Although Kansas does maintain a comprehensive inventory of its tax credits and exemptions, it trails what many other states are doing to regularly evaluate their tax incentives and use the results to inform policy. According to The Pew Charitable Trusts, Kansas trails other states in following best practices for evaluating tax incentives. This is because Kansas does not have formal policies requiring regular, systematic evaluations of major tax incentives. Further, the limited evaluations that are conducted do not necessarily address the cost or economic impact of tax incentives. Finally, Kansas does not have formal processes to ensure lawmakers consider the results of tax incentive evaluations. Several other states, including Kansas’ neighbors, meet many of Pew’s best practices.
Agricultural Land Valuation: Evaluating the Potential Impact of Changing How Agricultural Land is Valued in the State
State law requires the value of agricultural land be based on its use value—a measure of the land’s net income—rather than its fair market value. The Division of Property Valuation within the Department of Revenue uses a complex formula and a large amount of data to calculate agricultural land values. In determining agricultural property values, state law also requires an eight-year average of net income to help ensure land values and the property taxes they produce remain stable. We tested the impact increasing the number of years in the calculation would have on agricultural property values for a single land type in a sample county and found it would produce more stable values. However, increasing the number of years also results in values that increasingly lag current crop prices, yields, and mixes. Moreover, increasing the number of years would likely result in reduced property values because crop prices are not adjusted for inflation. In addition, the assessed values produced by the formula do not necessarily reflect actual income for individual landowners because they are based on county
Department of Commerce: Evaluating the Department's Compliance with Statutory Caps for the PEAK Program
The Department of Commerce administers the Promoting Employment Across Kansas (PEAK) program, which allows eligible businesses to retain some of their employees’ state income tax withholdings. Our 2013 audit found that the department had exceeded statutory limits on the amount of benefits that could be given to expanding businesses. In 2014, the Legislature clarified the law, creating more specific limits for both expanding businesses and retaining jobs in Kansas. We reviewed PEAK benefit records to determine compliance with statutory benefit limits. We found PEAK benefits paid to expanding businesses have stayed within the statutory limits. Benefits paid to retain existing jobs exceeded the statutory cap slightly in fiscal year 2015, but remained within the cap in other years. Finally, the Department of Commerce has authorized benefits for job retention to be paid in fiscal year 2019 – beyond the date currently allowed by state law.
The Kansas Racing and Gaming Commission: Evaluating Selected Regulatory Processes and Standards
The Kansas Racing and Gaming Commission regulates state-owned casinos to ensure compliance with state and federal laws. The Kansas Racing and Gaming Commission must approve any changes to a casino’s internal controls or table games. Some of these requests likely affect revenues (slot machine and table game changes) making it important for Racing and Gaming staff to respond timely to these requests. We found that about 70% of slot machine requests and 23% of table game change requests were not approved in a timely manner. In addition, 34% of the remaining internal control change requests were not approved within three months by the Kansas Racing and Gaming Commission. Finally, unlike Kansas, other states that we reviewed use a risk-based approach for reviewing change requests.
We identified several areas where Kansas’ gaming standards required more review or were more stringent than several other states. These areas include slot machine payouts, review of table games changes, and approval of advertising and promotional materials. Also, we found that Kansas has not adopted the most recent electronic gaming standards recommended by its contractor, Gaming Laboratories International.
Department of Revenue: Examining Issues Related to the DMV Modernization Project
In July 2009, Kansas Department of Revenue (KDOR) officials signed a contract with the 3M Company to develop and implement a new motor vehicle information system referred to as the Division of Motor Vehicles (DMV) Modernization Project. As of October 2014, the DMV Modernization Project is not complete and has fallen significantly behind schedule. The project has two phases. Phase One, the new motor vehicle system was deployed in May 2012; about 10 months late. Phase Two, the new driver’s license system has not been deployed and is nearly three years behind schedule. In May 2014, KDOR terminated its contract with 3M, and plans to complete Phase Two internally. Because the project is not complete, the total cost of the project is unknown. Several factors, including poor project management contributed to the project’s delay. Also, we found problems with the state’s oversight of the project including that external, independent risk assessments were discontinued before Phase One was implemented. Finally, project monitoring reports used by the state’s top IT officials and the Legislature did not always provide an accurate picture of the project’s status.
On behalf of KDOR, county treasurers and their staff register and title motor vehicles in Kansas. We estimate that county treasurers incurred about $2.0 million to $2.5 million in additional costs to implement Phase One. However, KDOR paid a total of about $560,000 to counties to help offset some overtime costs and also provided temporary staffing assistance to two counties. KDOR officials do not expect any stakeholders to incur additional costs to implement Phase Two. In addition, we estimate that counties incurred about $1 million in additional costs related to taking on new title-approval duties that were previously completed by KDOR. However, state law dictating how the title fee is split between the state and counties has not changed.
County treasurers reported a number of current problems with the new motor vehicle system (Phase One). In response to our May 2014 survey, nearly three-quarters of county treasurers told us the new system is often or always slow at processing transactions. They also expressed concerns about data problems in the new system, including inaccurate, duplicate or missing data. County treasurers also continue to experience problems with the new system’s equipment. Finally, county treasurers expressed concerns about KDOR’s ability to communicate and provide assistance.
Economic Development: Determining Which Economic Development Tools are Most Important and Effective in Promoting Job Creation and Economic Growth in Kansas, Part 2
Studies suggest many economic development initiatives are difficult to evaluate or have not been successful, yet states must offer them to remain competitive. Our analysis showed that Kansas has the appropriate programs for enhancing the state’s economic development. That is because overall Kansas generally has the same types of economic development programs as five other states we reviewed. Kansas’ programs also generally provide the incentives that stakeholders indicated are useful. Business officials and other respondents disagreed about how lowered income tax rates would affect economic development in Kansas. Lastly, stakeholders offered a number of suggestions for improving the state’s existing programs.
Economic Development: Determining Which Economic Development Tools are Most Important and Effective in Promoting Job Creation and Economic Growth in Kansas, Part 1
REGARDING THE ECONOMIC BENEFITS OF PEAK AND HPIP
The Promoting Employment Across Kansas (PEAK) program and the High Performance Incentive Program (HPIP) use different forms of tax incentives to promote job creation and capital investment. Assessing the benefits of the PEAK program is difficult because the Department of Commerce has not compiled meaningful program-level information. However, based on the best information we could compile, companies participating in PEAK have generated an estimated 5,200 jobs in exchange for $21 million in forgone withholding taxes through December 2012. Most of the jobs associated with the PEAK program are relatively high paying, are located in metropolitan counties, and represent several different industries. However, a similar program in Missouri and a recent reduction of Kansas income tax rates could undermine the benefits of the PEAK program in the future. With regard to HPIP, the Department of Revenue reported companies made $310 million in capital investments and created or retained 6,900 jobs in exchange for $21 million in tax credits in tax year 2010. However, the department’s tax credit data may not be completely reliable. We also identified a number of problems related to the Department of Commerce’s management of the PEAK and HPIP programs. Problems with the PEAK program include the department exceeding the statutory cap on authorized incentives, not thoroughly and timely reviewing companies’ applications and periodic reports, and not having a systematic process for managing the program.
