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States have success increasing tax audits and collection actions

Florida residents know that times are tough for state governments as well as for individuals. To make expenses match revenues, some states have cut services. Others have sought to boost coffers by capturing previously uncollected taxes. And initial results from a few states suggest that increasing aggressive tax collection actions has improved their bottom lines and mitigated budget shortfalls.

To enforce tax laws more stringently, states need additional employees to audit tax returns and inspect records. They have hired more staff, and the interesting outcome has been that the expanded workforce has brought in much greater tax revenue than it costs the states to employ them. This positive cash flow has induced some states to convert once temporary staff positions to permanent ones.

Stepped-up enforcement of the tax laws has brought in millions of dollars in additional revenue, and it may only be a matter of time before other states institute similar measures. But not everyone is pleased with the new measures. Businesses in one state were given retroactive tax bills that attempted to collect revenue on particular goods and services that the business owners believed were exempt from taxation. After some debate among state legislators, the taxes were dropped for some businesses and the law was amended.

But their plight illustrates the kind of difficulties that companies and individuals could face if Florida followed other states' lead and developed similar collection measures. But whether it is the Internal Revenue Service or the Florida Department of Revenue knocking on their door, taxpayers should know what penalties they could face and what options they have when they owe taxes to the government.

Source: Associated Press, "Reluctant to raise taxes, some states push the tax man on tougher collection enforcement," John Miller, Sean Murphy, Judy Lin and Michael Virtanen, May 27, 2012.