City Owed $5.7M In Taxes By Companies It Pays, Audit Finds

NEW YORK, NY — New York City has not collected millions of dollars in overdue taxes from companies it pays for various goods and services, a recent audit found. The Department of Finance hasn't followed through with a process allowing the city to effectively deduct unpaid taxes from vendors' payments in more than three years, leaving $5.7 million in taxes uncollected, according to the audit by City Comptroller Scott Stringer's office.

That money could pay the salaries of 71 teachers for a year, give 1,500 homeless families shelter for a month or provide seniors with nearly 700,000 home-delivered meals, Stringer said.

"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," Stringer, a Democrat, said in a statement.

As of Feb. 5, the city had more than 250 open warrants against 192 vendors for a total of $5.7 million in unpaid business taxes, but continued to pay those companies anyway, says the audit published June 28.

There's an established procedure to put holds on payments to delinquent vendors and then apply money to their tax debts instead if the companies don't pay up within 15 days, according to the audit.

The Department of Finance executes the first step of that process — $2.6 million worth of payments to vendors with tax debts were on hold as of February, the audit found. But as of early this year, the department had not actually collected any money owed since October 2014, according to the audit.

The department instead waits for companies to get in touch with its Collections Unit "so that it can set up a payment plan with, or otherwise induce payment from, the vendor," the audit says.

But the department doesn't systematically track how much taxes it recoups from companies this way, and the comptroller's office didn't get information that would have let it assess how effective the method is, according to the audit.

Sometimes the department released payments to vendors only for them to later default on an established payment plan, the audit says.

In one case, the department was unable to collect $80,000 in outstanding taxes from a corporation that dissolved having received more than $428,000 in payments from the city, the audit says.

The comptroller's office recommended the Department of Finance collect the $5.7 million in taxes by deducting money from vendors' payments if other collection methods haven't proven successful.

The audit also recommended that the department create a system to track the effectiveness of its tax debt collection procedures; revise its procedures to better collect tax debts from vendors; require staff to take steps to deduct tax debts from payments; and not release payments unless tax warrants or judgments are "substantially satisfied," vacated or withdrawn.

The Department of Finance said it broadly agrees with the audit's recommendations and is improving its systems "to better track and monitor vendor compliance" in response to the findings.

The department has several tools it uses to resolve debts, but levying a taxpayer's funds is a "last resort," wrote Jeffrey Shear, the department's deputy commissioner for treasury and payment services, in a response to the audit.

"Taxpayers' situations are not all the same," Shear wrote. "We, therefore, do not apply a 'one size fits all' solution, but take into consideration the challenges a taxpayer faces when bringing a taxpayer into compliance."

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