REGARDING THE ENFORCEMENT OF PERFORMANCE CLAUSES
The Department of Commerce included clawback terms in the agreements of the six economic development programs we reviewed. Our work showed the Department of Commerce generally enforced clawback terms when it became aware that companies had not met performance requirements. However, it did little to enforce reporting requirements, which limited its ability to identify underperforming companies. We also identified additional problems with the department’s management of the four programs we reviewed in depth, including inconsistent enforcement of some agreements and poorly worded agreements in three programs. Further, all four economic programs we reviewed lacked adequate written policies, and the department had not developed annual reports to allow it to better manage those programs.
Department of Revenue: Evaluating the Revenue Impact of Machinery and Equipment Classification and Valuation
County appraisers are responsible for classifying assets as real or personal property and appraising and maintaining records of those properties. The Division of Property Valuation within the Kansas Department of Revenue is responsible for providing oversight and guidance to county appraisers. Complex manufacturing plants represent a small portion of appraised property in Kansas and were the focus of our audit work because of a recent lawsuit. A targeted review of three ethanol manufacturing plants identified problems with county appraisers’ inconsistent classifications and valuation errors. We found Kansas’ computer assisted mass appraisal system does not work well for appraising these complex manufacturing plants. Further, we noted the division does not provide sufficient oversight and guidance for appraising these plants. These problems likely are limited to a small number of complex manufacturing properties. Lastly, we found some neighboring states also struggle with appraising complex properties, but the tax ramifications are different.
In 2012, the Legislature considered two bills to amend property tax laws. Senate Bill 317 would have changed how some commercial property was classified. Specifically, certain commercial fixtures (formerly real property) would be classified as personal property. We estimate this change would reduce statewide property tax revenues between $170 million and $500 million annually, over the long term. SB 317 would have had several other consequences in addition to its financial effects. The 2012 Legislature also introduced Senate Bill 59 which would have prevented appraisers from reclassifying certain personal property. We could not analyze the fiscal impact of the bill due to a lack of available data.
Examining Selected Financial Management Practices of the State Treasurer’s Office, Fiscal Year 2012
The Legislative Post Audit Act requires this audit of the State Treasurer’s Office. RubinBrown, a certified public accounting firm under contract with Legislative Post Audit, conducted this examination. The examination addresses 10 selected financial management responsibilities of the State Treasurer’s Office. The auditors found that the management’s assertions were fairly stated in all material respects, meaning that, for the areas examined, the Office complied with the applicable statute. The auditors noted some minor issues with delivery of the daily cash sheet and with a late distribution of highway equalization funds.
State Employee Residence: Assessing Potential Increases in Revenues by Requiring State Employees to Reside in Kansas
We estimate that about 3,600 state and school district employees live outside Kansas. Imposing a residency requirement for state employees would only generate new tax revenues if out-of-state employees move to Kansas. If 25% of all out-of-state employees move to Kansas, a residency requirement could generate approximately $2 million a year in state and local tax revenues. This includes $1.4 million in new taxes paid by the employees, and another $650,000 in indirect tax revenues from increased economic activity. However, in order to generate meaningful revenues, a residency requirement would need to be implemented aggressively, which would significantly affect out-of-state employees. If the requirement was put into effect in the near term, employees would have to move or seek new employment. Grandfathering in current out-of-state employees would remove the impact on them, but would essentially eliminate the new tax revenue. Finally, adopting a residency requirement would limit the labor pool for state agencies and could be expensive to administer.
Reviewing the Operations of the State Treasurer's Office - FY 2011
The Legislative Post Audit Act requires this audit of the State Treasurer’s Office. RubinBrown, an audit firm under contract with Legislative Post Audit, conducted this audit. The audit addresses 10 questions about selected financial management responsibilities of the State Treasurer’s Office. The auditors identified one deficiency: the Office distributed certain other taxes and State aid moneys after the due date. The State Treasurer’s Office generally agreed with the audit findings. He indicated that the Office did not distribute the other taxes and State aid moneys by the due date because the Office did not receive the information until the day the payment was due.
Accounts Receivable: Reviewing Agencies' Efforts To Collect Amounts Owed to the State (A K-GOAL Audit)
For the State, accounts receivable represent moneys expected to be collected for unpaid taxes, overpayments, fines, or goods and services provided. Our survey of 53 State agencies with significant accounts receivable found that many State agencies could improve their debt collection efforts if they strengthened their collection policies and adopted other collection best practices. Four of the six programs we reviewed in detail failed to meet many of the collection best practices applicable to their operations; three of those four also had inadequate collection policies. Overall, the four poor-performing programs had deficiencies in some or all of the following areas: monitoring receivables, aggressively pursuing debts, using enforcement tools, and using outside collection options, including the State’s Setoff Program. If those four programs improve their collection efforts, they might be able to collect a significant amount of additional revenue: collecting just 5% more of those programs’ delinquent receivables would generate almost $3 million in one-time revenues. We also noted that not all of the $2 billion accounts receivable shown in the State’s financial report is collectible because it includes aged, and therefore doubtful, receivables for a number of agencies.
Kansas Tax Revenues, Part III: Reviewing Property Tax Exemptions
A significant amount of real and personal property currently is exempted from taxation--including all property used for governmental and educational purposes, and certain business machinery and equipment -- but there is almost no data on how much the State and local governments are losing in tax revenues from these exemptions. We identified a number of exemptions the Legislature may want to re-evaluate, including six exemptions that have been broadened beyond what the Constitution requires regarding household goods, church parsonages, non-profit housing organizations, and certain buildings owned by private non-profit universities or colleges. In addition, four exemptions relating to farm structures, certain aircraft, and low-production oil wells could result in unequal treatment for similar types of taxpayers. Finally, local governments have lost a significant amount of property tax revenues from four machinery and equipment exemptions.
Kansas Tax Revenues, Part I: Reviewing Tax Credits
Kansas currently has 47 tax credits and 2 refund programs. Only 34 of the tax credits had been in existence long enough for us to evaluate. After applying tax policy considerations and reviewing available data, we identified 8 tax credits the Legislature may want to consider repealing, primarily because minimal or declining use over time suggests they aren’t fulfilling their purposes. One refund program and 6 other credits could be considered for modification because they are more generous than similar credits or programs in some neighboring states. Finally, we identified 12 tax credits the Legislature may want to reconsider to ensure they provide the right balance between the Legislature’s public policy goals and State funding needs. Three of Kansas’ four transferable tax credits--Angel Investor, Community Service Contribution, and Deferred Maintenance--are a cost-effective way of generating money from the State’s perspective because all the money the State gives up in forgone tax revenue goes to the project or activity the State is subsidizing. The Historic Preservation Tax Credit isn’t a cost-effective way to generate money from the State’s perspective because, on average for the credits that have been sold to raise money for projects, only 85 cents went to the project for every dollar the State gave up. Since its inception, $312 million worth of projects have been approved for Historic Preservation Tax Credits. About $44.2 million of resulting tax credits actually had been claimed so far through 2008. If all the credits related to the approved projects are issued and claimed, the amount of forgone tax revenue could be as high as $78 million. This credit is costing much more than the initial estimate of $1 million a year.
