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NEWS RELEASE
For Immediate Release
Contact: Barry Ciccocioppo, 717-787-1381
Chart - Summary of Corporation Returns Reviewed

Auditor General DePasquale Says $35.4 million Owed in Corporate Taxes Could Offset Budget Cuts

HARRISBURG (April 15, 2013) – Auditor General Eugene DePasquale today announced auditors found corporate tax return errors amounting to $35.4 million in unpaid taxes owed to the commonwealth.

“We can debate tax rates all day — and April 15 might be the perfect day — but I think everyone can agree that if you owe the tax you should pay it, and we found $35.4 million in corporate taxes that is owed to the commonwealth,” DePasquale said at a news conference in the Capitol today. “This money should be part of the state budget and could be used to offset some of the devastating budget cuts made in the past two years.”

The Department of the Auditor General’s Bureau of State and Federal Audits reviews corporate tax returns after being processed by the Department of Revenue, in accordance with Act 119 of 2006. More than 20,000 corporate returns were reviewed between Feb. 1, 2012 and Jan. 31, 2013 revealing more than 1,250 returns with errors amounting to $46.3 million. Overall, corporations underpaid $40.8 million; overpaid $5.5 million; resulting in $35.4 million owed to the commonwealth. 

“Working with the Department of Revenue to verify corporate tax returns is one of the valuable services we provide to taxpayers,” DePasquale said. “We all want to know that the other guy is paying their fair share.”

DePasquale sent a letter today to Revenue Secretary Daniel Meuser about the findings and urged him to aggressively collect all taxes that were underpaid, return the overpayments and send the difference to the state treasury so it can be factored into the on-going state budget debate.

“In a $28 billion budget, $35.4 million may not seem like a lot, but it is enough to restore some of the devastating budget cuts made in the past two years,” DePasquale said, noting:

  • $8.9 million in cuts could be restored for environmental programs such as state parks and forests;
  • $12.4 million in cuts could be restored for education programs such as adult and family literacy, school safety and job training;
  • $4.3 million in cuts could be restored for health programs and services such as school district health services, and local health departments;
  • $768,000 in cuts could be restored for law enforcement programs such as the child predator interception unit, and drug law enforcement; and
  • $7.6 million in cuts could be restored for veterans homes.

“After restoring all of those budget cuts, we would still have about $1.3 million to restore other cuts,” DePasquale said.

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EDITOR’S NOTE: Following is a copy of DePasquale’s letter to Revenue Secretary Meuser and a four-year summary of corporate tax errors.

April 15, 2013

The Honorable Daniel P. Meuser, Secretary
Department of Revenue
11th Floor Strawberry Square
Harrisburg, PA 17128

Dear Secretary Meuser:

As you are aware, the Department of the Auditor General’s Bureau of State and Federal Audits regularly reviews corporate tax returns that have been processed by the Department of Revenue in accordance with Act 119 of 2006, which became effective on January 1, 2008. 

We have recently summarized the results of our reviews of corporate tax returns for the period February 1, 2012 through January 31, 2013.  Accordingly, I believe that providing you a summary of these reviews is appropriate and should offer meaningful information to Revenue’s management, as noted below: 

Corporate Tax Returns Reviewed During the Period February 1, 2012 through January 31, 2013

Of 20,160 Corporate Tax Returns Reviewed, AG Found Tax Changes for 1,251 Returns (6 percent error rate)

Tax Type

Tax Underpaid

Tax Overpaid

Net Changes

Gross Changes

Capital Stock

$718,619

$194,910

$523,709

$913,529

Foreign Franchise

1,919,791

303,810

1,615,981

2,223,601

Corp. Net Income

13,388,101

3,823,818

9,564,283

17,211,919

Gross Receipts/Gross Premiums

24,474,468

709,019

23,765,449

25,183,487

Other

321,762

426,443

(104,681)

748,205

Total

$40,822,741

$5,458,000

$35,364,741

$46,280,741

The returns with taxes underpaid and taxes overpaid have been communicated to the appropriate Revenue staff throughout the year and have been agreed upon by Revenue management.  As such, Revenue should be aggressively seeking payment of the additional tax liability from the appropriate corporations totaling $40.822 million and should refund the taxes overpaid to the appropriate corporations totaling $5.458 million. The net revenue totaling $35.365 million — and all underpaid taxes previously determined by our two agencies — that is owed to the Commonwealth should be promptly turned over to the Treasury to be appropriated as part of the annual state budget process.

With regard to Revenue’s newest endeavor to replace aging tax computer systems with your new Integrated Tax System (ITS), my staff has been working diligently with your staff on a daily basis, since the ITS went live on March 4, 2013, to ensure as smooth a transition as possible.  I hope the problems encountered in this phase of Revenue’s implementation will be resolved in the near term, so that the corporate tax returns can be processed and reviewed even more efficiently and effectively than in the past.

Thank you for your cooperation and effort to ensure corporate tax returns are accurate in accordance with applicable law and that any errors discovered in our determination process are corrected by promptly collecting or returning funds as necessary.

If you have any questions or would like to discuss this matter further, please contact me or the Bureau of State and Federal Audits at 717-787-3214. 

Sincerely,

Eugene A. DePasquale
Auditor General

Chart - Summary of Corporation Returns Reviewed