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Better Enforcement of Tax Law

Report: Stop Retailers Pocketing over $1 Billion in Sales Tax Revenue

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.

Overview

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.

Cracking Down on Misclassification of Workers-- And Raising Tax Revenue

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.