Kansas Tax Revenues, Part II: Reviewing Sales Tax Exemptions
Kansas currently has 99 sales tax exemptions that cost the State an estimated $4.2 billion in fiscal year 2009. Sales tax exemptions in several areas provide unequal treatment for similar types of taxpayers, including $2.2 million in exemptions granted to 39 specifically named organizations. Kansas also exempts some non-profit organizations from paying sales taxes, but not their for-profit counterparts. Such exemptions are not in line with good tax policy principles. The Legislature hasn’t formally adopted a public policy goal regarding the types of organizations, services, or activities it wants to exempt from sales tax.In all, 13 sales tax exemptions accounted for $4.1 billion (96%) of the total estimate of revenues forgone in 2009. Six of those exemptions accounting for $3.4 billion, relate primarily to taxing goods at the final point of sale, and not taxing government entities. Seven exemptions totaling almost $700 million were for machinery and equipment, education/youth activities, labor services utilities, and prescription drugs. Although they significantly erode the State and local tax base, there are other significant considerations for having them. Finally, in recent years, the Legislature has broadened many sales tax exemptions to allow purchases on behalf of or sales by certain entities. We noted several issues with these exemptions.
Property Valuation in Kansas: Reviewing the Valuation of Agricultural and Commercial Properties
State law requires all real property subject to taxation to be appraised uniformly and equally as to class, and at its fair market value, except agricultural land, which is valued at “use” value. All the differences in value in our within-county comparisons of 18 pairs of commercial buildings and eight pairs of agricultural structures seemed justified. Differences in property values across counties reflect appraisers’ decisions about market conditions; some seemed justified, but others were questionable. Land classified as agricultural receives a significant tax break, and getting land reclassified to agricultural is relatively easy because of Kansas’ broad definition of agriculture. Tax receipts in Johnson and Butler Counties were reduced by at least $204,000 for 2004 after 64 plots of vacant land were reclassified as agricultural. Kansas may want to consider implementing a tax roll-back policy to recoup property taxes when agricultural land is reclassified. Concerns about agricultural land being purchased for recreation, yet continuing to be classified as agricultural, is an issue in southeast Kansas. But because the uses aren’t mutually exclusive (that is, land purchased for hunting can be used during most of the year for growing hay or grazing cattle) it’s unlikely this situation will change unless the Legislature chooses to significantly narrow the State’s definition of agriculture.
Tax Enforcement: A K-GOAL Audit Determining Whether the Department of Revenue Is Collecting Delinquent Trust Taxes Owed The State
The Department of Revenue has a number of good practices for identifying businesses that aren't registered for trust taxes, filing timely returns, or remitting all the taxes owed. Its efforts could be strengthened by getting more cities and counties to help identify unregistered or under-remitting businesses, performing more automated cross-checking both internally and with other State agencies to find unregistered businesses, by consistently using information it collects from motor vehicle dealers to identify dealers that may not be paying all the sales tax they owe. Although most businesses voluntarily remit the trust taxes they collect on behalf of the State ($4.2 billion in fiscal year 2004), about $191 million in delinquent trust taxes was referred for collection activity that year. Collections from delinquent accounts have increased significantly in recent years, but we identified several problems with the Department's collection efforts in 40 sample cases, including delays in referring delinquent accounts into collections, lack of prompt actions to collect moneys, and lack of aggressive enforcement actions. Increasing the resources devoted to delinquent tax collection efforts would appear to be cost-effective.
Taxation of Contractor Equipment: Determining Whether Kansas’ System of Taxes and Fees Is Similar to Surrounding States
Local governments in all the states we contacted assess personal property taxes against construction equipment, but Kansas, Colorado, New Mexico, and Texas will collect property tax even if a contractor already has paid in another state. With few exceptions, Kansas and its neighboring states don't impose motor vehicle registration fees on construction equipment, primarily because such equipment isn't regularly driven on state roads or highways or the interstate highway system. All contractors have to pay oversize/overweight permit fees in Kansas and all 4 of the surrounding states we contacted, but those fees are much lower in Kansas. Kansas could generate about $1 million or more of new revenues each year by imposing some fees that other states already collect, and by increasing existing fees to bring them in line with what other states charge.
Motor Fuel Tax Refunds: Determining Whether Adjustments Made to Refund Claims Were Handled Correctly (100-hour audit)
Of the sample of motor fuel refund claims we reviewed, 37% of the claims (21 of 57) were paid incorrectly. The amounts paid incorrectly ranged from a few cents to several hundred dollars; some taxpayers were overpaid, and others underpaid. Most errors were caused by Department staff making mistakes while trying to correct refund claims using cards with outdated tax rates. Other errors were caused by staff simply not updating the outdated rates on those cards. For 2 claims involving substantial refunds the documentation submitted by taxpayers didn't support their claim, but the Department paid the full refund anyway. This included one claim submitted by a large corporation requesting a refund of nearly $59,000 without providing any original invoices to support its claim, as required by law. We noted numerous problems with this claim and the Department's handling of it.
Taxes on Motor Vehicle Sales: Reviewing the Department of Revenue’s Procedures For Ensuring That Correct Amounts of Sales and Compensating Use Taxes Are Paid
The Department of Revenue doesn't have adequate procedures in place to ensure that vehicle dealers remit all the vehicle sales taxes they collect from customers. The Department's Divisions of Taxation and Motor Vehicles aren't coordinating and using information the Department already has available. This could help identify dealers who collect but don't remit vehicle sales taxes. Although requiring dealers to submit additional information would further strengthen the Department's collections system, having county treasurers–rather than vehicle dealers–collect the sales tax might be more effective and efficient. During testwork, 5 large vehicle dealers appeared to be remitting tax correctly, but 4 of 7 small dealers that Department staff suspected of problems weren't remitting all the taxes they'd collected from customers. In addition, 3 of these 4 dealers had long histories of not remitting, but the Department allowed them to continue to operate. In addition, nearly half the private sales of vehicles reviewed had reported sale prices that appeared to be significantly lower than fair market value, making it likely that the State could collect millions in additional sales taxes on these transactions. Finally, about 10% of the rebates reviewed on new vehicles purchased out-of-State weren't taxed as required. We estimate the annual tax loss on these rebates at slightly more than $200,000.
