By Adam Pagnucco.
Montgomery County’s Office of Inspector General (OIG) has issued a new report chronicling problems with the county government’s enforcement of its bag tax law. Specifically, the county has not identified all retailers that should be paying the tax, not all retailers comply and some revenues may not be collected. All of this limits the effectiveness of the law.
The bag tax was established by Bill 8-11, which was introduced on behalf of County Executive Ike Leggett and passed on an 8-1 vote. (Council Member Nancy Floreen voted no.) I was working at the council at the time and I remember discussion of the bill. As the action memo states, “The Executive proposed this tax to achieve 2 different but related goals: raise some revenue, and create an incentive for consumers and retailers to use fewer disposable bags. The latter goal would be a step toward the larger goal of improving and cleaning up the natural environment.”
Indeed, this bill was an environmental bill at least as much as a fiscal bill and the money it raises goes towards the county’s Water Quality Protection Fund. It was supposed to cut down on plastic bag use. In 2011, the county’s director of environmental protection told the council, “As consumers become accustomed to the program, they will use fewer bags and revenues will decline, as will the pool of bags available for littering.”
The OIG’s findings on enforcement lead to questions about whether this law is accomplishing its intended purpose. Those findings include:
The county has not established a method to identify all retailers that should be remitting carryout bag tax.
This is amazing for two reasons. First, the program has been in effect since 2012. The county has had more than a decade to get this right. And second, the county’s internal audit office found in 2014 that the county “had not established a population of retailers that should be remitting carryout bag tax and they were also not enforcing interest and penalties as provided by Bill 8-11.” The finance department, which collects taxes, later “reevaluated” the audit office’s recommendations for improvement “and determined that they were not feasible.”
The OIG went on to discuss the county’s efforts to assemble a master list of retailers. The OIG claimed to identify 2,100 retailers who should have been paying the tax but were not. The estimated revenue losses from these failures to pay ranged up to $8.2 million per year. (The program currently collects almost $3 million annually.)
Data limitations and shortcomings in the Bag Tax System makes enforcement of the carryout bag tax problematic.
The bag tax system does not separate different locations for each retailer account. The OIG commented, “The county has no way of knowing how much [bag tax] was being remitted per store, how many bags were distributed per store, or even if all locations were remitting the tax at all.” The OIG went on to say that the county has not purged its registrant list since 2012 and “does not actively examine registrant activity to look for indications of problems with registrant data or evidence of noncompliance with the remittance of taxes, such as stopping remittances or significant changes in remittance amounts.” How is such a system supposed to identify bad actors?
The $100 remittance threshold makes program enforcement and assessment of penalties difficult.
Retailers are only required to remit taxes when they total at least $100. “As a result, some retailers remit taxes monthly while others may go several months or years between remittances. This makes it difficult for administrators to forecast expected revenue, know when retailers are not paying what is owed, and properly assess penalties.”
Some county retailers are not complying with the carryout bag tax requirements.
The OIG performed two field tests of retailers. In the first test, OIG staff visited seven stores. Five charged the bag tax and two did not. In the second test, OIG staff visited another seven stores who were not registered with the bag tax system. Six of them did not charge for bags.
The county should do more to assess the impact of the carryout bag tax.
Here the OIG notes the hope that the law would “change consumer behavior and result in the use of fewer disposable bags.” But the county “has not undertaken a comprehensive effort to regularly assess the tax’s impact on the amount of litter in county waterways or consumer behavior.” The OIG noted a 2018 analysis by the Countystat office and University of Maryland graduate students that found that the law initially cut back on bag use but it remained “essentially unchanged” afterwards. The OIG even questioned the usefulness of such an analysis given “the county’s mild efforts at enforcing the tax and limited retailer participation.”
Finally, the OIG criticized the chief administrative officer’s response to its report. “The response notes general concurrence with the OIG’s recommendations but does not provide specific corrective actions or plans for remediating the county’s poor enforcement and administration of the carryout bag tax.”
It’s disappointing that this program is in its current condition more than ten years after its creation. The findings of the OIG are so sweeping that they lead me to question whether the law is enforceable at all. I hope that the council’s Transportation and Environment Committee, led by Council President Evan Glass, investigates this program and helps fix it. If it can’t be fixed, it may have to be scrapped.