Driver’s licenses, registrations may be denied over owed taxes

… O’Malley proposal would deny renewals for nonpayment …

By Michael Dresser, The Baltimore Sun

7:46 PM EST, February 1, 2011

The O’Malley administration is seeking to add new weaponry to the state’s tax-collecting arsenal with a proposal to deny driver’s licenses and vehicle registrations to those who fail to pay their taxes.

The proposal, contained in O’Malley’s budget reconciliation bill, would let the state refuse to issue or renew licenses and registrations for those who have unpaid, undisputed tax obligations. The administration expects the measure to help it collect an additional $40 million over the next two years as the state scratches for every dollar it can collect to help close a $1.3 billion shortfall.

If the measure is approved, Maryland would apparently become one of only a handful of states to make driver’s licenses and registrations contingent on tax compliance.

Shaun Adamec, spokesman for Gov. Martin O’Malley, said the measure was prompted by the administration’s desire to close the budget gap without raising taxes or fees. He said the change would not constitute a new tax but a new means of collecting taxes that already exist..

“If they’re not, it becomes a burden on those of us who do pay our taxes,” Adamec said. “The purpose of this is to collect taxes that are a liability on the state’s books. These are accounts receivable.”

The provision took AAA Mid-Atlantic, which advocates on behalf of motorists’ interests, by surprise,

“On the surface, it’s certainly of concern to us,” said AAA spokeswoman Ragina Averella. “”In many instances a driver’s license is key to enabling somebody to earn a living and thus pay their taxes.”

The governor’s critics in the General Assembly are also wary of the proposal.

“This is the heavy hand of government, and I think a lot of questions are going to be raised,” said House Minority Leader Anthony J. O’Donnell Jr.

The Calvert County Republican described the language of the provision as “very, very poorly crafted” and said it should have been introduced as a separate bill rather than rolled into the lengthy budget-reconciliation legislation — a catchall bill that typically enacts the tax changes, law revisions and revenue transfers needed to bring the budget bill itself into balance.

In particular, O’Donnell questioned language in the bill saying that the Motor Vehicle Administration may not issue or renew a driver’s license or registration to an applicant — which could include a business in the case of registrations — “who has not paid all undisputed taxes and unemployment insurance contributions” owed to the state. The lawmakers said what that means is “wide open.”

Christine Feldmann, a spokeswoman for Comptroller Peter Franchot, said the reference to “undisputed” means the state could not withhold a license or registration as long as there was a valid appeal pending before a court or administrative body. Only when the tax obligation had been fully adjudicated would it be “undisputed,” she said.

Feldmann said the comptroller’s office supports the measure and will provide testimony to the committees hearing the reconciliation bill. “To our agency, it’s sort of a natural progression of going after tax delinquents,” she said. “We do feel that everyone needs to pay their fair share.”

Feldmann said the comptroller’s office already has the power to hold up the professional licenses of nurses, doctors, certified public accountants and others who are regulated by the state if they have been found to be delinquent in their tax payments.

She said other tools the state can use include garnishment of wages, interception of federal tax refunds, denial of state contracts and the public embarrassment of being listed on the comptroller’s website as one of the state’s leading “tax cheats.”

Erin Henson, a spokeswoman for the Maryland Department of Transportation, said the tax role would not break entirely new ground for the MVA. Since the mid-1990s the agency has helped the state enforce child support orders by suspending the licenses — though not the registrations — of drivers who are in arrears on their payments.

“This just widens that scope. It’s not anything that new,” Henson said.

The measure is not the only revenue-raising provision affecting drivers in the reconciliation bill. Other language would impose surcharges on top of the current fines for drunken driving or other moving violations that add up to 6 points on one’s driving record.

Veranda Smith, interim executive director of the Federation of Tax Administrators, said the use of driving privileges as leverage is an “up-and-coming” way of collecting tax debts but is not common among the states yet.

“If Maryland went through with this, it would be in what I would call the first wave,” she said.

One state that that has been using that tool is Massachusetts, where the state has been withholding licenses from tax delinquents for about 21/2 years.

Robert Bliss, spokesman for the Massachusetts Department of Revenue, said the method usually gets a response. “It really is quite effective in getting the attention of taxpayers who owe money,” he said. According to the department, the state collected more than $17 million during its last budget year by withholding drivers’ and other licenses.

Another state that ties driver’s licenses to tax liabilities is Louisiana, where a permit can be denied if a taxpayer has exhausted appeals on an income tax debt greater than $1,000. In Michigan, not only driver’s licenses but hunting permits can be withheld from tax delinquents. Iowa has such a provision in place for withholding license plates and is considering a similar measure for driver’s licenses. Smith said other states are considering similar measures.

One reason tax officials are now using such tools, according to the comptroller’s office, is that information technology systems have become sophisticated enough to allow them to match tax delinquencies against driving records.

Feldmann said if the measure is adopted, the comptroller would use it to collect a variety of state taxes, including those imposed on personal income, businesses and estates. The state is estimating that the measure could bring in an additional $20 million in revenue during each of the next two budgetary years and about $10 million a year after that.

“We’re using every tool in our arsenal to go after folks because we know how much revenue is needed right now,” Feldman said.

But Dee Hodges, president of the Maryland Taxpayers Association, said the state has done well enough without such power. Hodges said she worries that people whose licenses are withheld for tax reasons would drive anyway.

“I think the state has enough ability to get its money that it doesn’t need this,” she said. “It’s excessive.”

Copyright © 2011, The Baltimore Sun

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