Delinquent sales tax recovery rising, prosecutions continue to lag

INDIANAPOLIS (WISH) — A new crackdown is underway after an I-Team 8 investigation exposed millions in missing sales tax money across Indiana. But, some say Indiana’s plan to reverse the problem isn’t yet adding up.

Earlier this year, I-Team 8 discovered thousands of Hoosier businesses lining their pockets by stealing sales or withholding taxes. The investigation uncovered critical questions about what the state was doing to recover the money.

State records now show more than 37,500 Indiana businesses have had their business licenses — known as Registered Retail Merchant Certificates, or RRMCs — revoked due to outstanding tax debt. That’s an increase of nearly 5 percent in the last six months alone.

But, I-Team 8 discovered the state rarely takes action to shut those businesses down. Some worry dishonest businesses are now taking advantage of that in new ways.

“This business was bought out by the guys who operated it.”— Bill Kimbley, “Kimbley & Proctor”

‘I’M NOT TELLING YOU’

Just inside the front door of a nondescript office building on the north side of downtown Indianapolis, the sign was clear: “Kimbley & Proctor has moved to Suite LL22 on the lower level of this building.”

One wouldn’t think much of it. Except, on paper, the engineering firm isn’t supposed to actually exist.

The Indiana Attorney General filed a lawsuit against the firm on May 15, alleging that its responsible officers Bill Kimbley, Larry Devoss and Jacquelyn Brooks kept more than $226,000 in withholding taxes they weren’t entitled to. A judge agreed to dismiss all charges against Devoss and Brooks after both filed pleadings saying they were not involved in the company’s leadership.

After filing at least 120 separate tax warrants against the company over the last 14 years, the Indiana Department of Revenue (IDOR) and Indiana Attorney General reached an agreement with Kimbley to shut the business down. Court records show a judge accepted it on May 28.

DELINQUENT TAX SIGN 2But, when I-Team 8 visited the building in mid-June, the “Kimbley & Proctor” sign was still hanging near the entrance. So was another sign also pointing to Kimbley & Proctor in Suite LL22. Another Kimbley & Proctor sign was visible just off the elevator on the door to Suite LL22.

I-Team 8 found Bill Kimbley inside, and asked for an explanation.

“That business is closed down — Kimbley and Proctor — which was part of the agreed order we entered into,” he said. “They’re not in business anymore. [This is a separate business]. This business was bought out by the guys who operated it.”

Asked what the new business was called, Kimbley shook his head.

“I’m not telling you,” he said.

Indiana Secretary of State records obtained by I-Team 8 show another company — P & H Engineering Surveying, LLC — now occupies the same address. It was created on May 19, four days after the state’s lawsuit was filed seeking to shut Kimbley & Proctor down. Donn Proctor is listed by the state as P & H’s registered agent.

“It’s a completely separate business, and I’m no longer involved in it. I’m just an employee. The guys actually bought the operating assets, and they’re continuing the business — continuing to do the business, because we had long term contracts,” Kimbley told I-Team 8.

After asking whether that was allowed under the agreement, Kimbley told I-Team 8 to contact his attorney. She had no comment on the case.

As I-Team 8 exited Suite LL22, the “Kimbley and Proctor” sign on the door had been removed. A “P & H Engineering Surveying, LLC” sign hung above where it had once been.

“Our objective is to ensure that all taxes that should be collected are collected.”— Commissioner Mike Alley, Indiana Department of Revenue

RAISING QUESTIONS

Indiana’s Department of Revenue is tasked with making sure businesses pay all applicable taxes and enforcing those that don’t. That includes policing businesses once they close.

“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,” Department of Revenue spokesman Bob Dittmer told I-Team 8 earlier this year.

Asked by I-Team 8 if Kimbley’s case raised questions for the Department of Revenue, Commissioner Mike Alley nodded.