Federal Funds: Determining Whether Opportunities May Exist To Leverage State Spending To Draw Down More Federal Funds
This audit involved a fairly high-level review of opportunities that may exist for the State to draw down additional federal funds. We identified 6 opportunities that appeared to have a high potential for generating as much as $20 million in additional federal revenues. Most of these opportunities involved federal reimbursements through the Medicaid program that could be claimed by school districts or community developmental disability organizations. We also identified 8 additional opportunities in social services areas (such as increasing targeted Medicaid rates and auditing agencies' cost allocation plans) that warrant further investigation to determine whether additional federal revenues could be generated. Finally, we observed that Kansas could benefit from a more coordinated effort to identify and secure more federal funds. One possibility would be a centralized office to coordinate federal funding and develop an overall strategy to maximize federal moneys.
Valuing Commercial Buildings for Property Tax Purposes: Determining Whether Current Procedures Ensure Accurate Appraisals at Fair Market Value
More than one-fourth of the 32 commercial office buildings we reviewed in Johnson, Sedgwick, Shawnee, and Wyandotte Counties didn't appear to be accurately valued–7 appeared to be undervalued, and 2 appeared to be overvalued. Of these 9 buildings, 6 were in Shawnee County, while each of the remaining counties had 1. When buildings appeared to be undervalued, it was generally because counties hadn't considered all the income each building produced, such as revenue from parking garages, or in considering a building's value they had used different rates for rent, expenses, vacancy, or rate of return than their own market studies suggested were appropriate. The lack of documentation in Sedgwick, Shawnee, and Wyandotte Counties' files prevents anyone from being able to know how accurate their commercial appraised values are. At the State level, the Property Valuation Division's current oversight system provides a broad, high-level review of counties' compliance with State law requiring uniform and equal appraisal of property at fair market value. Although the Division provides guidance and training, conducts annual reviews, and follows-up to see whether problems are corrected, it could strengthen its oversight by periodically reviewing a sample of individual property files and assessing whether and how well counties are applying appraisal procedures.
Corporate Income Taxes: Reviewing Factors Affecting the Recent Steep Drop in Those Tax Receipts
For fiscal year 2002, net corporate income tax receipts were $100 million below November 2001 estimates, and about $118 million below 2001 receipts. The downturn in the economy appears to have been the primary factor affecting the steep drop in corporate income tax net receipts. Other contributing factors were: a Supreme Court decision ordering the Department to refund $25 million in taxes paid, multi-state corporations apportioning less of their income to Kansas, and an increase in the number and amount of income tax credits taken. These and other factors will continue to affect net receipts in the future. Overall, there's been less scrutiny of corporate tax returns since the implementation of a new computer system in 2001. Before converting to that system, the Department elected to ease up on the review of corporate tax credits claimed on returns. Under the new system, returns receive less overall scrutiny than in the past. Recently, the Department has one fewer auditor and has averaged about 7 fewer audits than in previous years. However, the additional dollars the State has received as a result of audits has stayed fairly constant. Although Kansas does fewer field audits than comparison states, those audits generally have found a larger amount of additional taxes due.
Bingo Tax Laws: Reviewing the Department of Revenue’s Implementation and Enforcement of Those Laws
Since the Bingo Act was amended in 2000, the Department of Revenue has focused its efforts on setting up new automated systems for handling bingo tax payments and information. However, no audits of distributors or cross-matching of reported bingo face purchases and sales have been done to determine whether all bingo taxes have been paid. Bingo tax revenues in Kansas continue to decline, primarily because of competition from other gaming activities and fewer people playing bingo. The steeper-than-usual drop in bingo tax receipts during fiscal year 2001 also may have been caused by the tax on call bingo being set too low when the Bingo Act was amended.
Retailer Sales Taxes: Assessing Whether the Amounts Distributed to Localities Have Been Computed Correctly
Most of the localities we looked at eventually received the correct amount of sales taxes collected while the Department was converting to its new computer system, but there were some problems. The Department initially sent out incorrect amounts to localities. It later corrected its calculations, but didn't explain its adjustments very well to local officials. Even after all the adjustments were made, at least one city appeared to have gotten about $31,000 too much. Our tests of returns the Department received in October 2000 showed that when a payment was received with a fully completed sales tax return, it was generally distributed to localities without error. However, payments that come in without a sales tax return or other needed documentation may experience long delays in getting to localities because the Department didn’t systematically identify and resolve them. The $19.5 million transfer from State General and Highway Funds to several local tax funds in October 2000 was needed primarily because a glitch in the Department of Revenue's sales tax computer system caused money from utility sales tax payments to be credited to the State funds when it should have gone to the local funds. Although this glitch didn't result in any localities being underpaid, it caused a temporary shortage of money in the fund the locals are paid from. This error was scheduled to be fixed in April 2001. In the meantime, Department staff were making manual monthly adjustments to avoid the need for similar large transfers in the future.
Employee Credits Against Premium Taxes: Reviewing Issues Related to Those Credits
The 1997 Legislature made a number of changes to the premium tax law, including “equalizing” tax rates at 2% of taxable premiums for in-State and out-of-State insurance companies, letting all companies with Kansas salaries claim a salary credit of up to 1.25% of their taxable premiums, and letting “affiliated” companies share each others' unused salary credits, whether or not they had Kansas employees. These changes reduced premium tax receipts by $12 million in 1999 and almost $25 million in 2000, compared with Insurance Department estimates of $3.7 million and $7.1 million, respectively. The drop was so much greater than expected because far more out-of-State companies were able to take the salary credit than the Department had projected. Some had operations in Kansas the Department was unaware of. In addition, many companies were able to claim a salary credit they otherwise wouldn't have been entitled to because of the affiliate provision in the law. A number of insurance companies reported higher salaries to the Insurance Department for salary credit purposes than they reported to the Department of Human Resources for unemployment tax purposes. But those discrepancies didn't appear to affect the amount of salary credits the companies were eligible for. The Insurance Department needs to improve its procedures for making sure that only eligible salaries are being claimed, and that companies sharing salaries meet the legal definition of affiliation.
Reviewing Various Issues Related to the Department of Revenue’s Handling and Processing of Tax Returns
Many of the problems with incorrect or delayed income tax refunds in 1999 occurred because inaccurate information was entered into the Department's computer through equipment "misreads," data conversion problems, staff or taxpayer errors, etc. Other problems were caused by bugs or a lack of edits in the computer software. Also, the system lacked some important controls to prevent inappropriate refunds or adjustments. New software installed in November 1999 contains fixes for many of the problems we saw, and will bring the sales tax process on line. That process also could experience problems in 2000 because of a lack of time to adequately test the computer programs before they had to be installed to meet Y2K deadlines. On average, income tax refunds took almost five weeks to generate in 1999, about twice as long as in 1998. Contributing factors: the need to reprogram the computer to handle changes in the tax laws, and an increased amount of work to be done by fewer staff. Also, many refund checks were returned because staff didn't update taxpayers' addresses. These delays and other factors resulted in about $1.2 million in interest being paid on refunds as of September 1999, compared with an average of $560,000 for the three previous years. Further, the way the Department interprets the laws related to interest on refunds and the amounts to be paid under the food sales tax refund program may result in the State paying out millions more than it needs to. Delayed refunds, coupled with unnecessary or confusing correspondence sent to taxpayers, caused a huge volume of phone calls to the Department, most of which weren't answered. Although the telephone system has been improved, a repeat of 1999's tax-processing problems likely will cause phone problems to surface again in 2000. Finally, the Department's system of checks and controls to try to ensure that taxpayers' checks aren't accidentally shredded appears to be adequate.
