INDIANAPOLIS (WISH) — Some Hoosier business owners are lining their pockets by stealing taxpayer money. I-Team 8 exposed how they’re doing it. Now, some are asking why it’s not being stopped.
In FY2013, Indiana’s Department of Revenue collected more than $100 million in delinquent taxes, owed by businesses across the state. The money came up missing after businesses didn’t remit it as required by law.
But, I-Team 8 found those collections only represent about 1 percent of the state’s total sales tax collection per year. And, they come with a catch: the state has no idea how much sales tax revenue it’s actually owed. That means millions more in stolen sales tax funding may still be out there, waiting to be found.
So, what is the state doing to track it down?
THE LONG LIST
Inside John Albatarsea’s north side Quiznos sandwich shop, the registers are ringing with strong sales. It’s good news, both for his store and for the state, which collects a 7 percent sales tax on every sale he makes.
“I pay it,” Albatarsea told I-Team 8. “I’ve been paying them on time, all the time. One time [I was late], and I had to pay a penalty for it. But, within less than 24 hours, I paid it.”
So, Albatarsea said he was shocked when I-Team 8 found his store’s name and address on a long list of more than 36,000 retail merchant certificates revoked by the state. Without a valid license, a store can’t legally sell anything.
“The certificate is our agreement between the state and the business that they are going to collect, report and remit the 7 percent sales tax to the state,” said Indiana Department of Revenue spokesman Robert Dittmer.
Those that don’t are supposed to be held accountable.
In 2010, Indiana legislators passed a law requiring the Department of Revenue to publish the names and addresses of all Indiana businesses who have had their business license — known as a Registered Retail Merchant Certificate, or RRMC — revoked due to delinquent retail sales tax debt (Use our search tool below to find businesses). The list now includes more than 36,000 businesses, likely representing millions of dollars in outstanding sales tax debt.
The list is now updated weekly, Dittmer said, and retailers on it shouldn’t be surprised.
“If the business really exists, they’re aware of it,” he said. “Because, we have an agent accompanied by a deputy sheriff go out and talk to the owner or manager on site and deliver a document that has to be posted in their window or on their door.”
But, Albatarsea says that never happened at his store.
OLD DEBT, NEW OWNER
“I got really confused,” Albatarsea said. “I didn’t know what to do. I thought that I owe something, and that’s why my name is there.”
But, Albatarsea looked closer at the list, and saw the initials “SV LLC” next to the store’s name.
“It made me relax,” he said. “That was the previous owner, not me.”
Albatarsea bought the sub shop in 2008 under a limited liability corporation labeled JDLB LLC.
Marion County tax records show 14 tax warrants were served against SV LLC between 2005 and 2008, totaling more than $40,000. But, the Department of Revenue says that debt isn’t Albatarsea’s responsibility, because the money is attached to the owner, not the store.
“When a business is sold, the new owner is not liable for the old owner’s delinquent taxes. But, the old owner is. The old owner is listed as a responsible officer for that business, and that never goes away. And, we do go after responsible officers,” Dittmer said.
It may help explain why the state’s list of revoked RRMCs is now more than 2,300 pages long.
“The legislature’s intent was to identify these folks who are not paying the taxes due,” Dittmer, the Revenue spokesman, said. “And we are aggressively pursuing them.”
NOWHERE TO BE FOUND
I-Team 8 visited dozens of Indianapolis-area businesses included on the state’s list of revoked RRMCs. All were placed on it because of “delinquent retail sales tax debts that have not been satisfied.”
Some, like Albatarsea’s Quiznos shop, had new owners, who are no longer responsible for the previous owner’s tax debt.
But, the vast majority of the stores I-Team 8 visited were nowhere to be found. Either their storefronts were vacant, or they had been replaced by other businesses — some years ago.
That’s heavily complicated the state’s efforts to recover delinquent taxes. And, because many of the businesses on the list didn’t notify the Department of Revenue when they shut down, Dittmer says the state has no idea how much it’s actually owed either.
