Taxes Too Small to Keep

By Heath W. Fahle and Suzanne Bates August 2013

Taxes Too Small to Keep
Executive Summary
The State of Connecticut collected $21.4 billion in revenue from 371 unique sources in fiscal year 2012. The bottom 200 sources, however, generated a total of just $22 million, raising a question about the cost effectiveness of collecting so many fees that bring in so little revenue. In this Yankee Institute policy brief, we examine the administrative costs associated with collecting these taxes and fees to make policy recommendations for lawmakers. We find the following: • It is difficult to calculate collection costs because most state agencies do not appear to 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 recommend 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 Connecticut’s occupational licensure laws to eliminate fees and reduce the cost of entering the workforce • We recommend the state legislature include an expiration date on all taxes and fees to force a regular review process


The last commercial fishing fleet in Connecticut is docked in Stonington, and thirdgeneration lobsterman Richie Maderia said the once-thriving industry is now just a shadow of what it used to be. “We have such a tough road ahead,” said Maderia, looking out over the dwindling number of boats tied up along the dock. State regulations and fees have choked the industry almost out of existence. But at least lobstermen were able to talk the state down in one regard — the cost of the tag that has to be attached to every trap dropped into the Long Island Sound. When the tags were first introduced the state wanted to charge $4 for each tag, but the lobstermen — who were already hurting from a depleted stock — talked them down to 17 cents a tag. Nearby states sell their tags for between 16 and 50 cents, so the final price brought Connecticut more in line with other states. The tags are meant to limit the number of traps lobstermen can drop, but Maderia said they are an unnecessary expense. The lobstermen can keep track of the traps they drop without the tags attached, he said. And how much does it cost to manufacture and sell the tags to the lobstermen? Is it worth it for the state to issue the tags? The state does not list the revenue collected from the tags as a separate line item, but last year $74,705 was collected under the heading “Commercial License — Lobster Pots.” That money represents hardly a drop in the bucket of the state’s $21.4 billion annual revenue catch — it’s only 0.000003 percent of total revenue brought in — and that’s including the money for the $285 commercial licenses as well as the 17 cents per trap tag. When the state is collecting such a small amount of money from a fee, it raises concern about cost-effectiveness — and the issue is not limited to lobster pots. The Yankee Institute itemized the state’s revenue sources in the 2012 Taxes and Fees Report, describing the 371 taxes and fees paid by taxpayers in fiscal year 2012


(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 Connecticut’s taxes and fees produce a very small amount of the state government’s 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 state’s 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 collector’s 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 Connecticut’s 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 Connecticut’s 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.


Other States Study Administrative Costs
Other 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 (Washington State 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 publish administrative 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 Colorado’s 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 E orts to Study Administrative Costs
The 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.


The Department of

Revenue Services,

the state’s primary revenue collection agency, generated $16.5 billion of the $21 billion the state received in fiscal year 2012. Dividing that

Department of Revenue Services Department of Insurance Department of Consumer Protection Department of Transportation Secretary of the State

Estimated Cost of Collection per $100 collected
$0.41 $0.24 $10.20 $20.00

amount by the agency’s 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, DCP’s 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 agency’s 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 comptroller’s 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.


In the DOT’s legislative proposal for the 2013 session, the department said: “The existing permit fee revenue falls far short of the Department’s 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 agency’s collection of taxes and fees. The Secretary of State’s Office collected $31.6 million in revenue for 2012. According to the Comptroller’s 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.

We 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 costeffectiveness 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 state’s online occupational licensing resource center, able to be divided among each licensing fee collected on a pro rata basis? Does an employee 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).


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 and exams 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 costeffectiveness and applicability given rapidly changing economic conditions and advent of new technologies. This heightened scrutiny is warranted and necessary to ensure Connecticut’s financial competitiveness with other states and to promote efficiency.

Richie 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.


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 1
The 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


Works Cited
Carpenter 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 Colorado Department of Revenue. (2012). Annual Reports. Retrieved May 21, 2013, from Colorado State Government: XRM/1213867975035 CT State Comptroller. (n.d.). Fiscal Year 2012 Annual Report. Retrieved 5 30, 2013, from CT Office of State Comptroller: 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. Yankee Institute . Revenue, Washington State Department of. (n.d.). Washington State Tax Structure Study. Retrieved May 21, 2013, from 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

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About the Authors Heath W. Fahle

is the Deputy Director of the Yankee Institute for Public Policy, where he directs the Institute’s operations, digital outreach, government transparency efforts, and policy research. His previous works include two studies on Connecticut’s government-funded campaigns system: Slanting the Playing Field in October 2009; and Government’s Thumb on the Election Scales in October 2011. He also manages Yankee’s government transparency efforts including the CT Sunlight Project (, 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 ( 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 bachelor’s degree in Political Science from the University of Connecticut, and is working toward his master’s in public administration from the University of Connecticut.

Suzanne Bates
has 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 bachelor’s degree in political science from Brigham Young University. She lives with her family in South Windsor, Connecticut.

About the Yankee Institute
The Yankee Institute is a think tank that develops and advocates free-market and private sector solutions to public policy issues.  Founded in 1984, Yankee has offices in East Hartford, Connecticut.  The Yankee Institute is nonpartisan research and educational organization and is classified by the IRS as a 501 (c) (3) non-profit.


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