One theme I hope to address through this blog is the antiquated, unfair, and opaque system of tax collection that that state of Ohio imposes on its taxpayers. For full disclosure, my posts will always be biased toward the taxpayer, after-all I am a defense attorney. I will, however, try to be as objective as possible in this and subsequent posts.
My firm was recently engaged by a local business to assist in a sales tax collection matter. This was a rather straight-forward matter, in that the taxpayer had filed and paid their sales tax, although one year late. The Ohio Department of Tax had the returns listed as filed, but did not properly record any of the payments. By the time the taxpayer came to our office, the debt had been certified to the Ohio Attorney General’s Office for collection, and the taxpayer was receiving bills reflecting the amount owed. We worked with the taxpayer and the AG’s office to demonstrate that the taxpayer had paid the natural tax that was owed with all the returns.
This is where the tale takes a turn for the worse for the taxpayer and shows the unfair nature of the Department of Tax. Once the Department of Tax had completed a review of the matter, they determined we were correct and the tax had been paid. One would expect that the Department of Tax would merely subtract the amount paid from the amount they stated was due, and from there present a new bill to the taxpayer. Instead, the taxpayer received a bill that included a late-payment penalty that had previously not been assessed. This penalty was in excess of $10,000. If the taxpayer had merely moved forward with full-paying the amount due on the original notice they would have not incurred this additional penalty. Since the taxpayer had already paid the tax, and the Department of Tax had been unable to process those payments properly the first time. My client suffered an excessive penalty that was originally not applied.
I understand the role of penalties. We need them to help coerce the majority of individuals to file and pay their taxes on time. I understand my client did pay late, and the Department of Tax has the discretion to apply a penalty. What I do not understand is how the Department of Tax was unaware that they had received many payments for many tax periods, assessed an amount owed, and when we show proof of payment they then increase the amount owed by attaching an additional penalty. How is this late attachment suppose to do what the penalties are designed to do? The taxpayer was already aware of the late-filings and late-payments and was working to correct the situation. Furthermore, the taxpayer would not have incurred these penalties if they had merely paid what was assessed to the AG’s office. The Department of Tax has penalized a taxpayer for paying a tax before it was assessed to the AG’s office. What message does that send to taxpayers? If you make us chase you, you will pay less than voluntarily paying late.