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

March 11, 2014

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.

You also might find these items of interest:

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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