Tax collection by private firm needs scrutiny

Concerns about timely and diligent recovery of local taxes is pushing the city of Yuma to look at possible collection of the taxes by a private business rather than the state revenue department, a move that needs some caution.

The issue was discussed this week at a Yuma City Council meeting where a representative of the Arizona League of Cities and Towns explained the services of Revenue Discovery Systems (RDS), a private tax collection company based in Alabama. Two representatives of RDS was also present.

The company basically provides the efficiency of a local tax collection system without the need for the city to expend the money for equipment, software and workers to do the collection themselves.

A number of advantages were outlined to the city, most prominently the ability to get tax revenue daily instead of waiting a month, as is the case currently with the state collecting the money.

The company also potentially would be more diligent in actually getting businesses to turn over the taxes. City Administrator Mark Watson explained that the state has greatly reduced the number of tax auditors due to budget problems, and that has led to a concern rural businesses in areas like Yuma will get less attention.

Like any business, RDS of course expects to be paid for its services - up to 1.3 percent of the taxes collected, which is a significant amount of money given the $27 million expected to be collected next year from the city's various non-property taxes.

Contrast that with the fact the state does not charge for its tax collection service, even if it takes longer to deliver the money to the city. Given the state's budget woes, however, city officials think that might change.

Ken Rosevear, executive director of the Yuma County Chamber of Commerce, had concerns about the potential harassment of businesses by a private collector and lack of confidentiality.

The city is only considering the change at present, allowing time to examine the potential pros and cons of the change - and there appear to be some of both.

There is nothing inherently wrong with turning over tax collection to a private entity, but it is important to ensure there is a balance of security, cost-effectiveness and efficiency to justify the change.