Connecticut’s Tax Issues Amid Surpluses

Connecticut has seen significant budget surpluses recently, yet a troubling number of tax evaders owe the state millions in back taxes. As of July 10, the top 25 offenders alone are responsible for $185 million across various tax categories, including individual, business, sales, and hospital taxes. Overall, the state tax department estimates that about $3 billion remains outstanding, stemming from unfiled returns, underreported income, and unpaid tax liabilities.

Tax Secretary Mark Bourton, appointed by Governor Ned Lamont, emphasized the ongoing efforts to collect these debts, even during times of surplus. “Our expectation is that responsible taxpayers will pay their dues,” Bourton shared in an interview. He noted that every uncollected dollar increases the burden on compliant taxpayers, pointing out that this is essentially public money.

The tax department, with the help of experienced lawyers and auditors, explores cases to identify tax scofflaws both within Connecticut and beyond. They occasionally resort to legal action to recover unpaid taxes. “During this period of post-filing, we can bring in an extra $700 million through various collection methods and audits,” Bourton explained, reiterating that their work is continuous. “Sometimes it’s as simple as sending a reminder letter or making phone calls to encourage payment.”

While most residents file their taxes by April 15 and then largely forget about it, the revenue department remains active year-round, collecting from individuals, businesses, hospitals, nursing homes, and LLCs. To keep track of collection issues, senior teams meet weekly to discuss taxpayers who haven’t settled their accounts.

Thanks to a new law from the state legislature, the department has published a report examining the so-called “tax gap.” For the 2022 tax year, around 80% of the estimated $3 billion gap was attributed to underreported income, with 6% from unfiled taxes, and 14% from taxpayers who filed correctly but didn’t pay the full amount. The voluntary compliance rate stands at 85% nationally.

As part of overcoming these challenges, tax authorities are working on innovations like establishing a specialized auditing unit focused on small business owners and the self-employed, who are often major contributors to the tax gap.

Tracking employees is relatively straightforward since they receive W-2 forms, but self-employed individuals and small business owners can be much harder to monitor, especially when transactions are made in cash. The current list of the top 100 tax evaders includes a mix of individuals, businesses, hospitals, and nursing homes, and it frequently changes based on who pays their debts and who accrues more.

A notable name among the top offenders is Wesley Lors, who owes $124.7 million, with an address listed in Bridgeport. Interestingly, he also has a residence in West Palm Beach, Florida, but remains largely unknown to local officials. Efforts to contact him have been unsuccessful.

Another significant entry is Nippon Kimball Hospital, a rural acute care facility in Putnam. The unpaid taxes are the result of user fees not being returned to the state. The hospital has experienced financial strains, having previously agreed to partner with a larger healthcare network, only to have the deal fall through in 2023. Despite these challenges, CEO Kyle Kramer has stated that they are in ongoing discussions with state officials to find solutions and ensure quality care for local residents.

There are instances where the tax records show discrepancies. For example, Bourton noted that individuals sometimes claim exaggerated incomes, perhaps as a protest, leading to unpredictable situations for tax authorities. The top 100 list includes entities from various states, indicating that the issue extends beyond just Connecticut.

This list is in constant flux, making it a challenge for those managing it. Previously, Abbott Terrace Health Center, a nursing home, had appeared on the list due to unpaid taxes, but as of July 10, it was no longer mentioned.

High-Profile Tax Debts

The list even encompasses estates of notable deceased individuals, including four properties with debts totaling at least $385,000. One controversial entry is former New England Patriots player Aaron Hernandez, who owes $589,000. Hernandez was convicted of murder and died by suicide while in prison in 2017, after a highly publicized trial.

Also included is the estate of Thomas Puccio, a famous defense attorney who passed away in 2012. He was known for representing high-profile clients, adding an interesting dimension to the list.

Bourton cannot discuss specific cases due to confidentiality laws governing taxes. There are frequently disputes over residency, especially when taxpayers claim homes in states with no income tax, which complicates their tax obligations. Bourton remarked that those with the most significant outstanding amounts often engage legal representation to contest state claims.

In the end, Bourton, who has had his share of popularity challenges as a tax collector, summed up the work by saying, “It’s my job, even if it isn’t the most favored position in the state.”