About 18.5% of state taxes are not paid, or $1.25 billion.

It’s tax time again, unless you happen to be one of the thousands of Oregonians who don’t pay taxes.

The most recent in-depth study of the state’s tax collection systems (conducted in 2009 and based on 2006 collections) found an estimated $1.25 billion annual gap between the amount owed and the amount paid. That translates to an 18% failure rate, in a state that relies heavily on income taxes to fund services because of the lack of a sales tax — and where under-the-table service providers have been known to thrive by undercutting taxpaying competitors. By comparison, California’s tax gap rate is estimated to be 11%.

A Secretary of State’s office audit released in August 2010 identified 66,000 obvious scofflaws who filed federal tax returns but blew off state taxes without getting caught. The audit criticized the Oregon Department of Revenue (DOR) for relying on “cumbersome and limited” technology, missing opportunities due to non-comprehensive systems and failing to act in a timely manner.

DOR director Elizabeth Harchenko, a 36-year veteran of the department who recently announced her impending retirement, says her team has responded by setting tight deadlines for contacting taxpayers, setting up a phone system to avoid phone tag, increasing the percentage of employees who work on collections, sharing more information with other state agencies and working with more private companies that specialize in financial data. The Legislature authorized 35 new staff hires two years ago to focus on collections, and Harchenko says those employees brought in $38.5 million in owed revenue.

But there’s only so much you can do with outdated technology that’s a mish-mash of systems. “We have 70-80 big systems and about 220-250 little ones developed over time but not strategically,” says Harchenko. The largest system, to track accounting, is also the oldest, developed in the late 1980s. “Do you remember gray screens with green flashing digits? That’s what our staff are working with.”

Harchenko and her team recently prepared a request for proposals for a “massive technology upgrade” over three to five years, at an estimated cost of $100 million. “We would see a huge increase in productivity,” she says. “The system would pay for itself pretty quickly… We can’t continue to do things the way we’ve done them.”

BEN JACKLET