Maine pursues income tax nonfilers Effort targets residents who fraudulently claim to live in other states

AUGUSTA – State tax officials say the biggest problem facing them today is individuals who simply do not file any state income tax return.

“The biggest problem facing any state in this country – and I would add to that the IRS – is nonfiling,” acting Maine Revenue Services Executive Director Jerome Gerard said last week. “People know that the tax burden is lower in New Hampshire than here in Maine, so they jockey to try and find a way to be a resident of New Hampshire or Florida.”

Neither state has a personal income tax, and Maine loses a “significant” amount of revenue every year from Maine residents who claim residency in another state and avoid paying taxes in Maine, Gerard said. He said every year “thousands” of Mainers file a federal tax return but not a state return.

“We get the federal tape from the IRS of all of their Maine filings, and then we cross with our filings to find exceptions that we follow up,” he said. “There are a significant number to follow up every year.”

Gerard said he would estimate that between $10 million and $20 million a year is being collected from efforts at tracking down nonfilers and collecting the taxes they owe Maine, but he did not estimate the total in taxes that may be going uncollected.

He said MRS does not have the staff to track down every potential case whether it is from federal filings or from tips taxpayers have provided.

“We can’t afford to be chasing students that earn 5 or 7 thousand dollars a year in income,” he said. “The net benefit to the state is just not that good.”

Gerard said residency determination is a complex judgment. He said the process to determine residency – checking to see if a person owns property in the state, registers a car or contributes to a church on a regular basis or several other “tests” of whether they live in Maine more than half the year – can require considerable effort.

“We are working now with the local police departments along the border,” he said. “We are chasing now about 60 cases where individuals appear to clearly live in Maine. They have homes on this side of the border, but they have their cars registered in New Hampshire.”

Whether the effort to track down nonfilers based on residency is cost effective was an issue brought up by members of both parties that serve on the Legislature’s Appropriations Committee at a meeting last week.

“This certainly seems to be time intensive,” said Rep. Hannah Pingree, D-North Haven. “Is there a monetary goal set for finding these nonfilers?”

Gerard responded there is not. He said it has been the experience of his agency that targeting nonfilers usually results in significant funds, but the state has to focus on cases that could yield significant revenue.

Sen. Karl Turner, R-Cumberland, cautioned that an overly aggressive effort at pursuing snowbirds – folks that live part of the year in a Southern state and part of the year in Maine – could backfire.

He said he has received complaints from some individuals that they were being questioned about charitable giving, church memberships and where they had bank accounts.

“These people are smart, and they will close their bank accounts here and end their memberships in their church or alumni associations and stop contributing to worthwhile causes in Maine if they think that will be used to require them to pay Maine taxes,” he said.

Gerard said it has been years since Maine asked about charitable contributions, but he defended the other questions used by Maine Revenue Services.

For example, he said, if a person contributed every Sunday to their church by check and the bank account indicated checks were written more than half the Sundays in the year, it would be strong evidence the person was living in Maine most of the year. That would mean the individual should be paying Maine taxes.

Finance Commissioner Becky Wyke added the state is pursuing only cases that seem to have a clear preponderance of evidence that the person does live in Maine.

“We are looking at cases that are more 75-25 [percent] than are 50-50,” she said.

Rep. Joseph Brannigan, D-Portland, strongly defended the tax collection effort. He said the law is clear that a person who lives in Maine owes taxes in Maine.

“The rest of us would have to make up what isn’t being collected,” he said.

Brannigan also said the enforcement effort has a “preventative” impact by demonstrating the state will seek out nonfilers, and a person risks both penalties and interest on the taxes they owe if they ignore their responsibility to file and pay their income tax.