Reviewing Revenues and Expenditures for the Vehicle Information Processing System and the Computer-Assisted Mass Appraisal System After Changes in State Law, Through Fiscal Year 1998
This audit was conducted by Berberich, Trahan & Co. under contract with Legislative Post Audit. It found that changes to State law in 1996 have resulted in about $7.9 million in additional revenues coming into the State during fiscal years 1997 and 1998 to help fund upgrades for the Kansas Vehicle Information Processing System and the Computer-Assisted Mass Appraisal System. This amount was about $4.2 million more than the Department of Revenue originally had estimated. About $2.9 million of these moneys was used to upgrade vehicle identification processing system computer hardware for counties with older equipment, almost exactly what the Department originally estimated would be spent on that project for fiscal years 1997 and 1998. In addition, although the Department had originally expected to spend about $1.1 million on the project for improving the computerized property appraisal system used by the counties, only about $40,000 actually has been spent. That money was used for a continuing assessment of the system's needs. Because acceptable software seems to be unavailable at this time, further expenditures on the project likely will be delayed.
Reviewing State and Federal Oversight of Sand Dredging on the Kansas River (100-hour audit)
Neither the Department of Revenue nor the Corps of Engineers takes any steps to ensure that sand-dredging companies are submitting accurate information or making correct sand royalty payments to the State. Both the Department and the Corps rely on self-reported information from sand-dredging companies, believing that companies have little incentive to under-report. Also, the Corps reviews survey data every two years to monitor what, if any, damage that dredging has done to the Kansas River. Although dredging companies' data are not verified by either agency, the companies in our sample appeared to be reporting as accurately as possible. One company was reporting and paying royalties on tons of sand sold, rather than dredged, and company officials indicated that it wasn't aware of the 1996 statute which instead requires companies to report and pay royalties for the number of tons of sand removed from the river. The fiscal impact of this misreporting, however, was minimal.
Examining the Use of Bingo Tax Revenues by State and Local Units of Government (100-hour audit)
This audit compared revenues from bingo taxes to the amount spent enforcing bingo regulations. State and local governments are required by law to spend bingo tax moneys on the enforcement of bingo regulations. We found that, although the Department of Revenue spends all the moneys it receives from bingo taxes, those moneys aren’t spent specifically on bingo enforcement. Further, officials of 9 of the 10 local governments we contacted told us that even though they received bingo tax revenues, they didn’t do any bingo regulation enforcement. Officials of the tenth locality we contacted told us that locality’s police department did some bingo regulation enforcement as part of its regular duties, but they couldn’t estimate the cost of that enforcement. For the most part, then, bingo revenues aren’t being spent as required by law.
Reviewing the Regulatory Activities of the Division of Alcoholic Beverage Control
To accommodate other responsibilities Department officials have assigned to them, ABC agents are spending less than half the time they spent five years ago enforcing the State’s liquor laws. With fewer resources available for liquor enforcement, Division officials have tried to focus on catching sales of liquor to minors, which means some administrative requirements of the Liquor Control Act aren’t being as vigorously enforced. In addition, for safety and liability reasons the Division has told its agents to stop pursuing vehicles transporting open containers of alcohol. Because a high percentage of liquor establishments still appear to be selling to minors, additional enforcement efforts should be taken to catch violators. In addition, serious efforts need to be made to improve the system for imposing and tracking fines and penalties. Enforcement agents in Kansas come into the job with fewer qualifications than people doing similar work in other states. Even though the Department tries to make up for this by providing appropriate training, some agents told us they thought they needed more. The Division followed applicable personnel laws and regulations when it hired and promoted staff. However, we couldn’t tell whether employee reallocations met all guidelines because these actions generally weren’t well documented. Finally, no one can tell whether the State is receiving all the bingo tax revenue that’s due because the Department doesn’t require bingo licensees to keep the necessary information to make that determination.
Reviewing the Vehicle Information Processing System and the Computer-Assisted Mass Appraisal System after Changes in State Law
This audit, conducted by Berberich, Trahan & Co. under contract with Legislative Post Audit, found that during fiscal year 1997 revenues of the VIPS/CAMA Technology Hardware Fund totaled about $1.3 million, and revenues of the Electronic Databases Fee Fund totaled about $2.7 million. Both amounts exceeded the original revenue estimates of the Department of Revenue. During that same fiscal year, expenditures of about $380,000 from the Technology Hardware Fund mainly funded computer hardware upgrades for counties with older equipment. Expenditures from the Databases Fee Fund totalled only about $15,000, mainly to assess needs and develop specifications, because the Department found that acceptable software doesn’t seem to be available at this time.
Reviewing the Distribution of Sales and Transient Guest Taxes to Cities and Counties (100-hour audit)
The Department of Revenue is responsible for collecting and distributing local sales and transient guest taxes to cities and counties that have imposed those taxes. Legislative concerns had been raised that the Department might be distributing one local government’s taxes to another local government. Our reviews showed that the Department is distributing those taxes accurately and on a timely basis. We saw one instance where taxes were distributed to the wrong local government because a retailer moved one of its retail stores from one jurisdiction to another without informing the Department of Revenue. However, the Department already had discovered that error and corrected it.
Reviewing the Progress of the Department of Revenue’s Project 2000
The audit found that the Department of Revenue generally has established good management practices for carrying out Project 2000. We raised a concern about the lack of a full-time project director. We also found two areas where the Department’s practices could work more effectively--testing of products and communication within the Project. Problems in both these areas contributed to the Department’s long delays in getting out tax refund checks while implementing the first major computer system of the Project. American Management Systems will be paid up to $49.9 million for their work on the Project, and the Department expects to take in a total of $225 million by 2002 in additional revenues as a result of the Project. We found that the Department has established a reasonable method for determining the amount of additional tax revenue it’s receiving because of Project 2000. To fund the Project, AMS and the Department developed several initiatives that do such things as improve the productivity of the Department’s existing collections system, and identify people who should’ve paid taxes but hadn’t done so. Through May 1997, these initiatives had resulted in $17.6 million in increased collections. AMS has until 2002 to collect its full fee. We found that the Department was taking reasonable steps to ensure that the amount of additional taxes collected and credited to the Project were accurate.
