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Undercover businesses cost CA $10 billion in taxes

June 7, 2012 12:00:00 AM PDT
State investigators say the $10-billion tax gap is due largely to so-called undercover businesses, or employers and employees who simply don't pay their taxes.

A recent bust in Stockton netted authorities $500,000 worth of counterfeit goods, including fake designer purses, Air Jordans and a new line of NFL jerseys not yet legitimately for sale in the United States.

Sellers rarely hand over the sales tax to the state. If it's smuggled cigarettes, the excise tax never makes it to state coffers.

Undercover stings find people working for cash under the table. The employer doesn't pay payroll or unemployment taxes and employees avoid having income taxes taken out.

The California Franchise Tax Board believes $10 billion are owed to the state every year, but never paid, as a result of this underground economy.

"These are things we don't see. We can't necessarily measure. We're just taking bits and pieces of information, trying to paint a picture," said Scott Reed of the California Franchise Tax Board.

The board has 41 sworn officers and the Board of Equalization has 80 investigators statewide -- not nearly enough to battle $10 billion worth of illegal employment and goods.

"People involved in the underground economy are very creative at how they mask and hide that stuff," said Randy Silva a California Board of Equalization Investigator.

Considering California is in a constant state of budget deficits, those affected by spending cuts are upset by tax cheaters. $10 billion could help save some social services.

"If there's any kind of way we can get people out of the shadows and pay their fair share of taxes, that'll go a long way in solving our budget problems," said Doug Moore with United Domestic Workers.

A proposal to create a new Centralized Intelligence Partnership is getting bi-partisan support here in the Legislature. By having multiple agency pool resources together, it could net the state $32 million a year.

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