2006 News Releases
For Immediate Release: January 19, 2006
REVENUE'S EFFORTS TO CRACK DOWN ON VEHICLE AND BOAT FRAUD ON
REGISTRATION SHOW POSITIVE RESULTS
NASHVILLE, Tenn. - Sales tax and fees not paid on vehicles and boats result in lost money to state and local governments. Major areas of noncompliance include the underreporting of the sales price of automobiles and boats to local county clerks and underreporting on the transfers of vehicles and boats between individuals. The Tennessee Department of Revenue's enhanced efforts to crack down on vehicle and boat fraud on registration have resulted in increases in related sales and use tax assessments and collections. The department assessed about $650,000 and collected about $544,000 in 2005, compared to about $239,000 in assessments and about $208,000 in collections in 2004.
"We will continue to pursue criminal activity and prosecute tax evaders to maintain fairness in our tax structure for Tennesseans," said Revenue Commissioner Loren L. Chumley. "We rely on auto and boat owners and county clerks' assistance to ensure this tax is administered equally and fairly."
County clerks are required by Tennessee law to collect tax on the amount listed on the bill of sale or, in the absence of the bill of sale, using the fair market value of boats and motor vehicles, according to Tenn. Code Ann. Section 67-6-406. County clerks remit an average of $120 million per year in sales and use taxes. Clerks can be held liable on their bond for the amount of proper taxes not recovered plus a 15 percent penalty, per Tenn. Code Ann. Section 67-1-1010.
When a boat or car is transferred from one individual for less than the fair market value, the application filed with the local county clerk is sent to the Department of Revenue for review. The case is turned over for criminal investigation if necessary and could be prosecuted. If Revenue determines the failure to report and pay the total tax due is fraud-related, a 100 percent penalty is assessed on the underpayment of tax. No statute of limitation applies when a person has filed a false or fraudulent report with the intent to evade tax. If the department determines that such failure is due to fraud, it may assess tax at any time pursuant to Tenn. Code Ann. Section 67-1-1501(b)(2).
Fraud in this area can be significant. For example, one case involved an individual registering a boat for $5,000. "Through the efforts of the Audit Division's Discovery Unit, Revenue verified that that the owner actually paid $40,000 for the boat. Revenue assessed tax on the additional $35,000 underreported by the new owner and assessed a 100 percent penalty pursuant to Tenn. Code Ann. Section 67-1-804(c)(1) and (2)." Because the prior owner had also failed to pay sales or use tax, Revenue was also able to assess tax on his/her purchase price.
Owners are encouraged to come forward voluntarily to comply. Owners need to send information about what was previously reported and what should have been reported to the Tennessee Department of Revenue, Discovery Unit, PO Box 190644, Nashville, TN 37219.
To report tax fraud on vehicles and boats, call (615) 532-6409 or (800) FRAUDTX (372-8389) for this and other types of tax fraud.
Revenue receives information from various sources, including the Uniform Commercial Code through the Secretary of State's office, the Department of Safety, county clerks' offices and information about boats, all-terrain vehicles and motorcycles from other states through exchange programs.
The Department of Revenue collects approximately 92 percent of total state tax revenue. During the 2004-2005 fiscal year, the department collected $9.6 billion in state taxes and fees. In addition to collecting state taxes, $1.7 billion of local sales tax was collected by the department for local governments during the 2004-2005 fiscal year. Besides collecting taxes, the department enforces the revenue laws fairly and impartially in an effort to encourage voluntary taxpayer compliance. The department also apportions revenue collections for distribution to the various state funds and local units of government. To learn more about the department, log on to www.TN.gov/revenue.
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