Tax Increment Financing in Kansas, Part II: Reviewing a Sample of Districts
Overall, compliance with the tax increment laws in Kansas appears to be fairly high. We noted, however, that for two projects in Kansas City, officials hadn’t established separate funds to account for the incremental tax revenue, as the law requires. In addition, Kansas City didn’t appear to have a very good system to account for the amount of development costs the City incurred for one project. We also noted some cities are using tax increment financing in ways the Legislature initially might not have anticipated, such as moving an existing business from one enterprise zone to another or developing a city park within a redevelopment district. Finally, with the exception of environmental tax increment districts, the use of tax increment financing should have little impact on school district revenues and State aid payments.
Reviewing the Methodology Used in Conducting & Analyzing the State’s Sales-Ratio Study
The methodology the Division uses in conducting the ratio study is reasonable. It generally is consistent with professional appraisal guidelines and standards, although the Division has adopted a more lenient standard for assessing the uniformity of residential sales. The Division is operating under a court order to ensure that real property appraisal in Kansas complies with the State Constitution. The court order requires a way of determining compliance that’s different from the Division’s normal methodology. As a result, it’s likely different counties will be found in compliance under each method. The Division’s policies for including and excluding properties from the ratio study closely follow professional standards. Division staff did a good job of following those policies, and of responding in an equitable manner to informal appeals filed by county appraisers.
Reviewing Tax Increment Financing in Kansas, Part 1: An Inventory
There were 32 tax increment districts in Kansas, according to city officials. The majority of those districts, 25, were in the Kansas City or Wichita metropolitan areas. Preparing sites for private development and acquiring and demolishing blighted property are the activities most often undertaken by cities in tax increment districts. The audit includes a listing of all these districts, the projects being developed within them, and the developers’ and cities’ estimated costs for those projects.
Reviewing the Vehicle Information Processing System and the Computer-Assisted Mass Appraisal System after Changes in State Law
The 1996 Legislature earmarked certain funds for improving the State’s Vehicle Information Processing and Computer-Assisted Mass Appraisal Systems. In general, those funds arise from certificate of title fees and fees from the sale of public records. During the first three months of fiscal year 1997, the Department of Revenue collected $278,454 for upgrading the Systems’ hardware and $315,865 for operation, maintenance, and improvement of these and the Department’s other electronic data base systems. These amounts are reasonably close to estimates provided to the 1996 Legislature. During the first three months of fiscal year 1997, the Department spent about $8,900 to begin hardware procurement for upgrading the Vehicle Information Processing System.
Reviewing Sales Tax Enforcement and Collection Efforts at the Department of Revenue: A K-GOAL Audit
Based on comparisons with other states, the Division of Collections doesn’t appear to be very cost-efficient or effective. Further, the Division doesn’t routinely produce and review the basic management information it needs to track its effectiveness and efficiency. Our review of a sample of delinquent sales tax accounts identified several problems with collection activities, including inconsistency and lack of timeliness. The Department’s Audit Bureau appears to be a cost-efficient part of its collection efforts; during fiscal year 1996, the Bureau’s auditors assessed additional taxes due of about $24, and collected $12, for every dollar the Bureau spent. The current approach for handling sales tax exemptions--which makes the seller responsible for determining whether a particular sale is exempt from sales tax--is the same approach used in most other states. Parts of the sales tax law are difficult to interpret, which can result in inconsistent treatment of taxpayers. The Department could adopt additional administrative regulations to interpret the law, but Department officials contend it would be better for the law to be changed.
Reviewing the Department of Revenue’s Mail-Opening and Cash-Depositing Procedures
In fiscal year 1995, the Department of Revenue collected $4.1 billion in taxes and fees. Some of those moneys were deposited electronically, but most arrived in the mail and were processed by hand. Although the Department generally deposits tax revenues in a timely manner, we found that during the 1995 income tax season, it lost nearly $200,000 in interest income because of delays of up to 22 days in depositing checks from taxpayers. Department officials told us that as part of the Kansas Tax 2000 project, they expect to purchase equipment to automate the mail-handling and check-depositing functions, which should significantly reduce the delays. They expect to have this equipment in place for the 1997 income tax season.
Use of Alcoholic Liquor Fund Moneys By Local Units of Government
In 1994, the 10 localities we visited spent about 85% of their Special Alcohol and Drug Program Fund moneys for programs that complied with the law. Another 11% of the moneys were used to pay for items that in our opinion did not comply with the law. Those expenses included prosecutors’ salaries, police vehicles, and administrative costs. For the remaining 4% of the moneys, the municipalities did not have sufficient documentation for us to determine whether the expenditures complied with the law. Although two counties made slight errors in distributing tax revenues from the State to their Special Alcohol and Drug Program Funds, localities generally have established reasonable procedures to ensure that the moneys awarded to outside agencies are spent according to the law.
Reviewing the Department of Revenue’s Enforcement of Kansas Motor Fuels Tax
The Department of Revenue’s procedures do not ensure that all motor fuels taxes due the State are paid. The Department also is not enforcing statutory reporting requirements for transporters of motor fuels, and cannot uncover fraud with the information and reports currently received from taxpayers and other involved parties. Staff resources committed to auditing and investigating compliance with motor fuels tax laws are not adequate to meet the statutory mandates placed on the department. The Highway Patrol and the Board of Agriculture provide periodic assistance in enforcing motor fuels tax laws, but these resources are not available to the Department on a consistent basis. The Department could improve its tax collection procedures by adopting some of the methods used by the federal government or other states.
Reviewing the Computer-Assisted Mass Appraisal System
The audit shows that the original CAMA software and hardware cost nearly $5 million. Since 1988, the State has spent about $850,000 on CAMA software enhancements. In addition, the State and counties have spent more than $600,000 on hardware improvements. The CAMA System is capable of generating the sophisticated mathematical analyses necessary to value properties annually. The vast majority of county appraisers think the CAMA System generally works well, but could be improved. The types of problems county appraisers identified with the CAMA software and hardware do not appear to prevent the computer from producing good values, but they do make the System harder for some county appraisers to use. However, a number of information-related problems appear to be hindering the effectiveness of the CAMA System. Those include problems related to the valuation of both commercial and residential properties, appraisers’ education and training, and communication. The Department of Revenue has assembled a task force to evaluate the current Kansas CAMA System and make recommendations regarding its future.
Reviewing Selected Issues Regarding Uniform and Equal Appraisal of Property in Kansas
The plan the Division of Property Valuation submitted to the District Court to correct problems with property valuation in Kansas addressed many of the problems which led to unequal property valuation, but was not very specific about how the Division intended to implement the solutions. In addition, some of the Division's proposed actions appeared overly ambitious based on what its staff has been able to accomplish in the past. The Division's plan either did not address, or did not go far enough, to ensure that State and county staff receive needed training, that methods for measuring compliance with the law identify all counties that have non-uniform valuations, that appraisal directives do not allow non-uniform valuation, and that Division policies do not impose unnecessary burdens on the counties that cause them to use their staff inefficiently. In addition, the Legislature will need to consider amending several laws to close loopholes and to relieve some of the burdens placed on county officials.
