New York State Seeks to Protect Revenue By Pursuing Alleged Tax Fraud

Almost every state in the nation has struggled in recent years to balance their budget, and New York is no exception. As the economy remains sluggish, state governments continue to pursue every available source of revenue to fill their coffers.

One source of revenue especially important in New York is sales taxes - it accounted for 25 percent of the $101 billion accumulated in taxes by various New York governmental bodies last fiscal year. And given how tax revenue is still rebounding from the "Great Depression" and housing market collapse, New York officials may feel pressure to ensure they maintain this steady source of tax revenue.

In an effort to protect the revenue stream from sales taxes and stop alleged sales tax fraud, New York's newest plan is to collect information from debit and credit card purchases and compare it to retailer's tax returns to make sure that retailers collect and remit the correct sales taxes. Hopefully in their effort to expose tax fraud, New York officials do not hinder small business growth by tying them up in unnecessary investigations and bureaucratic red-tape - after all, business growth is essential to getting out of the stagnant economic climate we currently find ourselves in.

States Under Pressure to Bring in Revenue

Since state officials are under fire to collect everything they can, every penny matters. But, some research indicates that many "pennies" may be falling through the cracks. For example, data put together by Oracle Corp indicates that nation-wide about $136 billion in state revenues were lost because of alleged tax fraud or other noncompliance last year.

New York's plan to attack sales tax fraud in the electronic era hopes to be successful since e-filing has become much more popular in the state than it has in other states. For instance, about 87 percent of income-tax returns in New York State were filed electronically last year. The approach used in the past for income taxes is similar to the new approach New York has taken to stop retailers from defrauding the government.

In addition to comparing credit and debit card data to retailer's tax reporting, New York also found a way to enhance its collections from businesses that largely deal in cash. For example, when auditing bars they compare their returns to the data from the wholesalers and distributors that serve the bars.

The system that New York uses is called Case Identification and Selection System which flags returns that it thinks may be fraudulent based on the data put into the system. Some taxpayer's rights advocates caution that a computer is not always perfect and that human judgment is often needed in tax fraud cases, especially for businesses and individuals who deal mostly in cash.

State taxation department investigations can have devastating effects on businesses. It is important for a business under investigation to contact an experienced tax fraud defense attorney to make sure that their rights are protected.