More Contingent Fee Hawaii DOTAX Audits to Come?

Is the Hawaii Department of Taxation (DOTAX) planning on bringing in more outside firms to help increase collection and compliance?  Recently enacted SB 1206, proposed and advanced by DOTAX, clarifies that the Director of Taxation has responsibility over the collection of all taxes including delinquent taxes.  While this is of no surprise, this change is made in Section 231-13, HRS, which allows the Director to enter into contracts with third parties such as lawyers and accountants for the collection of taxes.  The law allows DOTAX to pay for these lawyers and accountants with a fixed fee, on an hourly basis, or using a contingent fee arrangement.

Why would DOTAX propose and lobby for the amendment to the obscure Section 231-13?  The change made by SB 1206, while perhaps not highly substantive, will provide added cover for DOTAX to pursue all taxes with contingent fee arrangements with lawyers and accountants.  In essence, DOTAX may pursue collections of all taxes without up-front cost.   Certainly, this indicates to me that DOTAX intends on expanding its use of third parties to improve and expand its tax collection efforts.  With the recent success in the OTC GET case prosecuted on a contingency fee basis with a mainland attorney, it seems that SB 1206 is an effort by DOTAX to solidify its legal right to use outside firms to pursue tax collections.

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One comment

  1. Richard McClellan

    Thank you for this insight. I had previously believed this change was in response to a self-represented tax appeal court litigant challenging the Director’s authority to collect taxes, and seemed consistent with a pattern of seemingly minor changes to Chapter 231 over the past couple of years.

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