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Technology helps Nebraska tax auditors target non-filers
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Technology helps Nebraska tax auditors target non-filers

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Taxpayers who have avoided filling a return in Nebraska in recent years could find themselves facing greater scrutiny thanks to new technology adopted by the state revenue department.

The Nebraska Department of Revenue is ramping up its efforts to go after non-filers and others who are suspected of owing a large tax debt, using a data analysis service that helps auditors decide where to focus their efforts.

The department contracted with a Maryland-based data analytics firm as part of a 2014 law to help identify residents and businesses with an outstanding tax liability of at least $5,000.

The technology is particularly important given the state's recent revenue shortfall and budget challenges, said Nebraska State Tax Commissioner Tony Fulton. Gov. Pete Ricketts ordered a state government hiring freeze in October 2016, preventing the agency from hiring more auditors.

"We've had to become more efficient in what we do," said Fulton, a former state lawmaker appointed by Ricketts to the commissioner job.

Fulton said the technology has helped pinpoint residents who are most likely to owe the state a large amount of money. People with higher personal incomes, those who owe money to the Internal Revenue Service and non-filers in Nebraska are more likely to face scrutiny, Fulton said. Additionally, the state is looking at high-income earners who don't live in Nebraska but still owe taxes to the state.

Fulton said his 30-member tax compliance staff recovers about $23 million a year in unpaid taxes — roughly $767,000 per auditor — and that number has been trending up since the department started using the analysis service. The contractor, ASR Analytics, has received roughly $725,000 from the state since the contract began in 2015.

"If there are folks who have an obligation to the state, we want to identify them and make sure they're paying that which is legally owed," Fulton said. "We're spending our time and resources going after those with a larger obligation."

Auditors are focusing more on individual and corporate income taxes than in the past to ensure everyone who owes money pays, said Jim Bogatz, the department's policy manager.

"It's a new area where we've said, 'Hey, let's take a look at this,'" he said.

Still, some senators say the state should do more to collect all the taxes that are legally owed. Next year, lawmakers will once again debate a bill designed to help the state capture more online sales tax revenue. Gathering additional revenue from a wider tax base could ease the state's budget problems and possibly make it easier to enact tax cuts that many conservative senators want.

Nebraska already requires residents to report and pay online sales taxes on their income tax returns, but few people comply. The pending bill would require online retailers to remit sales taxes if their gross revenue in Nebraska exceeds $100,000 or they conduct 200 or more transactions in the state. Businesses that refuse would have to notify buyers that the tax is due and report to the state the overall amount of sales taxes owed.

Ricketts has argued the proposal is unconstitutional. The U.S. Supreme Court ruled in 1992 that states can only tax businesses with a physical presence within their borders, but the court could revisit the issue with a case involving a South Dakota internet sales tax law.

The Nebraska bill's sponsor, Sen. Dan Watermeier of Syracuse, said he intends to bring forth the legislation again in the session that begins Jan. 3. Lawmakers debated the bill in this year's session, but Watermeier pulled it from the agenda because several supportive senators were absent on the day of a scheduled vote.

It's unclear whether the measure has enough support to overcome a legislative filibuster or a gubernatorial veto. Watermeier said he still hopes to persuade Ricketts to support it.

"There are people who are wondering why in the heck we didn't pass it this year — both legislators and the public," Watermeier said. "To me, it's still a fairness issue."

Sen. Burke Harr of Omaha said lawmakers can't judge whether the state is collecting everything it should because department officials won't share specifics about their online sales tax collections or audits.

"How am I supposed to be a policymaker and know what's working and what isn't working if I don't have the information?" Harr asked.

Fulton has said his department doesn't distinguish between online and in-person transactions, but speculated that few online buyers pay the tax. He said he won't reveal the state's internal audit procedures because it could help people cheat the system.


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