“Certainly it does,” he said. “I can’t talk about specific scenarios. But, I would just say that that initial person remains liable for the liability as it was originally accrued.”

Still, Alley says IDOR’s systems are designed to prevent business owners who owe delinquent taxes from “skipping town.”

“All registered businesses, of course, need to provide some sort of business ID or Tax ID number,” he said. “So, we’re ensuring that we do not have duplications there, and that someone with an expired retail merchant certificate is not opening a new business with the same number, but different name. Despite that, it’s still a challenge. And, to say it doesn’t happen would not be true. Because, there are lots of ways that business owners may try to work around that.”

Doing so could result in additional tax fraud charges, Alley stressed.

“We will continue to pursue those liabilities and collections with [any responsible officers],” he said. “Our role here is to ensure compliance. Our objective is to ensure that all taxes that should be collected are collected.”

“The Department of Revenue, to their credit, does try to do it with the resources they have. But, it’s not good enough.”— Sen. Luke Kenley, R-Noblesville

RECOVERING THE MONEY

New figures show Indiana is finding new success in efforts to get at least some money back from delinquent business sales and withholding tax accounts. IDOR investigators and collections agents recovered more than $68 million in delinquent commercial sales tax during the last fiscal year, which ended on June 30. That marks a 30 percent increase from the year before, according to Alley.

A staff of more than 100 now work inside IDOR to boost collections on delinquent accounts, and accounts with liabilities beyond one year old are now passed along to a collection agency, Alley said. That effort alone has generated an additional $12 million in delinquent payments so far this year.

Chronically delinquent companies are now regularly turned over to the department’s special investigation unit, which had dwindled to a staff as low as four people. It has now nearly quadrupled to a staff of 15.

Alley says the department has also referred on 12 additional cases to the Attorney General in the four months since I-Team 8’s first investigation aired — three times the number of cases turned over during the prior three years combined.

“We have dramatically increased our initiatives in terms of investigating these cases, and passing them along to the Attorney General,” Alley said.

Prosecution, however, is still a problem.

So far this year, civil charges have been filed against just three businesses: Kimbley & Proctor, filed in May, Dave Evans Tire in Kokomo filed in February, and a Clay County business known as Swiss Connection, LLC, filed on June 5.

Court documents show 12 tax warrants were filed against Swiss Connection, alleging the company accrued $8,808.13 in unpaid sales and withholding taxes between January 2013 and June 2013. The Attorney General has sought a restraining order to shut the business down.

Thousands of similar cases remain in legal limbo. Some have been listed as delinquent accounts for a decade or even longer.

An Attorney General’s office spokesman declined an interview request from I-Team 8, referring questions on “recent cases” back to IDOR.

Some at the Statehouse are concerned the numbers aren’t adding up.

“That problem is somewhat of a relationship problem between the Attorney General and the Department of Revenue,” said Sen. Luke Kenley, R-Noblesville, who serves as chairman of the Senate Appropriations Committee. “It goes back a number of years, and it has to do with the effectiveness of the system.”

Kenley, who helps draft Indiana’s bi-annual budget, said he would like to see more companies being held accountable for delinquencies.

“The Attorney General has not been sure when they’ve actually had a case that they can actually move forward with. And, there’s some confusion with how long the department does it, and then when do they turn it over to the Attorney General? I think that’s part of the equation we need to look at here. The Department of Revenue, to their credit, does try to do it with the resources they have. But, it’s not good enough.”

HOW MUCH IS OWED?

I-Team 8’s initial investigations earlier this year also raised new questions about how much money Indiana’s delinquent sales tax accounts are really worth.

At the time, IDOR claimed it had no idea how much money it’s actually owed.

“We couldn’t even possibly tell you how much [money is missing], because many of these [delinquent sales tax accounts] are actually closed businesses,” IDOR spokesman Bob Dittmer told I-Team 8.

But, I-Team 8 found neighboring states had no problem calculating their figures.

