The District’s finance office failed to collect nearly $750,000 in motor fuel taxes in recent years largely because it let delinquent taxpayers off the hook, according to an audit released days before the D.C. Council voted to raise the gas tax.
The Office of the Inspector General “identified uncollected motor fuel tax revenues of about $733,000 for six years,” said the audit, dated July 26. The District’s Office of Tax and Revenue, auditors reported, “has not been aggressively pursuing potential revenues,” as it never followed up with motor fuel importers who didn’t pay.
The audit was issued July 26, five days before the council voted to increase the gasoline tax from 20 cents to 23.5 cents per gallon.
The amount lost is a tiny percentage of the District’s $5.4 billion budget and its $1 billion-plus shortfall looming over the next four years. And it wouldn’t cover the $3.5 million expected from the higher fuel tax.
But the inspector general notes that, because tax collections are so important in a down economy, the “efficiency of the tax collection systems and the effectiveness of policies, procedures, and internal controls determine whether the District is maximizing collection of its taxes.”
Gasoline is taxed by the District twice, when it is imported into the city and again at the pump. The audit focused only on the city’s 70 identified importers, and more specifically, on the independent truckers — rather than a Shell or Sunoco. All importers must file monthly returns.
Twenty-one importers had been issued delinquent notices since 2003, auditors found, but there was no evidence that any of those late bills were paid.
“More importantly,” auditors wrote, “we found that prior to our on-site fieldwork, no collection efforts were conducted by [the tax office] for motor fuel taxes other than these automatically generated delinquency notices.” The cases were never assigned to a collector.
The $733,000 includes the taxes owed, interest and penalties.
The inspector general also found no evidence that the tax office’s audit team reviewed any of the 840 motor fuel tax returns filed in 2006 or 2007 to ensure that importers weren’t shorting city coffers.
In his written response to the audit, Office of Tax and Revenue Director Stephen Cordi said his agency has moved to collect the back taxes, and will “make sure that motor fuel tax collection cases are assigned to revenue officers or collections agencies” in the future. The agency also pledged to be more aggressive about auditing returns.
