Given how tough it is to raise taxes these days, it's not unusual for state governments to go fishing for delinquent taxpayers. Many state, including New Jersey, Florida, and New York, have stepped up their efforts. But in its latest fishing expedition, New York seems to have become entangled in its own line.
Last October, the New York State Department of Taxation and Finance sent a mailing to approximately 300 companies from INC.'s list of the 500 fastest-growing private businesses. The envelopes contained a five-page questionnaire and an official-looking letter.
Among other things, the letter said, "Information available to this office suggests that your company is either making sales or performing services which may be subject to New York State taxes. A review of [our] records discloses that you are not filing for all of the taxes for which you may be responsible."
The letter demanded a reply within 20 days. A lot of executives might have been alarmed. But one recipient was Jerry Corde, CEO of Vatex Corp. (formerly Virginia Textiles Inc.). He knew that his company, which has appeared on the INC. 500 four times, didn't owe New York a nickel. He was so put off by the mailing that he decided to get to the bottom of it.
For several days, he was bounced from pillar to post trying to find someone in Albany who could explain what was going on. Eventually, he got a call from the tax department's deputy commissioner and legal counsel, John P. Dugan. The only explanation Dugan could give was that the mailing was intended as a public service -- "to inform growing companies of their potential liabilities before it gets too serious." Officially, then, New York was arguing that it did Gorde and all the other execs a favor, although Dugan allowed that the letter "fell far short of the goal both aesthetically and substantively."
Gorde, however, isn't ready to buy this explanation. "If this were purely a public service," he argues, "it wouldn't have been initiated through something called the Revenue Opportunity Division." At Gorde's insistence, the New York tax commissioner sent a letter of apology to all of the original recipients, admitting that the first letter was "inappropriate."
One imagines that if a business had played things as fast and loose as New York, the state's attorney general would have jumped into the case. Gorde just hopes that the incident will teach his fellow CEOs an important lesson. "For me," he says, "it just shows that you have to be incredibly skeptical of things that look official."
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