Credits Continue to Tax the State: Follow-Up on Recommendations Made in Report No. 12-05, Audit of the Department of Taxation’s Administrative Oversight of High-Technology Business Investment and Research Activities Tax Credits

From Hawaii State Auditor, Report No. 15-11, September 2015

DoTAX auditors, spending all their time addressing complaints and inquiries about various high-dollar tax credit refunds, are not performing a core function—auditing tax returns

In our follow-up of recommendations made in Report No. 12-05, Audit of the Department of Taxation’s Administrative Oversight of High-Technology Business Investment and Research Activities Tax Credits, we found that the Department of Taxation (DoTAX) continues to struggle with administrative responsibilities created by a flawed high technology tax credit law.

In Report No. 12-05, released in July 2012, we reported that DoTAX performed only a high-level review of tax credit applications, not verifying self-reported numbers.

Our 2015 follow-up found that oversight responsibilities of the high technology tax credit, along with other high-dollar and high-volume tax credits, such as the renewable energy tax credit, are overshadowing DoTAX’s core oversight functions.

According to DoTAX’s tax compliance administrator, department auditors now spend their time responding to taxpayer complaints and inquiries about refunds for high-dollar, high-volume tax credits, such as the high-technology business investment tax credit and renewable energy technologies tax credit. As a result, DoTAX staff are neither auditing tax credit applications nor tax filings as a whole.

The compliance administrator told us that DoTAX’s 20 auditors currently have a backlog of hundreds of tax returns targeted for audit; however, the department lacks the resources to carry them out.

In addition, in 2012, we reported that the State had issued and was responsible for reimbursing nearly $1 billion in tax credits; however, approximately three years later, we found that this obligation has nearly doubled, to almost $2 billion.

Although the State stopped issuing them in 2010, high-technology tax credits do not have a sunset date; therefore, tax credit recipients can carry over unused credits indefinitely. These obligations impact taxpayers and government services statewide....

Read ... Auditor's Report 15-11

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2012: Audit: State Gave Away $1B Act 221 Tax Credits Without Verification of Eligibility

2011: Solar Credits: 1000s of Homeowners to Face Audits to Cover up DoTAX Re-write of Law

DN: Audit report: virtually unlimited tax credits for businesses cost the rest of us dearly