Reviewing Staffing in the Division of Property Valuation (100-hour audit)
The Division currently employs 73 people, two-thirds of whom are classified as property appraisers. In both 1988 and 1992, nearly all employees met the minimum qualifications for their jobs. Because of a position reallocation, the one employee who did not meet minimum qualifications in 1992 was not required to do so. Most of the Division's staff provide technical assistance and support to counties, but some staff are responsible for determining values for motor carriers and utilities. In Cherokee County, as in other counties, the Division's staff provides supervision of the reappraisal effort, but is not responsible for determining countywide property values.
Reviewing the Department of Commerce’s 1991 Bond Allocations
The Department's process for authorizing localities to issue tax-exempt bonds is inadequate. Some informal policies, procedures, and criteria for processing and evaluating applications exist, but they are not written and do not cover all aspects of the allocation process. The Department's process for allocating bonds in 1991 appeared to comply with applicable laws, but the allocation for mortgage revenue bonds was made much earlier than in previous years. Certain aspects of the allocation process were not adequately documented, but it appeared that decisions for allocating mortgage revenue bonds were, in essence, delegated to the bond underwriters on the Department's advisory committee.
An Update of Tax Incentives or Reductions Available to Kansas Businesses
Between 1987 and 1990, the State granted or significantly changed 42 business tax incentives or reductions. These 42 items included changes to incentives for various types of taxes, such as property, retailers' sales, income, and privilege, and severance taxes. Fiscal impact information was available for 34 of the 42 tax incentives or reductions identified, and the estimated annual cost to the State for those 34 items was approximately $70 million.
Examining Out-District Tuition Expenditures for Leavenworth County (100-hour audit)
Leavenworth County is paying the correct amount in out-district tuition for its residents who are taking classes at community colleges and Washburn University. The County's budgeted out-district tuition expenditures for 1988, 1989, and 1990 appeared to be reasonable based on information available to officials when they set those budgets. However, the County in essence double-counted the expenses associated with repayment of short-term financing it obtained to meet a 1989 out-district tuition fund shortfall. As a result, the mill levy for 1990 was set at a level to collect about $160,000 more in taxes than needed. At the time of this audit, the County had not yet begun formulating its 1991 budget. Using the most current revenue and expenditure information available--including unaudited 1989 data--we projected that the County's 1991 out-district tuition expenditures would range from about $600,000 to about $660,000.
Analyzing the Revenues and Expenditures of the Kansas Lottery
During fiscal year 1989, the Kansas Lottery did not operate as efficiently as possible. Overall, the Lottery had a deficit of $5.1 million, which it covered by spending down most of its retained earnings from the previous year. Because of requirements in the law, the Lottery will not be able to cover such deficits in the future and still meet its statutory obligations for transferring money to the State Gaming Revenues Fund. As a percent of ticket sales, the Lottery's fiscal year 1989 administrative costs were nearly four times as high as the average of four other state lotteries we reviewed. If the Kansas Lottery's administrative expenses had been the same as the average of the other states, it would have spent about $7.6 million less in fiscal year 1989. The Lottery has budgeted reductions in administrative expenses during the next two years, but the percent of ticket revenues the Kansas Lottery spends for some items like salaries and wages, telecommunications, and travel still will be significantly higher than the average of the other states.
Property Taxes in Large Sample of Cities and Counties
Nearly two-thirds of the 50 cities and counties reviewed during this audit levied higher property taxes in the reappraisal year than they had in the previous year. These increases ranged from 0.02 percent to more than 50 percent. All but five of the increases complied with State laws regarding property tax levies during the reappraisal year. Those five cities and counties exceeded their maximum allowable levies, but the levies were only $2 to $721 higher than allowed by State law
A Detailed Review of Property Tax Levy Increases for the Reappraisal Year in Leavenworth County and Hutchinson
Both Leavenworth County and Hutchinson raised their property tax levies for 1990 over 1989 levels by significant amounts. Although these increases complied with the Tax Lid Law, both localities made changes to avoid the property tax limitations of that Law. Both local government units were able to rearrange their funding sources and use exceptions in the Law to increase property taxes during the reappraisal year.
Reviewing the Effectiveness of Property Tax Limitations Enacted in Response to Statewide Reappraisal--Overland Park (100-hour audit)
Two of the local units of government reviewed during this audit increased their property tax levies between 1988 and 1989, including a 0.7 percent increase in Overland Park, and a 17.2 percent increase in Johnson County. During the audit, nothing came to our attention that would indicate that the three local units were not in compliance with State laws regarding their 1989 property tax levies. Due to the limited timeframe for the audit, we could not determine the extent to which local units may have taken advantage of the tax lid exemptions by reallocating their mix of funding resources.
Reviewing the Effectiveness of Property Tax Limitations Enacted in Response to Statewide Reappraisal--Leavenworth and De Soto (100-hour audit)
All six local units of government reviewed during this audit increased their property tax levies between 1988 and 1989, ranging from an eight percent increase for Unified School District 232 in De Soto to a 33.4 percent increase in Leavenworth County. During the audit, nothing came to our attention that would indicate that the six local units were not in compliance with State laws regarding their 1989 property tax levies. Due to the limited timeframe for the audit, we could not determine the extent to which local units may have taken advantage of the tax lid exemptions by reallocating their mix of funding resources.
Pasture and rangeland were appraised based on the ability of the land to support livestock. This is a use-value method of appraisal. The appraisal processes used by the counties we visited were fairly uniform, but adverse land conditions that could limit the usefulness and value of the land were not always taken into account. In addition, Reno County had a large number of problems resulting from incorrectly classified soil. On average, for the parcels of land we reviewed, valuation of pasture and rangeland decreased as a result of reappraisal. In addition, for another sample of parcels of land reviewed, it appeared that valuations based on use-value were actually lower than if rental rates alone had been used.
Department of Revenue’s Delinquent Tax Collection Process
In the fall of 1988, taxpayers owed the State approximately $71 million in delinquent sales, withholding, and individual income taxes. At that time, the Department of Revenue’s Division of Collections had established uniform collection procedures for those delinquent accounts; these procedures were more consistent and aggressive than actions used before the Division was created in November 1987. Because a proposed automated collection system will not be completed until fiscal year 1990, we could not determine how that system will further enhance the Division’s collection procedures.
The revenues the Department of Revenue reported for the stations in its cost-revenue analysis were accurate. The reported salaries and other operating expenses were estimates that were generally overstated in fiscal years 1984-1986, and understated in fiscal years 1987-1988. The State’s charges for permits do not vary, but the amount motor carriers pay for those permits when ordered from wire service companies or delivered to truck stops may differ greatly. However, there is no indication that those differing charges constitute unequal treatment.
