If the national rate of income tax evasion is reflected in Utah, the state may be losing $100 million annually in unpaid personal income taxes, according to the Utah Foundation.
A recent article published by the Tax Foundation, a national tax research organization, estimates that 17 percent of the taxes owed on legal income in the United States are not paid. That percentage translates into an $84.9 billion loss for the 1987 tax year.The Utah Foundation used that article to determine the amount lost annually in Utah through tax evasion.
Utah's individual income tax law is based on the federal tax code, the foundation said. "Thus, is an individual in Utah cheats on his federal tax, he also will be cheating on his state tax."
Tax evasion has been increasing at an annual rate of about 4.1 percent, after an adjustment for inflation, according to a 1987 study by the American Bar Association's Commission on Tax Compliance.
Tax evasion aggravates the federal deficit problem. The tax gap of $85 billion for the 1987 tax year was equal to about 55 percent of the federal deficit for that year, the foundation concluded.
The Internal Revenue Service analysis shows that evasion of individual income taxes during 1986 totaled $63.5 billion, while improper corporate tax returns accounted for $21.4 billion.
Of the three possible sources of the tax gap-under-reported income, overstated deductions, and credits and math errors-under-reported income by individual filers accounts for the largest proportion, the foundation said. It accounted for $48.3 billion, or 57 percent, of the 1987 tax gap.
Overstated adjustments, deductions and exemptions totaled $6.1 billion, improper tax credits .9 billion, and math errors $1 billion.
The study said tax cheating costs the average person who pays an honest tax about $642 per year.