As a disciplined fiscal conservative, Mitch Daniels gained a national reputation for insisting that every cent of every taxpayer dollar be managed rigorously. As Governor, he frequently spoke of the duty of elected leaders to remember that the citizens who put them in office are also ultimately the ones paying their salaries. More than talking about it, Daniels built his administration around this essential point. He made sure that the taxes people paid returned the greatest possible value and the lowest possible cost.

Daniels also believed strongly that if a government was inefficient in collecting taxes, it ultimately creates a society that’s unfair. Delinquencies roll over from year to year, over-burdened public employees have little incentive to chase them down, and over time you end up with a situation where the tax burden is unfairly shared – with those who have played by the rules carrying more of the state’s budgetary burden.

Daniels inherited just such a situation the day he took office in 2005. He discovered that Indiana had $1.3 billion in uncollected taxes. Some unpaid tax bills stretched back more than 30 years.

$245 million

Daniels decided to create Indiana’s first-ever tax amnesty program to recover lost revenue and bring fairness to the state’s tax system. The amount of unpaid back taxes was especially large in the years running up to Daniels’ election, which means that along with mismanaged and profligate state spending, unpaid taxes were also a contributor to the $700 million deficit Daniels inherited.

After studying the efficacy of tax amnesty programs in other states, Indiana’s State Budget Agency calculated that if Indiana collected back taxes at the average rate of other states’ amnesty programs, it would collect $103 million in a properly-structured program. Given a range of other factors, the Agency estimated that in the end, Indiana would collect $65 million.

By the time Indiana’s amnesty program had ended, the State had collected $245 million. Businesses accounted for 84 percent, or $205.5 million, of the total, with individuals accounting for the rest. Sixty percent of the 98,000 total payments made came from individuals.  Nearly half of the taxes were collected from individuals and entities outside Indiana. It was a massive effort conducted over a relatively short period of time.

With numbers like these, it’s no surprise that the Indiana amnesty program quickly became a model that other states copied.

So What Made It Work?

Indiana’s amnesty program ran for eight weeks in the fall of 2005. The tax amnesty law, like those other states had enacted in the past, relieved those who owed delinquent taxes of penalties and fees associated with their back taxes if they paid during the amnesty period.

The effectiveness of the effort was not the law itself, then, but the manner in which Daniels had his Department of Revenue officials conduct the effort. They started with two simple, but important, goals:

• Collect as much money as possible under the statute
• Uphold the highest standards of customer service and professionalism during the effort.

The latter point is a consistent theme through everything Daniels did. He is perhaps best-known in this regard for the “retail-ization” of Indiana’s BMV branches. But professionalism and customer service were essential to changes and reforms across his administration. The amnesty program was no exception.

In fact, creating the proper customer service environment was strategically important. The leadership team of the effort studied ten other state amnesty programs as they were designing Indiana’s effort and concluded that punitive public messaging served as a deterrent to collecting delinquent taxes. As a result, the administration decided to build a collection strategy based on a public marketing campaign aimed at generating collections through awareness rather than a threat of punitive action. They contracted with a professional collection services company to help design and manage the effort.

A review of all delinquent tax cases revealed 198,000 delinquent taxpayers. Together, they represented nearly 255,000 distinct tax cases. So the first step was to mail notifications to all of them. After that, a broad-based public awareness campaign was launched, supported by an aggressive outreach to delinquent taxpayers to make it easy for them to settle up.

The key elements were as follows:

Training: Given the scale of the operation and the need to make paying back taxes as simple as possible for the taxpayer, additional training of Department of Revenue employees was needed. The state contracted with an outside entity to ensure that all public employees involved in the effort were singing off the same songsheet, as it were, and providing the best service to taxpayers.

Public Relations: In keeping with their commitment to keeping the message positive, the amnesty leadership team launched a public campaign titled, “Tax amnesty: No Penalties. No Interest. No problem.” The state purchased radio, TV, and newspaper ads to reach the public. They distributed tens of thousands of brochures through agencies with regular contact with the public, such as the BMV. They also distributed materials to tax agencies, bar associations, chambers of commerce and CPA societies in other states.

Working the phones: More than one million calls were made during the amnesty period. The leadership team had learned from studying other states that an especially aggressive phone outreach program at the very beginning of a collection campaign is effective. Call centers were also set up to receive incoming calls from citizens who had heard about the amnesty program. Nearly 250,000 such calls came through during the campaign. There were 130 employees staffing the centers on full-time basis, and back-up call centers were established to accommodate heavy call volume or system shortages. Hours of operation were extended.

After the amnesty collection period ended, Indiana continued to work with its contractor on a smaller-scale ongoing effort to collect remaining back taxes. The goal was to operationalize a continuing effort to catch delinquencies as early as possible and deal with them, all with the goal of avoiding future amnesty programs.

In the end, the Indiana tax amnesty program was a classic case of applying a positive public awareness campaign to an issue that states usually treat in overly bureaucratic, punitive ways. Backed up with substantial capacity and well-trained personnel.