The changes made by Act 326 may be dialed back, and as of March 2013, the Department of Taxation has postponed its implementation of that measure three times (Tax Announcements 2012-12, 2012-13, 2013-02)
The Department also mentions unnamed “specific industries.” Historically, the Department has targeted real estate sales professionals as a specific industry. See, Dayton, Kevin: “Hawaii Tax Probe Aims At Real Estate Agents,” Honolulu Advertiser, April 7, 2008. Professionals and licensed professions with relatively high incomes could find themselves a focus of the Department in the coming years.
What Should I Do If I Am Not In Compliance?
Your first step should be to contact an appropriate tax professional to evaluate your situation if possible before the Department contacts you. Not all tax professionals are familiar with Hawaii’s tax system and this may guide your selection of representation.
Careful attention should be paid to whether you are in partial compliance (for example, filing income tax returns but not General Excise/Transient Accommodations Tax.) Partial compliance has particular difficulties.
Once you have resolved initial concerns, you should plan your re-entry. This includes whether to directly contact the Department of Taxation or to just file returns (including for current periods.) Numerous factors can influence this decision.
Also, once you have an idea as to your liability, you can evaluate how to resolve the outstanding balances and the potential terms of a settlement with the Department of Taxation.
ABOUT THE AUTHOR: Richard Paul McClellan III
Richard Paul McClellan III is a tax lawyer located in Honolulu, Hawaii, representing taxpayers before the Hawaii Department of Taxation and the Internal Revenue Service. I am available to advise and represent persons with unfiled general excise and transient accommodations tax returns.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.