The city of North Canton is filing criminal charges against those who haven’t filed city income tax returns. Officials hope they’ll file their returns and pay enough in owed income taxes to help mitigate the impact of a projected budget deficit.
With the city facing a budget deficit of more than $600,000, Law Director Tim Fox is playing debt collector, aggressively pursuing people who have failed to file city income tax returns.
Since November, Fox has issued at least 87 summons to Mayor’s Court, filing third-degree misdemeanor charges — which carry a maximum fine of $500 and a maximum sentence of 60 days — against dozens suspected of evading the city’s 1.5 percent income tax.
He has deployed city police officers to personally serve the summons to the defendants at home and at work around the city and as far away as Massillon.
The defendants are waitresses, accountants, business owners and sales people, Fox said. Many are married couples where both spouses have been charged. They range in age from 22 to 66. Many owe hundreds or thousands of dollars.
The summons demand they appear at the North Canton Mayor’s Court in City Hall — usually convened two Monday evenings a month — to answer to the charge.
NO JAIL YET
Fox said he’s not looking to send anyone to the county jail. None of those 87 people have been incarcerated — yet. In many of the cases, Fox said people call him, file their return and make payment or agree to a payment plan. At times, they’ll provide proof they’ve moved out of the city or no longer work in the city. Or their spouse has resolved the case. Fox then will dismiss the criminal complaint. This has happened at least eight times.
At least 46 defendants of the original 87 have appeared in Mayor’s Court before Magistrate David Nist and either pleaded guilty or no contest, paid a fine of $89 and have agreed to file a return and pay their tax debt, according to the court clerk.
Fox said no one yet has pleaded not guilty, which would send the case to Canton Municipal Court. About four have ignored the summons, and Fox said he will seek a bench warrant for their arrests.
Council President Jon Snyder, Ward 4, said the effort is unprecedented. Fox has acted at council members’ urging.
Snyder said criminal charges on tax cases were in the past reserved for only the most egregious cases. But no longer — with the city seeking to overcome losing half of its state “local government” funding, the state repeal of the local estate tax and depressed property tax revenue.
“As we fall on hard times financially, there’s money out there that belongs to the people of the city and we want it,” said Snyder. “We deliver a high rate of service ... and we have to collect the money to pay that service.”
What further reduced what the city recovered was that besides sending as many as five letters to a non-filer, the city before September took no legal action to pursue people who hadn’t filed their municipal income tax returns, said Snyder, who called the efforts to collect delinquent taxes “hit or miss.”
Page 2 of 3 - The Finance Department says the number of adults who live in the city or have a business in the city who did not file a city tax return more than doubled from at least 385 in 2009 to 872 in 2011.
The city received $6.1 million in income taxes last year, which Snyder said comprised about 75 percent of the revenue for the city’s general fund. Before the Hoover Co. left, the city got more than $9 million in income taxes, Snyder said. Income tax revenue fell to as low as $5.3 million in 2010.
WHY DO THEY OWE?
Fox, who became law director in September after he resigned from his Ward 3 council seat, said many city residents may work in a township where their employer does not withhold the tax. They may not know they owe the tax or by tax filing time in April, that one big lump sum may seem so overwhelming to pay, many may not bother to report their income.
The law director said he started pursuing those who had most egregiously ignored the city’s letters demanding they file. He said if people ignore his first two letters, he issues the summons.
Police Lt. Stanley Strausser estimates he has served about a dozen people.
When he shows up at the accused tax evader’s door, “most people are actually surprised,” Strausser said. “I make it very clear up front that I’m not there to arrest them.”
Fox said once residents call City Hall asking what the summons are about, he gets personally involved and takes their calls or calls them back. Many try to explain what happened, often blaming their accountant or former spouse for the lack of a tax return.
Finance Director Karen Alger said her department does not keep track of how much money has been raised due to Fox’s collection efforts. But in an email, she said 30 payment agreements have resulted with monthly payments ranging from $70 to $300.
Delinquent taxpayers have paid anywhere from $315 to $10,000 since September. The city does not know how much in delinquent income taxes are owed to the city since so many people have not filed returns.
Snyder added that before Fox became North Canton’s attorney, the city didn’t have a full-time law director who could devote himself to collection efforts. As a private attorney, Fox had experience representing debt collectors.
The city hired two law firms to collect owed taxes from people who had filed returns. But the firms got to keep a third to half of what they collected. And often the firms, which were busy serving other clients, didn’t file lawsuits against scofflaws if their tax debt was so small, it wouldn’t be worth the time and litigation costs to get a judge to approve garnishing wages or placing liens on property.
Page 3 of 3 - Between August 2011 and September 2012, the firm Buckingham Doolittle & Burroughs collected $16,319 for the city and got to keep $4,896 of that, Alger said.
“There’s no reason to give a third when we can do it in-house,” said Fox. “There’s thousands of dollars that are coming that can be used, applied to everything the city spends money on — salaries, snow plowing, road repair, street signs.”
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