HILO, Hawai'i — A state tax crackdown on real estate agents over the past few years has turned up "hundreds" of cases where agents failed to pay excise tax on their commissions, and has led to 32 criminal convictions of real estate agents, according to statistics from the state Tax Department.

State investigators have been running computer checks to match federal filings by real estate brokers with state excise tax filings by real estate agents. That effort identified "tens of millions of dollars" in gross earnings by agents that weren't properly reported to the state, said Stephen Hironaka, supervisor and criminal tax investigator for the state Tax Department.

The criminal cases against the 32 real estate sales agents led to assessments of $1.4 million in additional excise taxes and penalties, an amount Hironaka called "very significant for such a small group of individuals."

The Tax Department quietly began the enforcement effort in October 2004, but more recently has publicized criminal convictions of agents in an effort to prod agents into voluntarily complying with the excise tax law.

"We're hoping that they would kind of pay attention to that, but apparently not so," Hironaka said. "We've prosecuted so many of them, but still there's a few out there. We still have cases on Realtors."

Real estate agents are required to pay a 4 percent excise tax on their commissions on the Neighbor Islands and 4.5 percent on O'ahu. Hironaka said that requirement is "widely known."

However, when state tax officials cross-checked the federal 1099 miscellaneous income forms that brokers file with the Internal Revenue Service with state excise tax records, they found hundreds of cases where income was reported to the federal government but not to the state.

FEW INVESTIGATORS

Failing to file excise taxes is punishable by up to a year in jail and a fine of up to $25,000, but Hironaka said the state Tax Department has only three criminal investigators, and it wasn't possible to file criminal charges in each case.

Instead, most cases that turned up in the computer searches were resolved through civil proceedings, and investigators selected "a handful" of cases for criminal charges, usually where a lot of money was involved.

Another focus for criminal prosecutions were cases where real estate agents had been filing excise tax returns and then stopped, suggesting they were deliberately violating the law, or cases where agents failed to file year after year, demonstrating a "complete disregard for the law," Hironaka said.

More serious cases also have resulted in grand jury indictments of agents who allegedly filed false returns that understated their commission income. Filing a false state excise tax return is a felony punishable by up to three years in jail and a fine of up to $100,000.

Hironaka said all of the real estate agents charged, indicted or convicted so far were first-time offenders, and that none has been sentenced to jail time.

He said most taxpayers do pay as required, but "the principal goal for the criminal unit is to create a level playing field for everyone. It is not fair for most to file and pay, while others do not."

STATE SHOULD DO MORE

Lowell Kalapa, executive director of the Tax Foundation of Hawai'i, said only two other states impose the kind of tax bite on services that Hawai'i does, which has led to some confusion in the real estate industry.

Real estate sales people move into the state and set up shop unaware that they are required to pay the excise tax on commissions, Kalapa said. This is a longstanding problem, he said, adding that the state should do more to warn people in the industry that they must pay the tax.

In some cases, real estate sales people who failed to pay were caught in a bind, Hironaka said. In the booming real estate market of a few years ago, some agents were making hundreds of thousands of dollars.

"I think one of the difficult things about not filing is, once you start getting behind, it's hard to catch up," he said.

The Hawaii Association of Realtors, which represents about 10,000 licensed real estate persons, has distributed material that makes clear the requirement that real estate agents pay the excise tax, according to an association spokeswoman. That included information sent out last year that explained the impact of the increase in the excise tax on O'ahu to pay for Honolulu's proposed mass-transit system, she said.

Wayne Richardson III, president of the association, said while there is no excuse for failing to pay, the number of convictions and civil actions against real estate agents is small considering the many thousands of agents working in Hawai'i. He said the noncompliance rate in the real estate industry is probably comparable to the noncompliance rate in other industries.

One factor may be the recent downturn in the real estate market, which began in about 2006, he said.

"Generally speaking, you have a boom and you have a bust, and when you get to this part of the economy where things slow down, people were in a euphoric, flush state, and then it slows down, and all of a sudden they've got more bills than they have money," he said. "That's not unique to Realtors."

Hironaka said the department has been hoping that media coverage of the convictions would deter other agents from trying to avoid the excise tax.

"What we find difficult is, what deterrence is there when judges just render minimal fines and no jail?" Hironaka said in a response to e-mailed questions. "When judges send nonfilers to jail, then we will at least start to create some deterrence."