High-tech tax compliance

Lawmakers are considering computer software that could help track down tax dodgers while leaving honest taxpayers alone.

Sponsored by Rep. Joyce Peppin (R-Rogers), HF174 would require the Revenue Department to purchase high-tech tax compliance software that could identify potential candidates for tax audits. Such programs are already available from companies like SAS Institute Inc., whose software is used in Wisconsin.

John Dolejsi, a government account executive for SAS, said the company’s tax analytics software uses predictive modeling to identify potential tax fraud and noncompliance. Using the information, tax collectors can focus and prioritize audits of individuals and businesses that might not be paying their fair share.

“Our goal here … is to maximize the tax collection and minimize any of the disruption to businesses or individuals who shouldn’t be audited or reviewed,” Dolejsi said.

The House State Government Finance Committee laid the bill over March 2 for possible omnibus inclusion. There is no Senate companion.

Over the last decade, the Revenue Department has become more aggressive about collecting unpaid taxes. In 2000, 54 percent of department employees were involved in tax compliance activities; by 2010, that number had increased to nearly 75 percent.

Beginning in 2002, the Legislature and Gov. Tim Pawlenty ordered several new tax compliance initiatives. The department was able to bring in additional revenue by expanding its number of auditors; however, the return on investment has diminished from 10:1 in 2003 to 4:1 last year.

Some members expressed concern about the cost of such a system. Rep. Phyllis Kahn (DFL-Mpls) successfully amended the bill so that only “reasonable” responses to the department’s request for proposals would be considered.

Rich Neumeister, a state resident who frequently lobbies on data privacy issues, cautioned lawmakers about letting private companies handle personal data on taxpayers.

“The bottom line here is this involves individual rights, privacy rights, and whether you want to call it hunting or trolling, that’s what it is,” he said.