Briefs

States and the IRS are mining personal and business data to sniff out scofflaws

Business Week, APRIL 6, 2006, By Howard Gleckman

The Texas comptroller's Office suspected for years that well-heeled Lone Star citizens were buying big-ticket private planes out of state to dodge sales taxes. But the tax collector couldn't prove it. Then the agency installed new computer technology that matched federal airplane registrations with state tax records. In just the past six months, Texas has collected $5 million in unpaid taxes from 43 scofflaws.

As tax season nears its Apr. 15 peak, revenue agencies are reaching for a software tool kit that has long been popular in Silicon Valley and in the back offices of big retailers. A combination of advanced data mining programs and vast repositories called data warehouses is allowing the taxman in about a dozen states to gather and analyze unprecedented heaps of information about individuals and businesses, especially small companies.

These states, and to a lesser extent the Internal Revenue Service, increasingly rely on such software to help capture a chunk of the more than $350 billion in annual taxes that are owed but never paid. California alone has used such systems to identify 600,000 non-filers and collect an extra $184 million annually. "Business has been using this for years," says Massachusetts Revenue Commissioner Alan LeBovidge. "It allows us to sort data that is beyond human ability to sort manually."

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