The U.S. Census Bureau does more than count people every 10 years, they also track state tax collections. And the most recent figures for the second quarter of 2009 shows that on average, state and local tax collections were down 12.2% compared to the same quarter last year. More ominously, this is the 3rd straight consecutive quarter of decline. Individual income tax collections have been especially hard hit; on average the decline was a staggering 27.5% decline compared to the same period last year.

What are the states doing to address the shortfall?

Of course, many states are reducing services or raising taxes. But this year we also see more criminal prosecutions from state tax authorities. Until 2009, tax prosecutions headlines belonged mostly to the IRS and the U.S. Department of Justice. That is rapidly changing.

This summer, New York’s tax authorities announced a major initiative to hunt down state tax evaders. Shortly thereafter, New York announced the arrest of 20 tax preparers. Earlier this month, New York announced the arrest of rapper Method Man on felony charges of not paying $33,000 in personal income taxes. A case of that amount probably would never attract any federal interest, but to cash strapped state and local governments, that’s real money.

In August, Utah announced the arrest and extradition back to Utah of a man accused of receiving several phony refunds totaling $12,000. And Maine, the state where I once served as revenue commissioner, extradited a man from New Jersey who was wanted in Maine for a fraudulent refund of just $1036. He served 45 days in jail for his crime.

States are clearly ramping up efforts to seek out and prosecute those folks who don’t file or pay. Although the IRS remains the dominant player in the criminal tax field, the states are now jumping in too. Before those with compliance issues had little to fear of state tax prosecutions. Sure, the state tax man might issue some liens or levies but the risk of jail was minimal. Prison and criminal prosecution was once mostly the domain of the IRS. Those rules have changed.

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Our lawyers and trained professionals can also help with civil tax problems including the removal of tax liens, audit defense, collection representation and tax litigation. From our offices in Portland, Maine, Milwaukee and California, we can help you anywhere in the United States. Contact us today or visit our website at www.mahanylaw.com for more information.