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ECONOMY: State going after unpaid taxes from businesses

Publication Date: 
June 04, 2010
North County Times
Jeff Rowe

Professor Joseph Bankman is quoted on the California state Board of Equalization's efforts to recover unpaid sales and use taxes. Jeff Rowe of the North County Times reports:

State tax-compliance experts say they have recovered about $51 million in uncollected and under-reported taxes from businesses around the state ---- part of a program to get as much as possible of the estimated $2 billion annually in unpaid sales taxes and use taxes, which are collected for out-of-state purchases.

The state Board of Equalization program is part of an effort to help close an estimated $20 billion state budget gap.

Thus far, board teams ---- about 60 tax specialists in all ---- have visited almost 116,000 businesses in California since the program began in September 2008. Upwards of 3,000 businesses in Escondido, San Marcos and Temecula have been visited; board visits to Vista, Oceanside, Encinitas and some other area cities have yet to be scheduled.


Joseph Bankman, a professor of law and business at Stanford University, said his findings suggest that half of uncollected federal taxes come from the cash economy.

Frequently, he said, debit and credit card sales are reported, while cash sales are not. "What we have done is to allow the cash economy to go untaxed," he said.

Small-business owners justify tax evasion by arguing that "they are barely making it," Bankman said, but allowing the delinquent tax debt to remain unpaid in effect subsidizes small business, he said.

A partial solution to the small-business tax evasion problem may come organically. As more people use debit and credit cards to pay for even small items, the cash economy dissipates and verifiable sales records are created. Some countries offer discounts on purchases using credit cards to encourage their use, Bankman said.

Meantime, ducking tax payments domestically by under-reporting cash sales remains "a way of life," he said.