Reviewing the Department of Revenue’s New Computer Systems
The Department of Revenue’s new computer systems for property reappraisal and vehicle processing appear to be achieving their projected benefits. The property reappraisal system was implemented on schedule, but the vehicle processing system took about a year longer to develop than anticipated. Both systems cost more than originally planned, largely because of subsequent changes or enhancements. The vehicle processing system has resulted in some operating efficiencies in the areas of staffing, paperwork backlogs, and equipment.
Kansans may be registering their vehicles out of State because property taxes are higher in Kansas than in the surrounding states. Officials from most of the 20 counties surveyed did not think out-of-State registration was a significant problem. However, Wyandotte County’s enforcement program collects about $1 million annually, and Johnson and Sedgwick Counties are considering enforcement programs. The auditors could not determine the extent of out-of-State registrations because county officials generally could not estimate how many Kansans are registering vehicles in other states.
Problems Implementing the Kansas Business Integrated Tax System (K-BITS)
Because of numerous problems that have plagued the system’s development, the Department of Revenue cannot estimate when it will be complete or which taxes will eventually be covered. Adequate resources, continuity in personnel, and long-range planning that includes accurate cost and time estimates and provisions for a full-time project manager are needed if the system is to be completed.
Tax Incentives or Reductions Available to Kansas Businesses
The audit provides an inventory of major taxes levied on businesses in Kansas and summarizes statutory exemptions, exclusions, deductions, and other provisions that can allow businesses to reduce their taxes. When available, an estimate of the fiscal impact of each of the statutory provisions is provided.
Most of the audited localities’ expenditures for alcohol and drug abuse programs complied with State law. A few used liquor tax funds to pay administrative costs, which is not specifically allowed by law. Others funded such activities as teenage hotlines and domestic violence programs, which did not have substance abuse as their primary concern. Statutory changes made in 1986 may prohibit such expenditures in the future.
Improving Collections on Closed Sales Tax Accounts
Retailers who have gone out of business without remitting all the sales taxes they collected may owe the State up to $11.5 million. The Department of Revenue’s procedures for collecting these delinquent sales taxes are generally ineffective. In many instances, the Department could increase the amounts collected by more strictly enforcing current laws and regulations. To maximize collections, the audit recommends more aggresive enforcement of current State law, as well as changes in law and administrative practices.
Based upon information collected, it is estimated that there are about 2,500 tax exempt parsonages Statewide. County records indicate that most churches maintain only one parsonage, with 25 out of the 65 counties providing information maintaining two or more tax-empt parsonages. It is estimated that all of the parsonages combined represent a total valuation of nearly $10 million and property taxes of about $1.4 million.
Higher motor fuel taxes in fiscal year 1984 resulted in an $18.4 million Statewide increase in revenues distributed to cities and counties for local roads and highways . Only two of 12 localities reviewed clearly decreased their local taxing effort; most maintained or increased their local revenues. Increases in expenditures from special local road funds ranged from three percent to 140 percent.
Although the asessment /sales ratio study prepared by the Division of Property Valuation is generally accurate, improvements can be made in several areas. A review of 1,500 parcels of property in three counties disclosed only one parcel that was incorrectly listed on the tax rolls. Unreported improvements to real property may be a more significant problem; on-site visits to 225 properties showed a number of discrepancies with county records.
Vehicle Rental Agencies: Reviewing Compliance with Vehicle Registration and Insurance Laws
Not all vehicle rental companies operating on an interstate basis are registering the required number of vehicles in Kansas or paying the appropriate amount of property taxes. In addition, uninsured rental vehicles registered in other states could be operating on Kansas highways. Ensuring that all rental companies register some of their vehicles in Kansas, which subjects them to Kansas’ insurance verfication, procedures at registration time, appears to be the best control over this system.
Misuse of Dealer License Plates By Kansas Vehicle Dealers
Clear cases of dealer plate abuse were found by auditors in a review of about 100 car dealerships. Changes that might help curb such abuse include tighter guidelines for issuing plates and more frequent inspections and follow-ups.
Department of Revenue: Dealer Licensing Regulatory Program
This report concludes there is no need for the Dealer Licensing Bureau to continue regulating the sale of vehicles in Kansas because its regulatory efforts do little to safeguard the public from harm. The Bureau’s activities are primarily administrative. It handles only those complaints dealing with administrtion matters like misuse of dealer tags.The Bureau’s regulation also cannot help ensure dealers are more competent or qualified because there are no training, education, or experience requirements for licensure. Other aspects of the regulatory program that either act to benefit the industry or don’t serve to protect the public include licensing vehicle salesmen and regulating dealer-manufacturer relationships.
Department of Revenue: Division of Alcoholic Beverage Control
This sunset audit examined the State’s regulatory program, which is administered by the Division of Alcoholic Beverage Control. The audit found that Kansas’ program is one of the most restrictive in the country, primarily because of statutes and regulations that restrict business operations. These include strict residency requirements, prohibitions against advertising, restrictions on deliveries, sales, and credit practices, and minimum retail mark-ups of alcoholic beverage prices.The audit also examined the collection and enforcement of the liquor excise tax. Based on a review of the Division’s method of estimating taxes owed, the auditors concluded recent estimates appear to have been overstated. Further, initial audits of private clubs conducted by Department of Revenue auditors show some taxable liquor sales are not being reported.
This audit focused on the administration and enforcement of sales and withholding taxes, which accounted for more than half of the approximately $1.35 billion in gross revenues administered by the Division in 1981. The Division’s effectiveness in administering these taxes was examined in three areas: identifying and registering firms that are required to remit taxes, managing their accounts and periodically updating their filing cycles to ensure that returns are filed according to the schedules called for in the law, and following up and applying penalties on firms not remitting taxes or not filing timely and accurate returns.The audit concludes that improvements are needed in all three areas and makes a number of recommendations. Most call for using resources or laws already available to improve or strengthen management practices, to comply with current laws, and to carry out functions on a more timely basis.
Assessing the Effectiveness of the Kansas Motor Carrier Inspection System
The audit found that the number of permits issued to trucks using State highways had dropped sharply, cutting into anticipated revenues. If permit sales during the last six months of 1977 had been at the same level as sales during the same period a year earlier, receipts would have been about $1.9 million instead of the $1.6 million actually collected. However, the largest single reason for the decline may have been that motor carriers were purchasing partial (prorated) registrations instead of temporary operating permits. The partial registrations cost less, and sales are not counted as revenues from permits. Also, of the trucks sampled, 7.8 percent lacked one or more of the necessary permits. The State may be losing as much as $3.1 million a year in revenue because trucks are operating without permits in the State. The audit recommended several improvements in the inspection system.
In this audit each state agency will be requested to submit a one time inventory report listing all state owned property and leased land including legal descriptions. After review of results by the Post Audit Committee, the inventory reports are to be forwarded to the Department of Administration for permanent record.