Identifying and Quantifying Rates of State Motor Fuel Tax Evasion (2008) / Chapter Skim
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Pages 63-88
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From page 63... ...
63 5.1 Introduction Chapters 1 through 4 and Appendix D, the Annotated Bibliography, describe fuel tax evasion techniques and issues as well as strategies and methods used in the past to estimate fuel tax evasion. Chapter 5 puts this information together and highlights approaches that could be used to estimate evasion for each state.
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From page 64... ...
5.2.1 Tiered Approach to EOE Estimation The approach focuses on measuring the tax dollars lost to EOE, or the amount under-reported. In all cases, estimates represent the amount of under-reporting that occurs, whether intentional or unintentional.
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From page 65... ...
overall taxpayer population. Under this approach, if 1 percent of the heavy trucks inspected on-road were found to be misusing dyed diesel, it would be assumed that 1 percent of all heavy trucks were burning dyed diesel on-road.
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From page 66... ...
control for the effect of time in business on the amount of EOE detected. Applying this information to the population at large would control for the difference in time in business between the audit sample and the rest of the population.
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From page 67... ...
at the state level and the lack of uniformity, with respect to such models, constrains their application as a viable methodology for many states. That is, the overall methodology and model for each state must be designed to allow states to ignore or take advantage of fuel tracking system data, depending on the state-specific circumstances.
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From page 68... ...
been made by the taxpayer. The tracking system approach, however, may not capture some forms of import/export fraud.
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From page 69... ...
9. Has EOE been estimated for all the evasion techniques?
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From page 70... ...
under examination. Estimated aggregate consumption could then be compared to data collected from motor fuel tax refund claims to estimate under-collection due to refund fraud.
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From page 71... ...
EMt = Total fuel evaded by technique t; and t = Dyed fuel misuse, dyed fuel removal, blending/false labeling. The next two sections examine these evasion techniques in more detail.
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From page 72... ...
OLS or Tobit. Provided that sufficient data are available for individual filers through the audit and inspections process, the OLS or Tobit approach could be adopted.
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The following addresses a key question that must be answered to model this type of evasion about who is deciding to evade and where (at what point in the distribution) the evasion occurs.
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From page 74... ...
For example, the estimate would be as follows: where E = $ evasion-altered dyed fuel; X = violations (in gallons of fuel) ; N = total inspections/audits (in gallons of fuel)
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From page 75... ...
with published tax rate data can be done to construct total tax liability. Another variable that would be useful is the amount owed to other jurisdictions.
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From page 76... ...
False claim of export is another export-import evasion technique and is similar to the previous technique except the flow of fuel runs in opposite directions. In illegally exporting fuel across state borders, the taxpayer claims to sell the fuel in its home state but transports and sells it in a neighboring state.
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From page 77... ...
5.4.5 Illegal Importation Across International Borders 5.4.5.1 Overview of Evasion Technique Evasion sometimes occurs by way of international borders when untaxed fuel is smuggled into the country and sold to retailers at taxed rates. Perpetrators of this scheme take advantage of the fact that state and federal agencies have no jurisdiction over foreign fuel supply operations.
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From page 78... ...
a series of cross-border inspections, documenting various fuel tax violations in the Northeast. Data required to estimate EOE using this approach is outlined in the illegal importation data element subsection of Section 5.5.
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From page 79... ...
between the two would be the level of EOE for that state. If audit data and tracking systems were available, estimates from the two could be used to determine the level of bias in the estimates from the audit data sampling approach.
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From page 80... ...
lations to inspections times the total amount of fuel used in the selected population. For example, the estimate would be: where Ei = $ Evasion for fuel type i; Xi = Violations involving blending or falsely labeling fuel type i (in gallons of fuel)
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From page 81... ...
be to construct a model where the number of gallons of motor fuel sold by individual Native American establishments would serve as the dependent variable, and a number of independent variables that could be used to estimate gallons sold would be identified and tested. Independent variables could include: • The number of Native American Reservations in a state; • The number of retail motor fuel outlets on reservations; • The number of pumps located at each Native American retail outlet; • State motor fuel excise tax rates; • State populations; and • Proximity to high-tax states.
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From page 82... ...
5.4.9 Daisy Chains 5.4.9.1 Overview of Evasion Technique In a daisy chain scheme, a ring of artificial companies transact several fallacious purchases of fuel without paying taxes. The fuel is eventually sold at taxed rates to a legal retail operation.
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From page 83... ...
data elements are categorized based on the specific types of investigations and audits generating the original data. These investigations and audits are those that states already perform, or could perform, as part of their regular enforcement programs.
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From page 84... ...
data on violators while collecting limited data on audits and inspections that do not yield assessments. For those states with limited existing data, this section could be used to design a data collection program to support future evasion studies.
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From page 85... ...
– Annual gallons for which refunds were applied within the state estimating evasion by fuel type – Number of registered off-highway vehicles/equipment and average fuel consumption classified by type of vehicle and type of fuel (examples provided below) : ▪ Government vehicles and equipment (federal, state, counties, and cities government agencies)
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From page 86... ...
5.5.6.6 IFTA Data Element #2 The following data items extracted from individual audit records are needed for all IFTA audits: • Date IFTA audit performed • Number of IFTA decals the motor carrier used • Annual taxable miles traveled in state by fuel type • Annual taxable gallons used in state by fuel type • Annual total taxable miles traveled in other jurisdictions by fuel type • Annual total taxable gallons used in the other jurisdictions (classified by jurisdiction) by fuel type • Miles per gallon registered by motor carrier • Base state percentage of total miles traveled • The dollar value of the IFTA EOE assessment (if no assessment made then assessment amount equals zero)
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From page 87... ...
• Operational characteristics – Type of operation audited (distributor, importer, alternative fuel producer, bulk purchasers, special fuel dealers) – Is the company licensed to distribute exempt fuel – If feasible, determine the average number of times that loads change ownership prior to delivery – What motor fuel products does the company distribute – Is the distributor an importer and/or exporter – States in which the company is licensed to operate – Terminals from which distributor obtains motor fuel • Types of violations found • If violation(s)
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From page 88... ...
• Trigger for inspection (e.g., tax evasion hint or report by a third party, random sampling, regular on-road inspection, or other .
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