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(July 1, 2011 to June 30, 2012). These items are actually 371 revenue accounts into

which the state deposits the myriad taxes and fees it collects. The number of taxes

and fees the state actually collects is much more difficult to ascertain, since many of

the revenue accounts hold money from a number of sources, and those accounts and

sources frequently change.

The vast majority of Connecticuts taxes and fees produce a very small amount of the

state governments overall revenue. For fiscal year 2012, the bottom 200 taxes and

fees generated just $22 million. Put another way, fifty-three percent of revenue sources

produce one-tenth of one percent of the states revenue.

This poses a practical question: Is it cost-effective to administer 200 taxes and fees that

raise so little revenue?

Much attention is paid to the cost of the tax system on taxpayers, who spend 6.1 billion

hours or approximately $168 billion each year complying with the federal tax code

according to the IRS (IRS, 2012, pp. 5-6). Less attention is paid to the tax collectors

cost, the administrative costs associated with generating revenue for the government.

In this Yankee Institute study, we examine the administrative costs of tax collection

to identify whether it is cost-effective to collect taxes and fees that produce very little

revenue. We review efforts that other states have taken to quantify administrative costs,

estimate the costs of collection for Connecticuts taxes and fees by state agency, and

offer recommendations for improving the tax system.

We find it difficult to calculate collection costs because most state agencies do not

collect data on the subject. We did estimate collection costs for five agencies, finding

a range between 24 cents and $20 per $100 collected. We also recognize generally

the challenges associated with identifying such costs. We recommend that state

agencies begin to evaluate administrative costs for each fee they collect as part of the

results-based accountability report cards they generate for the Connecticut General

Assembly. We recommend reform of Connecticuts occupational licensure laws to

eliminate fees and reduce the cost of entering the workforce. Finally, we recommend

the state legislature include an expiration date on all taxes and fees to force a regular

review process.

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Other States Study Administrative CostsOther states have made an effort to study the administrative costs of taxes and fees.

In 2002, the Washington State Department of Revenue released a draft study on the

administrative costs of the major taxes and fees collected by the state (WashingtonState Department of Revenue, 2002). They found administrative costs on a per $100

collected basis ranged between 3 cents to $61.22, with an average state tax collection

cost of 63 cents.

Washington State also determined the compliance costs for businesses for major taxes.

Those were estimated to be anywhere from 31 cents per $100 remitted up to $6.47 per

$100 remitted.

Colorado releases a yearly estimate of administrative costs in its Department of Revenue

Services annual report (Colorado Department of Revenue, 2012). For 2012 they estimated

administrative costs were $1.17 for every $100 collected. Other states that publishadministrative cost data include Michigan, California and Idaho. These states found

administrative costs as low as 10 cents for the Colorado cigarette and tobacco tax and

as high as $5.88 for Colorados alcoholic beverage tax (Mikesell, 2011).

There is a significant difference between the two measures of administrative costs in the

above studies. The Washington State study, for example, measured the collection cost

for each revenue source while the Colorado annual report identifies the cost of collection

incurred by state agency. This difference changes the measurement from a measure

of cost effectiveness - the cost of a specific tax or fee to a measure of administrative

efficiency, the cost of collecting fees for a specific state agency.

Our Eorts to Study Administrative CostsThe Yankee Institute requested cost of collection data from sixteen state agencies. None

of the twelve agencies that responded had ever heard of previous studies on the topic

nor were most agencies able to provide data sufficient to estimate these costs in terms of

effectiveness.

Subsequent efforts to estimate these costs by agency were also stymied by a lack of

publicly available data. We requested detailed budgets and organizational charts as part

of our request. We received these for some agencies, but others said either that they did

not have detailed organizational charts or did not respond to the request.

Using the information available, we estimated administrative costs for five of the 43

agencies that collect taxes and fees: the Department of Revenue Services, Insurance,

Consumer Protection, Transportation, and the Office of the Secretary of the State.

Combined, these agencies collected $15.8 billion in fiscal year 2012.

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The Department of

Revenue Services,

the states primary

revenue collectionagency, generated

$16.5 billion of the

$21 billion the state

received in fiscal year

2012. Dividing that

amount by the agencys annual operating budget of almost $65 million, we estimate

administrative costs of 41 cents for every $100 collected.

The Department of Insurance supplied a rough estimate of its own administrative

costs. The department took in revenue of $81.5 million in 2012. Peter Zelez, the fiscal

administrative manager for the department, estimated that the work of collection was

done by one full time employee and took some of the time of several other employees,

or about the equivalent of two full time employees at a cost of $193,800 a year. Based

on this estimate, we calculate the Insurance Department spends about 24 cents for

every $100 collected.

The Department of Consumer Protection, which collects $47.5 million, did not

estimate its own administrative costs. In response to our Freedom of Information request

for data, Claudette Carveth, DCPs director of communications, replied:

We do not have documentation pertaining to taxes and fees that our agency

administers, in part or in whole, that discuss cost-benefit analysis, agency overhead or

the number of FTE associated with the agencys collection costs specific to each tax

and/or fee. This includes reports, datasets, memos or emails, for FY 2012 or any fiscal

year.

