This paper examines the relationship between the procedural tax administration system and the characteristics of the decision-maker in the decision to comply with the tax code. Specifically, we examine the motor fuel tax system. The motor fuel tax system requires an organization to collect and remit taxes at both the federal and state levels. Using a path model, we find that the procedural complexity of the tax system contributes to an increase in tax non-compliance.
Citizen resistance to additional taxes coupled with pressure to expand services has encouraged many states to implement complex tax policies and collection systems to ensure taxes are adequately assessed and enforced. The goal of these policies and systems is the reduction of the tax gap1, thus increasing revenue available for expanding public services, without further increases in tax rates or the tax base. To address the policy goal of adequate enforcement and assessment, tax agencies use four strategies (Roth, Scholz & Witte, 1989). These strategies include deterring evasion through detecting and punishing non-compliance, reducing evasion through streamlining procedures, encouraging compliance through a normative reminder to taxpayers of their social commitments or the services supported by tax payments, and indirectly increasing compliance by working with tax practitioners. Stronger enforcement has also been shown to enhance citizen satisfaction by ensuring that each taxpayer pays his/her legal portion (Denison, Hackbart & Eger III, 1997). As equity has become a main concern for tax systems, their complexity has also grown in response.
Current research has focused on both detecting and punishing non-compliance (see Allingham and Sandmo , and Scholz and Neil ) and normative reminders (see Kaplan and Reckers , and Slemrod, Blumenthal, and Christian ) however; little attention has been paid to the impact of procedural complexity. The combined effect of both taxpayer noncompliance and the procedural complexity of the tax administration system has led to extensive criticism of tax policy (Kaplow, 1996). Much of this criticism focuses on tax administration: the complexity of the tax administration system is seen as responsible for substantial public and private compliance costs and a tax gap that is considerable despite substantial resources allocated to enforcement (Kaplow, 1996; Kay, 1990). It is argued that compliance costs and enforcement warrant rethinking basic questions of tax design: perhaps tax rules or even tax systems that are desirable in principle should be redesigned in practice. Redesigning tax rules and procedures may mean sacrificing the original equity and efficiency goals for the sake of improving tax administration (Kaplow, 1996).
Despite extensive research on noncompliance and tax-law complexity, we know very little about the effects of procedural complexity on the taxpayer's evasion-compliance decision. Although the methods by which taxpayers reduce their tax liabilities are influenced, at least in part, by the incentives created by the tax system structure (Alm, Bahl & Murray, 1990), the current research does not address the question of whether or not that structure facilitates noncompliance. It is the purpose of this paper to examine the role procedural complexity plays within the tax system and its effect on taxpayers' noncompliant behavior.
In a compliance system where income and liabilities are self-reported, two streams of research have emerged. One addresses the taxpayer's perspective and the other deals with the taxing agency's perspective. The first stream is based on the seminal work of Becker (1968). Becker suggests income tax compliance as an application of his criminal activity and punishment model, which is the foundation of modern tax compliance research. Generally, the model indicates that as …