State & Local Tax Blog

Nebraska Getting Tough

Nebraska has 73 auditors out there trying to find companies who owe tax. This recent article in the Omaha World-Herald describes how the Nebraska Department of Revenue has added about $12.5Million to state coffers in the last 3 years and it all started with an amnesty program. The amnesty program funded the hiring of more auditors and a computer programmer. Let the data mining begin.
The article describes how the Department used various business records to find likely audit candidates. Let the company beware! Here comes Nebraska! “Data mining involves searching and comparing large quantities of information to find patterns and relationships. For the Revenue Department, it has meant looking through lists and databases to find clues that a person or a company might owe taxes.

Dearmont said the operation uses the Revenue Department’s taxpayer databases, as well as information from the Internal Revenue Service and the State Department of Labor. It also uses data purchased from InfoUSA, an Omaha marketing and sales-leads company.

Enforcement employees found the three companies that owed around $1 million by looking at categories of businesses that typically would be paying sales and use taxes to the state, Dearmont said.

Sales taxes are collected from customers and are then turned over to the state. Retail businesses — auto parts stores, restaurants and discount stores, for example — commonly collect sales taxes. Businesses involved in personal services, such as law firms, typically don’t.

Use taxes are supposed to be paid on goods or services bought for use in Nebraska from a state that doesn’t charge sales tax.

Dearmont said he could not name the three companies — or their type of business — because of state confidentiality laws.

In those cases and others, Revenue Department employees started with a list of all companies engaged in a specific type of business that might be expected to owe sales or use taxes — all rental companies or all landscaping companies, for example.

Then they compared the list with a list of companies operating in Nebraska. Finally, they checked the Nebraska companies against state sales tax records to see if companies had taken out sales tax permits and had paid sales or use taxes.

When a company operating in the state was found not to have paid sales or use taxes, a revenue agent gave the company a call to find out more about its situation.

The three companies paid the taxes voluntarily. No court action was needed to collect the money, Dearmont said.

The Revenue Department is asking for $500,000 this year to buy the equipment and software needed to tap additional databases. The request is included in the Appropriations Committee’s budget recommendation.

Whether clues come from data mining, tips from the public or other means, Revenue Department staffers follow up with traditional audits, tax questionnaires and letters to find out whether a taxpayer actually owes money.”

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