According to a new study by Good Jobs First, state and local governments lost over $1billion in sales tax revenue
last year as a result of laws that allow retailers to retain a
percentage of the sales tax they collect.
While some lost tax revenue is due to loopholes and
manipulation, another tax drain is straight-up tax cheating by corporations and
individuals. States are responding with a variety of strategies for
catching these tax cheats and recovering this lost revenue:
Cracking Down on Abusive Tax Shelters: A
2001 Multistate Tax Commission report estimated
that tax shelters designed to illegally evade taxes cost states as much as $12
billion per year. Facing the largest losses in the nation, California pioneered
legislation requiring new reporting on the details of suspicious
shelters, enacting heavy fines for using illegal shelters, and creating an
amnesty program to promote voluntary compliance. The amnesty program
brought in a cascade of revenue: over $1.4 billion from 1,202 taxpayers, or an
average payment of over $1 million per taxpayer, reflecting
the widespread tax cheating among this wealthy population.
Other states are following suit.
Multi-State Collaboration: Going beyond the occasional
cooperation between state auditors, eight states, led by Massachusetts,
created a new
multi-state agreement to share data in a project
called the Clearinghouse, which will compare information on people who work in
one state and earn income in another in order to reveal tax cheating.
Shaming Tax Cheats: To encourage payment by
delinquent taxpayers or those caught violating the law, more than a dozen
states have begun publishing
lists of businesses and individuals owing taxes on the
Internet. Connecticut pioneered this
high-tech shaming strategy in its Top
100 list, which collected more than $161 million in overdue tax
debts over its first seven years. Other
states have been collecting similar amounts with their own programs.
The budget news is grim in some states. Twenty states face a combined
budget shortfall of at least $35 billion for 2009, according to analysis by the Center on Budget Policy & Priorities (see CBPP graph below). Another 8 states will likely have budget problems next year or the year after.
In a dramatic sweep of 117 employers,
a new New York State joint task force of state labor, tax and worker
compensation agencies found that 2,078 employees had been illegally
misclassified as independent contractors, with $19 million in wages not
reported to the state. An additional 646 workers were owed minimum wage and overtime pay totaling $3 million.