- Report Published -
|Tax Clearance Study|
|Department of Taxation|
|Appropriation Act - Item 265 E. (Regular Session, 2007)|
|Item 265 E of the Appropriations Act for the 2006-2008 Biennium (2007 Acts of Assembly, Chapter 847) requires the Department of Taxation (“TAX”) to examine the effectiveness of various alternatives for implementing a tax clearance certification. A tax clearance certification program requires some form of verification that a taxpayer has paid all tax obligations prior to the issuance or renewal of a state license or permit.|
The alternatives for instituting a tax clearance certification program that were studied by TAX included: (i) requiring the applicant to certify that all tax obligations are paid and authorizing the certifying agency to verify that certification with TAX, (ii) requiring the applicant to obtain a tax clearance letter from TAX, and (iii) allowing TAX to obtain licensing information from certifying agencies and to maintain such information until a delinquency occurred, at which time TAX would notify the certifying agency of the delinquency.
TAX met with interested parties from the public and from state agencies that issue licenses. Based on the information and comments gathered during the course of the study, it does not appear to be feasible for the Commonwealth to institute a tax clearance system at this time. There are several practical reasons for this conclusion. Various state agencies issue numerous licenses of different types, using different procedures and different computer systems, which would require more than one type of tax clearance procedure. TAX would incur substantial costs to develop and administer the different tax clearance procedures and, in addition, each licensing agency would incur costs to modify its systems and procedures to suspend or revoke licenses for delinquent taxes. The impediment of incompatible computer systems may be alleviated in the future as the Virginia Information Technologies Agency implements a statewide information management plan.
Moreover, the delinquent taxpayers would have the right to contest the tax delinquency as well as the tax clearance procedures employed to suspend or revoke their licenses. The administrative hearings and litigation resulting from these disputed cases would also be costly.
Furthermore, there are legal issues regarding taxpayer confidentiality. Although there are provisions in the law that allow TAX to share taxpayer information with other agencies, these exceptions should be tightly controlled.