Auditor questions severance tax collections

Sometime in 2010, the Louisiana Revenue Department switched off an automated program that determines whether oil and gas companies submit severance tax returns.

The agency told the Legislative Auditor’s Office in a report released Monday that it shut down GenTax after it triggered erroneous tax assessments and complaints. The result of pulling the plug, according to the auditor’s office, is that the state may have missed out on collecting an untold number of dollars.

“LDR cannot ensure that it is receiving all severance tax payments that it is owed,” the auditor wrote in an 11-page report on the accuracy severance tax collections. The auditor said the revenue department identified millions of dollars in unpaid taxes before shutting down the program.

The undersecretary of the state Department of Revenue’s Office of Management and Finance, Natalie Howell, told the auditor in a written response that GenTax will return after a redesign and testing. The agency expects the program to be back in production by the end of the calendar year.

Taxes on the oil and natural gas extracted in Louisiana are a big chunk of state government’s overall revenue. Severance taxes comprise 10 percent of the state’s general fund.

The auditor’s office tackled the accuracy of severance tax payments, studying whether the state’s revenue department ensured collections were complete, accurate and timely over the span of several state fiscal years. The conclusion was that improvements could be made.

Problems arose not just when the department switched off GenTax but when changes were made in the name of efficiency. For example, to streamline services across state government, severance tax field audits moved from the revenue department to the state Department of Natural Resources.

The field audits task auditors with visiting oil and gas companies to look at purchase statements, meter statements and wire transfers. In fiscal year 2010, the revenue department completed 61 field audits and identified $26 million in severance taxes that should have been paid but were not. In three years of managing the audits, the natural resources department completed 48 field audits and identified $16,582 in unpaid severance taxes.

The Legislative Auditor’s Office recommended that the revenue department go back to monitoring severance tax field audits. The agency agreed with the recommendation.

The revenue department agreed with all of the legislative auditor’s recommendations, including ensuring that the automated program GenTax returns to service. Over two fiscal years, the program identified 1,096 non filed returns and proposed $11.7 million a year in payments.

In a lengthier response Monday, the revenue department said: “As LDR made clear in its pre-publication response to the Auditor’s Office, the department had already redesigned and tested the non-filer program, and that it will be operational before January 1, 2014.”