October 7, 2010

Federal partnerships help Maryland collect in $160 million in back taxes

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By Megan Poinski
Megan@MarylandReporter.com

Technology and federal partnerships with the comptroller’s office helped Maryland collect more than $160 million in taxes that the state was owed, but were nearly impossible to get.

These funds are all back taxes, but Comptroller Peter Franchot said the state had not anticipated collecting them because litigation and other thorny issues stood in the way of the state taking conventional approaches to get its money.

“This helps to relieve the budget crunch because these are dollars that normally would not be there,” he said.

Franchot spread the news at Wednesday’s Board of Public Works meeting, opening the meeting that approved hundreds of millions in contracts on a positive note.

One way Maryland is capturing some of this money is through partnering with the Internal Revenue Service through the vendor offset program. Maryland was the first state to participate in this program in which the state and the federal government perform tax audits on contractors. The program was implemented in 2007, and cost about $1 million for computer upgrades.

Maryland examines its contractors to see if they owe the IRS any money, Franchot said. In turn, the federal government examines its contractors to see if they owe Maryland any money.  Contractors who do owe back taxes have their contract payments reduced by the amount they owe Maryland or the federal government. Franchot said Maryland sends the federal government about $50,000 per week.

“In the last three years, the federal government has sent us about $320,000 per week,” he said. “So that initial $1 million investment was paid for in the first month.”

The program has brought $51.8 million back to Maryland so far. Franchot said the state has similar agreements with Connecticut, Delaware, New Jersey and New York, but they have not brought as much money back to the state.

Maryland also participates in the federal income tax refund intercept program, which works in a similar way. The state intercepts federal tax refunds to Maryland taxpayers, subtracting anything that is due the state, and the IRS reviews state tax refunds and keeps anything due to the federal government.

Since 2008, about $111 million has come back to the state through this program.

Franchot said there are several other policies his office has put in place to leverage technology to help money go where it needs to be. Another successful program, he said, was cross-referencing the state’s unclaimed property with delinquent child-support payments. More than $1 million in child support has been paid out in the last two years through this program, he said.