Business owners often worry about getting audited by Uncle Sam. They may want to start worrying more about their state government.
As America's states face their own budget crises, many of them are investing in new tools and methods for trying to collect unpaid taxes, according to Bloomberg Businessweek. These efforts aren’t always centered specifically on small-business owners, but they will certainly have an effect on them. Small-business owners—because they can deduct so many business expenses and often have to collect sales taxes—are often considered more likely to underpay their taxes than individuals.
Many states trying to crack down on tax collection are investing in technology that uses “big data” to better identify and target businesses that may be cheating the system.
Florida, for example, is using vehicle sales data from its Department of Highway Safety to determine whether auto dealerships are recording their sales figures correctly. Indiana, Georgia, Massachusetts and Louisiana are among states using LexisNexis and other research sources to cross-reference taxpayers’ information with historical address records. Texas and Tennessee are also using wholesaler records to find liquor and tobacco stores that are underreporting their income.
Beyond using data to better target potential tax cheats, states are also strong-arming businesses into paying up. Connecticut won’t issue permits to retailers that are behind on taxes, while New York and North Carolina are considering similar measures.
States are also working together more to share the tax data they collect, so they can keep better track of fraudsters.
What this all means is that business owners have to be extra cautious about preparing their taxes correctly and not underreporting. As states and the federal government get savvier about using data to sniff out tax cheats, businesses will be among the main targets.
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