Tax Evasion from a Policy Perspective: The Case of the Motor Fuels Tax(*)
Denison, Dwight V., Eger, Robert J.,, III, Public Administration Review
Taxes are fundamental to the existence of government, for tax revenues finance the bulk of services our governments provide including education, welfare, public safety, highways, and basic public services. Among other factors, the widespread resistance to additional taxes and the devolution of federal programs to the states have encouraged states to examine the efficiency of tax administration and enforcement to ensure sufficient funds to sustain service levels. Improved tax compliance amplifies the revenues available for supporting public services without increasing the current tax burden on compliant taxpayers. Moreover, improved tax compliance bolsters citizens' satisfaction by increasing their faith in the system and promoting the perception that everyone pays their legal share.
In recent years, many state legislatures have proposed, considered, and adopted legislation intended to thwart fuel tax evasion. Given the recent political activity of state legislatures to increase fuel tax compliance, it is surprising that there is little research examining the evasion and mitigation of the state motor fuels tax.
This article examines the issues of fuel tax evasion from a policy perspective. The goal of this article is twofold. First, we discuss the vulnerability of the motor-fuel tax to evasion, for understanding its vulnerability to fraud is fundamental in developing effective policy to enhance compliance. Furthermore, an examination of the issues of fuel tax evasion provides insight into the evasion of other excise taxes and the fraud of government insurance programs like Medicare. Secondly, this article examines how state legislatures in the southern region have responded to the fuel tax evasion issue. This examination focuses primarily on initiatives recently implemented at the federal level to address four broad policy areas: tax administration, penalties and punishments, liability, and visibility. We discuss these four major initiatives by the federal government and identify which states in the southern region are considering or implementing anti-evasion legislation similar to the federal initiatives.
This article is organized into five sections. Section I places this research in the context of extant literature on tax compliance. Section II explains the attributes of the motor fuels tax administration and enforcement and discusses some of the common methods used by criminals to evade the fuels tax. Section III describes the major federal initiatives legislated to enhance compliance to the federal motor fuels tax, and section IV summarizes the legislation and statutory laws implemented by the southern states to address motor fuel tax evasion. Lastly, section V draws conclusions from the data presented and discusses extensions to other compliance issues such as Medicare fraud.
Tax Compliance Literature
Research on tax compliance cuts across the disciplines of accounting, economics, political science, public administration, and psychology. Nearly all the research on tax compliance has focused on the income tax because of the prominence of that tax at the federal level. There is an extensive literature researching tax evasion that deals with the accounting, economic, and psychological issues of income tax compliance.(1) Yet the prominence of the income tax is less pronounced at the state level in that excise taxes like the sales and motor-fuel tax finance a larger portion of state expenditures. Some scholars have expanded the tax compliance literature to include excise taxes like the state sales tax (Murray 1995) and cigarette tax (Galbraith and Kaiserman 1997), but studies of fuel tax compliance are noticeably absent. To our knowledge, the most comprehensive study of fuel tax evasion from the state perspective is a study by the Council of State Governments (CSG 1996) which principally addresses evasion of states' road fund revenues.
The bulk of the tax compliance literature is tangentially related to the policy focus of this article and therefore is not expounded here. …