Filing season 2014: Death, taxes, root canals and refunds
Beware tax break bait and switch

States collecting, sharing lots of our data to find tax cheats

Edward Snowden, former National Security Agency (NSA) hacker and data leaker, appeared via video at the South by Southwest Interactive conference this week.

From presumably his Moscow digs, the fugitive and Vladimir Putin BFF, urged the Austin crowd to fight what he called the fire that government spying has ignited on the Internet.

Edward Snowden SXSW KVUE screen shot
Click image for full KVUE report on Edward Snowden video appearance at SXSW.

Cynics among us rolled our eyes and noted that there aren't enough digital fire trucks to take care of official peeks into our lives. Just ask state tax departments.

Tax publisher Bloomberg BNA recently looked into how state tax collectors are finding new ways to fight tax cheating. All of us who don't cheat on our taxes agree that is a laudable goal.

But much of the tax crime fighting efforts come from collecting data on us and sharing it with each other.

And just as with the NSA leaks (and Patriot Act before it) vs. greater public safety argument, some are wondering if the tax man is going too far.

Bloomberg BNA interviewed revenue officers from 30 states. The findings, as reported by the tax publisher's sister (and subscription free) site BloombergBusinessweek, include:

  • Florida is working on a program to use its Department of Highway Safety car sales data to make sure auto dealerships report sales figures accurately.
  • Tennessee and Texas have similar programs to keep beer and tobacco retailers honest by gathering data from wholesalers.
  • Georgia, Indiana, Louisiana, Massachusetts and other states are working with legal information company LexisNexis to cross-reference tax filers' personal information against historical addresses.
  • States are forming tax-tracking partnerships. Kansas and New Mexico are sharing data with other states to keep tabs on fraudsters. California and New York have agreed that 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 that is owed.

Uncle Sam is getting in on the act, too. Tax Analysts reports that for the past several years, the federal government has been quietly feeding state revenue departments customer lists from online tobacco vendors, and those customers have subsequently been receiving delinquency notices for years-old tobacco purchases.

Apples, oranges, info: Granted, these tax information sharing cases are different from a government spying on its citizens.

In most of these data instances, we are aware of our state's (and the fed's) laws and regulations that allow agencies to keep tabs on us and we comply willingly. But does our data acquiescence give tax collectors carte blanche to other types of our personal information for their purposes?

Given that billions are lost both nationally and at the state levels to folks who cheat on their taxes, the concept of pooling resources across departments and state lines is to many simply smart tax business.

To others, it a step too far.

But it's not going to stop. So be aware that it's going on.

And it means that if you're thinking about fudging an entry or two on your return or neglecting paying a state or local fee, the odds that you're going to be caught keep getting better.

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