From the Carolina Journal:

May 25, 2010

RALEIGH — For the second time in as many years, the North Carolina Department of Revenue is forcing large families to cough up copies of their children’s birth certificates and Social Security cards or else forfeit their tax refunds.

There’s one difference: tax auditors have doubled the number of families up for review this year, reigniting anger from parents concerned that it’s just a money-grab in tough budget times.

“I was really frustrated by the whole experience. It seems to just be a stall tactic,” said Jeanette Wilson, a home-school mother of six. “The most frustrating part for me is that it seems the burden of proof is on me.”

The reviews, intended to ensure that taxpayers aren’t gaming the system, kick in for families who claimed seven or more exemptions on their returns. Carolina Journal first reported the new move in May 2009.

“The Department has identified noncompliance trends among individual income tax returns that claim higher numbers of exemptions and erroneous filing status,” said department spokesman Thomas Beam.

In addition to copies of Social Security cards and birth certificates, auditors have asked for copies of taxpayers’ federal returns and statements indicating their relationship to, and the physical address of, all claimed dependents.

Taxpayers who file as head of household also are required to provide a divorce decree or custody agreement and document “proper support” for dependents not living under their roof.

Families are required to submit the information within 30 days or else their refund won’t be processed.

New families targeted

The Revenue Department tagged 7,125 returns for review in 2009. Auditors have upped the number to 14,356 returns this year. By mid-May, the review had saved $2.7 million in fraudulent refunds from going out, Beam said.

“The number of exemptions claimed on the tax return is only one of the criteria used to determine if additional information is necessary,” he said.

But that hasn’t stopped parents from claiming that the review is a way for a cash-strapped state to hang onto revenue as long as possible.

“The governor is using every legal means at her disposal to delay tax refunds from going out,” said homeschooling father John Walker.

Walker said his family has received the tax review request two years in a row, but auditors canceled the second request after learning that his information was verified and on file.

Others question the usefulness of the approach. Jeff Tracy, a father of five, called the reviews a “capricious witch hunt.”

“This is an extremely poor approach to catching fraudulent activity, since those committing fraud would have to be particularly bold or idiotic to fake so many exemptions that they couldn’t help but attract attention,” he said.

Lynn Young, a mother of 10 who is owed over $3,000 in state refunds, said the review is discriminatory because it targets taxpayers based on the number of kids they have.

“I can’t speak for them, but all evidence and all statements go to show that it’s just a delaying tactic,” she said.

Wilson said it should be irksome even for families that didn’t get a letter. “A large family is working even harder to make ends meet, and yet the state government can’t seem to manage money. It doesn’t seem just,” she said.

Tardy tax refunds

Similar to last year, the state has delayed tax refunds to help keep the budget scenario solvent. In an interview with CJ last year, Revenue Department Secretary Kenneth Lay said the review of high-exemption taxpayers has nothing to do with the late refunds.

“They are two separate issues,” said Lay, a former Bank of America executive. “They are somewhat related, because it has to do with tax collection and refunds, but they are not directly related to each other.”

Last year’s tax season was the first time the state required filers to document their exemptions. The department plans to keep information obtained through the review on file, just as it does with traditional audits.

Review gets noticed

At least one state has expressed interest in mirroring North Carolina’s policy. In e-mail correspondence last year, a supervisor with the Kentucky Department of Revenue requested more information on the state’s review method, particularly which documents auditors requested to prove a taxpayers’ dependents were legitimate.

Contacted by phone, department spokesman Jerry McCarthy said he doubted Kentucky would pursue a similar review.

“We have a good compliance program, so I doubt anything will happen going forward,” he said.

Well folks now we must focus on the happy spenders in our state and local governments. They are at it again, tax and spend liberals that are out of control and actually affect us more than the federal government. These little stinkers need to be removed so they are forced to go out and get real jobs where they can experience their own laws in action. They have already started taxing services, see here and now they want to do more of the same. Let’s start voting these people out of their office and replace them with Tea Party minded folks who will cut services to the bare minimum, lower our tax rates, and remove themselves from office after 1 or 2 terms at the most.

Where do you think our congress men and women cut their teeth? All their habits and corruption are formed locally and then they just move right on up the chain. The Tea Party is going to focus our efforts on local and state elections so as to inform the folks of North Carolina what is happening in our backyard and maybe through intense pressure we can oust these losers and take back our state while keeping more of OUR money in the process.

Here is the article that needs to be read:

RALEIGH — As revenue from the state and local sales taxes dwindles in a down economy, expanding the levy to cover services is getting increased scrutiny as a way to generate millions of dollars in new revenue. Members of a joint Senate-House Tax Reform Committee established by the General Assembly are being given glimpses of just how much the state could bring in by taxing everything from carpet clean- ing to haircuts to athletic events to legal services and much more. For example, placing a sales tax on dances, dog shows, movies and sporting events — some of which are already subject to a smaller privilege tax — could bring in an estimated $85 million to state and local coffers. Bringing landscaping, exterminating, carpet cleaning and security services under the levy would raise nearly $254 million. Pet grooming, horse training, hair-cutting and the like would add nearly $36 million, while a tax on service contracts and warranties, installations and repairs could generate $406 million. The largest windfall, however, could come from a sales tax on professional services — doctors and dentists, $700 million; lawyers, $359 million; accountants, $173 million; computer services, $327 million. The numbers were extrapolated from 2002 U.S. Census data, consumption figures from the Bureau of Economic Administration and other sources. The extracted revenue projections are based on a state sales tax rate of 4.75 percent (not counting a recent temporary 1 percent hike) and a local sales tax rate of 2 percent. “The numbers are solid,” said General Assembly fiscal researcher Sandra Johnson, who performed the analysis. “We just wanted to provide the committee with a bird’s eye view of the subject.” It will be up to the reform panel, made up of members of the House and Senate finance committees, to decide what to do with the data. In addition to studying sales taxes, the group is looking at the way North Carolina taxes personal income and corporate income. The panel’s recommendations for changing the state’s tax laws aren’t expected before May, when the full General Assembly convenes on Jones Street. “We are looking at the details in a way no legislators have before,” said Durham Rep. Paul Luebke, who is a senior chairman of the House Finance Committee. “Another important factor for this committee is that, anything we do, we want to make as bi-partisan as possible.” Sales taxes now generate 28 percent of the state’s revenue. In 1970, the figure was 31 percent. North Carolina imposed its first sales tax back in 1933, but over the decades the state has seen the sales tax base shrink because of changes in what people are buying, tax exemptions — now running into the hundreds of millions of dollars — and cross-border and online shopping. Remedies being studied include raising rates, cutting exemptions or looking for ways to expand the base. Hence, the re-newed focus on services, which generally have not come under the sales tax levy. Research by the Federation of Tax Administrators in 2009 found that five of the 45 states that levy a sales tax impose the tax on fewer than 20 services. Article from Lee WeisBecker who writes for the Triangle Business Journal.