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Lottery officials have agreed to take more aggressive action to identify retailers who owed back taxes or have outstanding tax liabilities. A State Comptroller's audit identified more than 3,000 lottery retail outlet operators who owed more than $23 million in back taxes to New York State, with 350 of these individuals owing more than $10,000 each.
Auditors from the Office of State Comptroller Alan G. Hevesi found that while the Lottery Division had generally adequate policies for selecting new retailers, the division failed for two years to review existing retailers' outstanding state tax bills, and that some of the vendors who owed taxes had sales of more than $1 million annually.
Lottery officials have committed to resume regularly matching their retailer database with the Tax Department database to identify retailers with unsettled tax liabilities. They also said they will work with the tax department to require potential retailers to submit documentation to show that they are working to resolve any tax problems as part of the application process and take appropriate action against retailers who have unsettled liabilities to ensure that the taxes owed to the state are paid.
"I'm pleased that the Lottery Division is committed to taking action to ensure that retailers are paying their state taxes," Hevesi said. "Selling lottery tickets offers individuals a potentially lucrative business opportunity. The Lottery Division is now doing what is needed to be done to ensure that their retailers pay taxes on the money they're making from that opportunity."
"The New York Lottery has been working with the New York State Department of Taxation and Finance since 1992 to ensure that New York Lottery retailers are held responsible for unsettled tax liabilities. The Lottery and the Tax Department recently agreed to an improved process for reviewing and terminating retailers based upon their level of tax debt and have implemented this new process," said New York Lottery Director Nancy A. Palumbo. "Since implementation of the new process, retailers with outstanding tax liabilities have had their licenses revoked and we will continue to ensure that Lottery retailers remain current with their taxes."
Auditors found that the operators of 4,161 retail outlets, or 26 percent of the active outlets whose records could be matched to a database of taxpayers, had an outstanding liability due to the state. This corresponded to 3,115 taxpayers since a taxpayer can have more than one retail outlet. More than 130 of these taxpayers had outstanding tax bills of more than $25,000.
Auditors also found that some of the retailers with outstanding unsettled tax assessments due to the State had annual Lottery sales in excess of $1 million. For example, one upstate retailer had an unpaid tax bill of $37,794 had lottery sales of $1.1 million and earned $66,669 in commissions alone in one year. A downstate retailer who owed $43,504 had lottery sales of $1.2 million and earned $72,763 in commissions.
Auditors also recommended that the division reinstitute a program to monitor retailer sales performance and eliminate retailers who did not meet the minimum sales set by the Lottery. Prior to 2002, the Division monitored retailers' performance and identified a "break even" sales level, or the level needed for them to cover their operating costs from sales. However, auditors found that the division failed to monitor retailers' performance and did not terminate retailers who did not meet a break-even level of sales, meaning the Division lost money by allowing the retailers to continue selling tickets.
Auditors found that one-third of the 406 active retailers who received their licenses in the first quarter of the fiscal year ended March 31, 2004 (April 1, 2003-June 30, 2003) did not achieve average sales for the last ten weeks of their 26-week probationary period to cover the break even sales level of $2,645 for the period, and that most of those retailers still had not achieved the break-even point one year later. Auditors found one upstate retailer that averaged $338 in sales for the last ten weeks of his probationary period, and continued to perform poorly with $525 in weekly sales through August 2, 2004, far below the break-even sales level.
For the fiscal year ending March 31, 2004, the Lottery had sales of $5.8 billion through a network of about 16,000 licensed retailers. The Lottery division employed 331 staff during that year.
Click here for a copy of the audit. 10-31-05
© 2005 North
Country Gazette
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