Using the detailed organizational charts supplied by the agency, we identified employees

who appear to be involved in revenue collection, including those related to occupational

licensure. Using the salaries of those 54 employees for 2012 found on the state comp-

trollers website, plus their fringe benefits, we estimate a collection cost of $4.84 million,

or $10.20 for every $100 collected.

The Department of Transportation asked the state legislature in 2013 to increase

the fees for outdoor advertising permits, typically meaning billboards. In its request to the

legislature, the agency said that the administrative cost of monitoring the billboards is

$400,000 a year.

Agency

Estimated Cost

of Collection per

$100 collected

Department of Revenue Services $0.41Department of Insurance $0.24

Department of Consumer Protection $10.20

Department of Transportation -

Secretary of the State $20.00

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In the DOTs legislative proposal for the 2013 session, the department said: The existing

permit fee revenue falls far short of the Departments costs associated with regulating

the outdoor advertising industry. The current permit fees range from $20-$60, and the

department was asking for those to increase to $40-$120.

We asked DOT for the calculation used to determine the administrative costs for

billboards. Wally Lugli, chief of financial management and support for DOT, said:

I was told it was just an estimate, no official study was done (Lugli, 2013).

According to the Secretary of the State, the commercial recording division is

responsible for the agencys collection of taxes and fees. The Secretary of States

Office collected $31.6 million in revenue for 2012. According to the Comptrollers

annual report, the commercial recording division cost $6.3 million to run in 2012 (CT

State Comptroller). Using these figures, the fees collected by the Secretary of State cost

$20 for every $100 collected.

RecommendationsWe find it difficult to calculate collection costs because most state agencies do not

calculate the cost of collecting the taxes and fees they administer nor does it appear

they have much data on the subject. Evaluating specific revenue sources for cost-

effectiveness is impossible in this context.

We recognize the challenges associated with identifying such costs. For example,

are the capital costs associated with the Connecticut Business Response Center/

Licensing Information Center, the states online occupational licensing resource center,

able to be divided among each licensing fee collected on a pro rata basis? Does anemployee whose job description does not include fee-processing count as an

administrative cost if he or she occasionally plays a role in the task anyway? These

are important questions that should be addressed by agency leadership in collaboration

with state employees and legislators.

We recommend state agencies begin to evaluate administrative costs for each fee

collected as part of the results-based accountability report cards they already generate

for the Connecticut General Assembly. State officials should establish and apply

guidelines for calculating administrative costs to all relevant agencies.

We recommend the elimination of certain licensure fees as part of a broader reform of

occupational licensure in Connecticut as described in the recent Yankee paper on the

subject (Murphy).

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State government already requires licenses for 241 occupations the 15th most in the

nation according to the Institute for Justice. Connecticut is one of just seven states to

license tree trimmers and upholsterers, one of three that license home entertainment

center installers, and the only state that licenses conveyor operators and forest workers.

The Institute also found that nationally, licensing costs entrepreneurs an average of $209

in fees and requires at least one exam and about nine months of training and education

(Carpenter II, Knepper, Erickson, & Ross, 2012).

Many professions currently subject to licensure need not be licensed. In 2012, the state

collected $219,655 in licensing fees from fire sprinkler installers, another $143,990 from

TV repairmen, and $52,839 from interior designers. These licenses often unnecessarily

regulate and intrude on local enterprise and create a barrier to entry for individuals

attempting to enter the workforce.

While necessary in certain circumstances, fees for continuing education courses andexams should be considered for repeal. Exams cost businesses millions of dollars every

year, which are ultimately passed on to consumers as higher prices. Currently these

fees are listed under Other Fees/App/Exam in state documents. The state collected

$9,044,950 in 2012 in these fees from local businesses.

These regulations make it more difficult to live and work in Connecticut. The US Chamber

of Commerce estimated in 2011 that burdensome regulations cost Connecticut more

than 12,000 jobs (US Chamber of Commerce, 2011). Higher taxes and fewer job

opportunities lead many people to look elsewhere for work. Chief Executive magazine

reported that more than 16,000 net residents moved out of state last year, one of the

highest rates in the nation on a per capita basis (Chief Executive Magazine, 2013).

We also recommend that the state legislature include an expiration date on all taxes and

fees to force a regular review process. Requiring that all taxes and fees sunset after a

five or ten year period will force legislators to review each revenue source for cost-

effectiveness and applicability given rapidly changing economic conditions and advent

of new technologies. This heightened scrutiny is warranted and necessary to ensure

Connecticuts financial competitiveness with other states and to promote efficiency.

ConclusionRichie Maderia and thousands of Connecticut residents like him ultimately suffer from

the same challenge: The freedoms and opportunities that were once open to them in

Connecticut are slowly but surely disappearing. A state government that cannot attest

to the cost effectiveness of its own actions is at least part of the problem.

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The State of Connecticut does not currently know how much it spent to collect $21.4

billion in revenue in fiscal year 2012. We estimate the costs to be between 24 cents

and $20 per $100 collected by agency, offering a rough sketch at best about the

administrative efficiency of each state agency. We were unable to project these costs

on a per revenue source basis to establish cost effectiveness due to a lack of data

collected by the state.

