States Using Big Data to Track Down Unpaid Taxes

Every year, billions of dollars of owed taxes are left unpaid by small businesses and the self-employed, says Patrick Clark in his article on Bloomberg BusinessWeek.com.

The same people who neglect to pay their federal taxes ignore their state taxes too. Now state governments are starting to go to extensive measures to collect unpaid taxes owed to them, according to a report by Bloomberg BNA.

The report consists of interviews by the revenue officials from 30 states. The report says that over the next five years, California’s new initiative to improve collections of unpaid small business taxes will yield “an additional $1 billion a year in tax revenue.”

New Penalties

Penalties have gone beyond just getting a fine that can be paid off at one’s leisure. States are withdrawing business permits and licenses from delinquent businesses.

Big Data

The report also reveals that state tax collectors are now making use of big data to zero in on tax evaders. The states are also sharing data with each other, so that if someone who owes taxes moves out of state, he or she will be held accountable by the new state of residence as well.

States Collaborating on Tracking People

“California and New York have entered into a formal partnership: If a taxpayer is due a refund in one state, but owes a tax debt in the other, the refund will be automatically used to pay the state holding the tax debt,” Clark writes.

States are also keeping an eye on whether their residents purchase big ticket items in states like Oregon where there is no sales tax.

Jail Time

Ultimately, some states are resorting to incarceration of business owners who owe back taxes.

To read more about the Bloomberg BNA report findings, please visit Bloomberg BusinessWeek.