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February 26, 2013

State revenue department moves to improve local tax distributions

(Continued)

INDIANAPOLIS —

One of the goals, Hershman said, is to “give local units of government a greater degree of confidence and a better understanding of the challenges we face.”

Hershman said the bill is a start toward correcting much larger issues in the Department of Revenue, which has been operating with what he called “an antiquated system” of technology that may cost up to $50 million to replace.

An independent audit of the department released last December blamed outdated technology and a “weak control environment” for the $526 million in tax errors made by the department in recent years.

Those errors included $206 million that had been earmarked to be distributed to Indiana counties, but never was. The money was discovered last April, four months after the department found $320 million in corporate tax collections that had been accumulating in an orphaned bank account since 2007. The same audit discovered additional errors with 55,000 taxpayer accounts and 2,880 tax refund requests that were never processed.

There’s new management in place at the department. But Kauffman said those revelations have undermined the confidence that local officials have in the state to accurately assess what local governments are owed in LOIT dollars.

Kauffman represented the Indiana Association of Cities and Towns on the task force that looked at how the state collected and distributed local taxes. The Indiana Association of Counties was represented by Allen County Auditor Tera Klutz. She agrees with his concerns. 

“[Revenue department officials] must work with local governments to make the system work better,” she said.  “And there has to be more transparency on their part.”

Hershman’s bill doesn’t include language that Kauffman wanted to see. He wants the state revenue department to start tracking the actual dollars paid to the state each month by employers that withhold local income taxes from their employees, and to put that money into a separate account apart from the state’s general fund.

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