DELINQUENT TAX state money for WEB

Kentucky, for example, lists 6,208 businesses on its delinquent commercial sales tax list. Those companies owe about $60 million in overdue taxes. Arkansas lists just 1,368 businesses on its list, worth around $20 million.

Much larger Ohio says it averages about 26,500 businesses on its list each quarter. Last year, the state calculated that it was owed $245 million in overdue sales tax, and an additional $30.7 million in overdue withholding tax. Increased collection efforts lowered those figures by more than 30 percent from the previous year.

Other states have held recent tax amnesty events to help clear backlogs in delinquent sales tax payments.

Connecticut lowered its unpaid commercial sales tax to $137 million last year, down from $169.5 million the prior year. So did New York, which now lists 4 percent of its registered businesses — about 21,200 — as delinquent in sales or withholding tax.

Missouri now lists just 3,115 delinquent business sales tax accounts, worth approximately $38 million.

Yet, Indiana — with about the same population and number of active businesses — lists more than 37,500 delinquent businesses, and still says it has no reliable figures on what those accounts are really worth.

“I’m not saying we can’t calculate it,” Commissioner Alley responded, when asked why most other states provided figures, while Indiana does not. “We just think it’s not a reliable number that people should really look to and say, ‘Here’s what we are owed or here’s what we’re missing out on.’ We do not feel that those are meaningful numbers that should be conveyed to the public, because they could be misconstrued as money that’s owed to the state, when in reality, it’s not.”

A NEW SYSTEM

“I think they have reasons why they don’t want to disclose a number,” said Sen. Kenley. “And, a large part of the reasoning, I think, is a reflection of how effective their computer system is. I think they feel like they need a more effective and complete computer system, and that number would go down.”

Kenley says he’ll push to include extensive software upgrades for IDOR during next year’s long General Assembly budget session.

“We started to this about six years ago, and then the recession hit and we had to forgo that expenditure,” Kenley said. “We were prepared to spend a significant amount of money to upgrade their system. And, I think what you’re seeing shows the results of the fact that we didn’t do anything.”

The upgrades were calculated to cost upwards of $50 million in 2008. The price tag would likely be larger now, Kenley acknowledged.

“But, it certainly raises the question of: can you, by implementing a better system, actually recoup enough lost taxes that perhaps it pays for itself on a return on investment type of analysis? I think we owe it to the Department of Revenue to look at the answer,” Kenley said.

NEW SOLUTIONS

In the meantime, Commissioner Alley said IDOR is working to “clean up” its massive list of revoked RRMC’s by clearing out businesses that no longer exist. That process has identified 6,200 businesses so far.

“They’ll be removed from that list, but they won’t be removed from our collection initiatives,” Alley said. “We will continue to pursue collections from those businesses as well as from their responsible officers, who are, in essence, the owners.”

The key now is tracking those old owners down. Some have moved out of Indiana, and Alley acknowledged that holding them accountable can be a challenge.

It’s one reason why some are searching for additional “out of the box” solutions, like an idea known as electronic transfer.

Patents have been filed in recent years by several start-up companies on software that promises to capture sales tax dollars from credit and debit transactions and send them to the state the instant they’re rung up at the cash register. The idea has been considered by lawmakers in Connecticut, Ohio and New York in recent years, though none have taken action to implement it so far.

“I hope technology will be [part of the solution in the future]. But, I think there’s been a lot of resistance from the credit card companies on that front. So, you have to hammer out something with them to make it work. Those are discussions I think we will have down the road,” Kenley said.

They are efforts Alley hopes to see eventually bear fruit.

In the meantime, he says IDOR’s goal will be to ensure everyone pays their fair share.

“Our objective is to make a level playing field, and to collect the tax that’s owed,” he said. “Not more. Not less. And, we are stepping up those efforts. We clearly want to make the statement that there will be consequences for undertaking fraudulent and criminal activities.”

Search Expired RRMC list as of 1/30/2014

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