Baltimore retailers slighted Maryland nearly $3.5 million, according to the audit's results chart. Prince George County retailers shorted the state more than $6.2 million; Worcester County retailers scammed more than $800,000; and Washington County retailers swindled more than $180,000. Each of these incurred interest and penalties totaling more than $27 million owed the state of Maryland.
These numbers, high as they are, only represent 2 percent of the retailers reviewed in those counties, according to Tartal.
No revenue predictions have been made as to the full amount of unpaid taxes after the auditors sweep the entire state. Tartal said the audit results varied too much between counties to assemble a meaningful estimate.
Once They're Caught
Fraud in Maryland typically results in a penalty of 100 percent of the tax due, and a waiver of the normal statute of limitations of four years. Gross negligence also cancels the statute of limitations, resulting in a 10 percent penalty on assessments. The Comptroller's Office said some retailers would likely have to reimburse unpaid taxes spanning back to the early 1990s.
"The vast majority of alcohol retailers in this state are law-abiding businesses that turn in the sales taxes they collect," Schaefer said. "But the few that don't are cheating their customers and the state. We have every intention of finding out who they are, and we now have a way to do that."
Schaefer's 97 audits have turned up 51 cases of fraud and 22 cases of gross negligence, according to the Comptroller's Office. The remaining 24 audits were assessed in the normal fashion without any fraud or gross negligence penalties, according to Kane.
Kane said unless an accused retailer's audit is found to be in error by the courts, the Comptroller's Office is seeking the full amount of back taxes from each retailer.
"Audit findings are subject to appeal and there is generally no collection action taken until an audit is final," Kane said.
In most cases, the courts have found in the state's favor, according to Tartal.
Kane said the Comptroller's Office would allow the retailers to enter payment plans. These will be arranged on a case-by-case basis, depending on what the taxpayers owe and their ability to pay.
Their problem, however, may not end with the state of Maryland.
Kane said the IRS has contacted the Comptroller's Office about the alcohol audit project. The IRS Media Relations Office said it could not comment on any possible federal audits resulting from Maryland's program.
Tartal noted that many retailers reported their sales accurately to the IRS, while underreporting them to the state.
"In some cases, the business owner compiled and submitted their own sales tax return, and had a paid preparer to compile their federal income tax return," Tartal said.
Kinney Poynter, executive director of the National Association of State Auditors, Comptrollers and Treasurers, said this type of comparative auditing has surged in government over the past four years. His organization now offers sessions on the topic in all its seminars.
"The use of technology continues to increase because auditors are asked to do more with fewer people," Poynter said.
He said the New York Comptroller's Office is using similar technology to track Medicaid double charging in hospitals, which auditors can spot in less than one hour using software, according to Poynter.
"I don't want to say that it's intentional," Poynter said. "It could be just a simple error, but that's what's happening."
He said auditors should expect their use of technology to rapidly increase in the coming years. "It's the only way you can continue to do audits in the current environment."