Comptroller Stringer Audit Identifies $5.7 Million in Taxes Uncollected by City
Nearly 200 businesses working with the City owe millions in unpaid taxes
The Department of Finance fails to recoup unpaid taxes by continuing to pay businesses with outstanding tax debts
To increase City tax revenue, Comptroller calls for more effective DOF payment seizure practice
A new audit released by New York City Comptroller Scott M. Stringer identified an additional $5.7 million in taxes that could be collected by the City’s Department of Finance (DOF). The audit found that DOF, the City’s tax collector and enforcer of tax law, continues to pay businesses who owe past due taxes while they are contracting with City agencies. This occurs largely because of simple oversight failures by DOF that result in a breakdown of its standard process.
“For New York families struggling to make ends meet, every single penny counts – we need to make sure New York City tax dollars are collected in full and are serving our children, seniors, and neighbors,” said Comptroller Scott M. Stringer. “Our audit identified a basic way the Department of Finance could collect an additional $5.7 million – that’s enough to fund salaries for 71 teachers for a year, shelter 1,500 homeless families for one month or provide nearly 700,000 home-delivered meals to seniors.”
DOF is responsible for collecting City taxes, including from businesses, such as private contractors and companies that do business with City agencies. The purpose of this audit was to examine whether DOF is effectively collecting past due taxes from those businesses. If a business working with a City agency does not pay its taxes, DOF can temporarily hold or freeze any payments from the City to that company and, unless the taxes are then paid, DOF can take the back taxes the City is owed from those frozen funds.
The audit found, however, that DOF continues to pay companies that owe back taxes. While DOF does temporarily hold or freeze the payments, it does not take the needed steps to ultimately collect owed taxes from those funds on hold. These steps would include filing certain forms in the City’s financial management system that would enable DOF to permanently seize the held payments and apply them to the companies’ tax debts.
In fact, the audit found that although DOF has routinely held thousands of payments worth millions of dollars, it has not seized any of that money as payment for City taxes since October 2014 – more than three years ago. In some cases, DOF released the payments to vendors who agreed to pay down their tax debts, but then defaulted. The audit further revealed that DOF does not systematically track how much money it collects overall from City vendors who owe past due City taxes.
In one case, the audit found a business was paid more than $428,000 by the City, even though it owed significant and increasing tax debt. Ultimately, the company went out of business while it still owed $80,000 in back taxes, which now cannot be recouped by the City.
In a second case, a business received $20,844 from the City over a two and a half year period even though its tax debt, which remained uncollected, grew to $27,403. While DOF held the money at one point, it then released the funds, for unknown reasons, leaving the City with nothing to apply to the business’s unpaid tax bill.
The Comptroller’s audit makes several recommendations to DOF, which include the following:
Track and measure collection of City tax debt from City vendors;
Revise procedures to better collect tax debt from City vendors, including training staff and increasing staff access to the City’s central financial management system;
Require staff to take timely steps to deduct vendors’ tax debts from the City’s payments;
Withhold payment until the debt is collected, vacated by a court or withdrawn by DOF after appropriate documentation has been filed; and
If other collection methods fail, deduct back taxes from City payments to offset the $5.7 million in City business taxes owed by City vendors.
New York City can easily improve DOF processes to better collect back taxes from companies doing business with – and being paid by – City government.