Tacoma May Hire Outside Tax Auditor

The City is accepting bids from third party auditors "to provide services to the City of Tacoma that include discovery, compliance and auditing of business taxes, business licenses and local sales and use tax on a project basis."

The auditor would be tasked with compliance audits to ensure that businesses are allocating their local sales and use tax properly; with identifying businesses that operate in the city without paying proper taxes and license fees, (and following up with them); and with audits of telecommunications businesses to ensure proper filing and allocation of taxes. According to the RFP (pdf), if the City finds what they're looking for in an applicant, the two-year contract, with two additional two-year renewals, would be awarded sometime in May

The auditor hired would earn their fee based on the amount of additional revenue they're able to collect for the City. This "contingent fee" practice isn't unheard of, and is doubtless a way to bring in additional revenue, but the RFP did catch the attention of one Forbes contributor, who expresses her concerns over the practice.

The Forbes story cautions that "contingent fee arrangements encourage abuse," citing criticisms the inherent incentive for auditors in this type of arrangement to be overly aggressive or to "cherry pick" the audits they pursue. 

Tacoma has a budget to balance, and capturing scofflaws who don't pay their business taxes would bring in additional revenue. On the other hand, the Forbes article does make us wonder if there's another way to go about it...