When times are good and city coffers are bulging, the effort to get consumers to comply with obscure tax laws often is not strong. But with city and state governments facing budget crises all across the United States, any method of squeezing additional revenue has become an acceptable strategy.
The art of mining consumer data for possible tax liability is growing among city revenue officers. Municipalities in California, for example, are reviewing state records and sending out bills to people who often don't even know they owe money. In one program highlighted in the Los Angeles Times, Los Angeles officials are sending out invoices to independent consultants and sole businesses for delinquent business license taxes, an obscure tax that most sole proprietors don't know about, or didn't think that they owed.
Thanks to a recently passed law in California, state tax officials have shared with municipalities information on over 750,000 taxpayers who reported business income on their state returns. These municipalities are then mining the data to determine who owes the business license tax, and often is sending bills to try to collect up to three years of back taxes, along with penalties that could climb to 40% of the total.
Data mining is getting attention. "It amounts to combing through files that can tell you something about taxpayers, or people who should be taxpayers, and matching those results to your files," explained Harley Duncan, executive director of the Federation of Tax Administrators in Washington.
And data mining is not exclusive to delinquent business taxes, or even to the State of California. Taxing authorities across the country are stepping up efforts to collect use taxes - taxes that are owed by the consumer on purchases where no sales tax was imposed.
Cross border reciprocity efforts between taxing authorities helps identify consumers who purchase in one state but have goods shipped to another in order to avoid sales taxes.
Even the Customs Service is getting involved. States often receive electronic tapes from the Customs Service with information on residents who declared purchases when traveling overseas.
Recognize that these data mining efforts are taking place. That way, when you get a bill in the mail from your local tax authority, you'll know that someone has been looking at your purchases and habits, and has decided that you owe them some money!