We recommend the establishment of guidelines for calculating administrative costs in

collaboration with state employees; requiring these calculations be included on

results-based accountability report cards; adopting occupational licensure reform to

eliminate certain taxes and fees; and including an expiration date on all legislation

creating a new tax or fee to create a regular process of legislative review in the future.

When adopted, these recommendations will improve lives by expanding personal

freedom and creating new opportunities for growth in Connecticut.

Appendix 1The Yankee Institute requested information on the cost of tax and fee collection from

sixteen state agencies, including:

Department of Insurance

Department of Consumer Protection

Department of Energy and Environmental Protection

Department of Public Health

Department of Administrative Services

Department of Emergency Services and Public Protection Department of Motor Vehicles

Department of Agriculture

Department of Labor

Department of Revenue Services

Connecticut Judicial Branch

Secretary of the State

Office of Chief Medical Examiner

Department of Corrections

Department of Education

Department of Transportation

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Works CitedCarpenter II, D. M., Knepper, L., Erickson, A. C., & Ross, J. K. (2012). License to Work:

A National Study of Burdens from Occupational Licensing. Washington, DC: Institute for

Justice.

Chief Executive Magazine. (2013, 5 6). The Best and Worst States for Business 2013.

Retrieved 5 15, 2013, from http://chiefexecutive.net/connecticut-is-the-45th-best-state-

for-business-2013

Colorado Department of Revenue. (2012).Annual Reports. Retrieved May 21, 2013,

from Colorado State Government: http://www.colorado.gov/cs/Satellite/Revenue-Main/

XRM/1213867975035

CT State Comptroller. (n.d.). Fiscal Year 2012 Annual Report. Retrieved 5 30, 2013, from

CT Office of State Comptroller: http://www.osc.ct.gov/2012annual/pdf/LegalReport2.pdf

IRS. (2012). National Taxpayer Advocate Annual Report to Congress. Taxpayer Advocate.

Washington DC: Internal Revenue Service.

Lugli, W. (2013, February 8). Chief of Financial Management and Support, Connecticut

Department of Transportation. (S. Bates, Interviewer)

Mikesell, J. (2011). Fiscal Administration: Analysis and Applications for the Public Sector

(8th Edition ed.). Boston, MA: Wadsworth.

Murphy, R. You Didn't Build That. http://www.yankeeinstitute.org/YouDidntBuildThat.pdf.

Yankee Institute .

Revenue, Washington State Department of. (n.d.). Washington State Tax Structure Study.

Retrieved May 21, 2013, from http://dor.wa.gov/content/aboutus/statisticsandreports/

wataxstudy/Simplicity-Findings.pdf

US Chamber of Commerce. (2011, 3 2). U.S Chamber Study Shows States Could

Create Nearly 750,000 Jobs and 50,000 New Businesses by Streamlining Employment

Regulations. Retrieved 5 15, 2013, from http://www.uschamber.com/press/releas-

es/2011/march/us-chamber-study-shows-states-could-create-nearly-750000-jobs-

and-50000-ne

Visit us on Facebook www.facebook.com/yankeeinstitute

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About the Authors

Heath W. Fahleis the Deputy Director of the Yankee Institute

for Public Policy, where he directs the Institutesoperations, digital outreach, government

transparency efforts, and policy research.

His previous works include two studies on

Connecticuts government-funded campaigns

system: Slanting the Playing Field in October

2009; and Governments Thumb on the Election

Scales in October 2011. He also manages

Yankees government transparency efforts

including the CT Sunlight Project

(www.ctsunlight.org), an online database of

state and local government spending.

His opinion pieces have been featured in

the Hartford Courant, New Haven Register,

Waterbury Republican-American, and the

Torrington Register-Citizen. He is a contributing

columnist at CT News Junkie

(www.ctnewsjunkie.com).

Prior to joining Yankee, Heath was the Executive

Director of the Connecticut Republican Party

and on the staff of Congressman Rob Simmons

(CT-2).

He earned his bachelors degree in Political

Science from the University of Connecticut,

and is working toward his masters in public

administration from the University of Connecticut.

Suzanne Bateshas worked as a journalist and researcher for

more than 10 years, including work for the

Associated Press, the New Hampshire Union

Leader, Good Morning America Weekend and

New Hampshire Public Radio.

Personal highlights from her career include

covering presidential candidates in the 2008 New

Hampshire primary, interviewing diplomats on the

United Nations Security Council, and covering

the Wyoming State Legislature.

As a researcher, she has studied state education

policies, the security implications of skewed

gender ratios in Asia, and congressional

fundraising.

Suzanne has a graduate degree in journalism

from Columbia University and a bachelors

degree in political science from Brigham Young

University. She lives with her family in South

Windsor, Connecticut.

About the Yankee InstituteThe Yankee Institute is a think tank that develops

and advocates free-market and private sector

solutions to public policy issues. Foundedin 1984, Yankee has offices in East Hartford,

Connecticut.The Yankee Institute is nonpartisanresearch and educational organization and is

classified by the IRS as a 501 (c) (3) non-profit.

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