Investigators have ways to find out, however.
“If they try to open up a business somewhere else, we still know they were a responsible officer on a business that owed us taxes, and our system will catch them. When we have business owners who try to register a new business and they still have obligations on an old business, we catch them, and we stop that new business,” Dittmer said.
The department couldn’t provide specific examples of when that’s happened. But, Dittmer says the system yields dividends more often than not.
“Do we catch 100 percent of them? No. We would be foolish to tell you otherwise. But, we’re doing everything we can possibly do to collect more of this [delinquent tax money],” he said.
AN INCOMPLETE LIST?
I-Team 8 used retail registration and property records to track down the previous owners at Albatarsea’s Quiznos sandwich shop, a Carmel-based company known as SV LLC.
The owners, Dayakar and Shobha Pareddy, claim they shouldn’t be on the list.
“We sold Quiznos in 2008, in February. So, it’s been six years. We’ve had no [contact with the Department of Revenue since then]. We paid. And, I’ve not received any notices or anything,” Pareddy said.
Tax records obtained by I-Team 8 show the company did face 14 different tax warrants between 2005 and 2008. But, records reflect all debts as fully satisfied. SV LLC was administratively dissolved in 2009, and Pareddy said the company has not sought a new RRMC since then.
The state’s own policy shows that should automatically trigger the company’s name to be removed from the list.
So, why hasn’t that happened?
“I can’t legally comment on specific cases,” Dittmer responded to I-Team 8. “But, generally with closed businesses, nobody calls us and says, ‘Take us off the list.’ If a closed business was already on the revoked RRMC list, paying the debt probably would not trigger them to be removed from the list, because they’re closed. Nobody cares.”
But, Albatarsea, the new owner of the store, says he does.
“I understand now why my store is on the list,” he said. “I know it’s not me. But, no one else does. It’s not good publicity.”
Dittmer says that type of complaint from a new business owner is extremely rare.
“Those issues, quite frankly, never come up,” Dittmer said. “It’s an anomaly, because the vast majority of businesses on the list still owe some sort of delinquent sales tax.”
TRACKING THEM DOWN
Still, tracking down the businesses on the revoked RRMC list that do owe back taxes can be tricky.
I-Team 8 found a lack of adequate personnel may be contributing to the problem.
While the Department of Revenue’s collections division employs 82 people, its “special investigations unit” — tasked with tracking down business owners who owe delinquent sales tax — has a staff of just six.
For a state facing more than 36,000 potentially delinquent accounts, some say that’s not enough.
“I think clearly that needs to be a discussion when we adopt our budget next year,” said Sen. Luke Kenley (R-Noblesville), chairman of the Senate Appropriations Committee, which sets the state’s bi-annual, multi-billion dollar budget.
Recovering a higher percentage of delinquent sales tax could help offset or even lower other taxes Hoosiers pay. It could also help pay for additional investigators, who could, in turn, bring in even more delinquent tax money.
“I do think the state should do more,” Kenley continued. “And, I think one of the things this depends on is the Department of Revenue’s ability to have a software system that allows them to appropriately deal with all this. During the middle of the recession, we felt like we needed to upgrade our software pretty badly. And, because of the recession, we weren’t able to do that. I think we’re a little sensitive about diving into these kinds of things unless we know our information is accurate. That sounds like a lame excuse in some ways, but I do think that’s one of the keys that needs to be dealt with in next year’s budget to try to make sure we can do this and enforce the law.”
That likely won’t happen until at least next year.
But, in the wake of I-Team 8′s investigation, Dittmer says the state will be looking to hire additonal investigators.
“We don’t think it’s enough either, so we’re growing that business. We’re growing that part of our collections effort,” he said.
“This is a very valuable tool we have,” Kenley said. “I think all of us want to have confidence that our tax system is one that is applied equally, equitably, and is one that’s enforced. We want to be a state where everybody plays by the same rules.”