Tax goof could cost workers

Audit finds as many as 1,000 state employees could owe back taxes.

The state of Colorado for years has been running afoul of state laws and the federal tax code in its administration of a take-home vehicle program for public employees, a state audit has found.

As a result, as many as 1,000 state employees who benefited from the program could be on the hook for back taxes and fines from the Internal Revenue Service, and the state also could face IRS penalties.

The report from the Office of the State Auditor was presented to state lawmakers at a Monday meeting of the Legislative Audit Committee.

Under the program, state employees can take home a state car, as long as they meet certain requirements: mainly, that the agency can show it’s an efficient and cost-effective use of the state fleet.

But the audit found that in 2015 close to 90 percent of the $1.54 million the state spends on the program was for commuting that didn’t meet those requirements.

And the problems don’t end there.

The IRS considers commuting to be a personal use of a state vehicle, making it a benefit that qualifies as taxable income.

But in hundreds of cases, the state either failed to withhold federal income taxes from employees who received the benefit, or withheld too much.

The audit identified “specific concerns” in 327 cases, but said there was a risk that the state improperly reported taxable benefits for virtually everyone who took a car home.

In one case, the state underreported the employees’ taxable income by upward of $9,000.

The auditors’ review covered the year 2015, but state staffers appeared to be aware of the risks as early as 2009.

If benefits weren’t properly reported, an internal analysis said, “the individuals involved would then owe back taxes to the IRS for multiple years, and they would then likely sue the state for causing them to break the law.”

Auditors found that the state, too, could be subject to IRS penalties.

Officials with the Department of Personnel and Administration, which oversees the fleet, agreed to implement the audit’s recommendations.

Some of the problems flagged by auditors would require a change to state law.

Highway construction workers, law enforcement and avalanche forecasters were often granted commuting vehicles to speed up response times in case of emergency, but public safety isn’t a valid reason for a take-home car under the law.