Audit Report on the Reliability and Accuracy of Utility Tax Data Administered by the Department of Finance

The Department of Finance (DOF) collects City revenues, and encourages compliance with City tax and other revenue laws. The Utility tax (UTX) is imposed on every utility and vendor of utility services that does business in New York City. ‘Utilities’ are defined as companies that are subject to the supervision of the New York State Public Service Commission. They include gas and electric companies, telephone companies, and certain transportation companies. Additionally, companies that derive 80 percent or more of their gross receipts from mobile telecommunication services are also considered utilities.

UTX tax returns are due monthly, by the 25th of each month, covering gross income or gross operating income for the preceding calendar month. However, a taxpayer whose prior year’s tax liability was less than $100,000 is permitted to file a semiannual UTX return for the next year. The Bank of America processes the payments and sends an electronic file to DOF. DOF personnel upload the electronic file to the Fairtax system. DOF received $1.15 billion in UTX revenues from Fiscal Year 2007 to Fiscal Year 2009.

Audit Findings and Conclusions

The UTX data exists in a secure environment, and it is readily accessible to all essential users identified by DOF. The UTX data is generally accurate and reliable for collection purposes, and it generally contains the required information for enforcement and penalty collection purposes. However, the DOF Fairtax system does not capture the ‘final return’ indicator on the UTX forms, which is intended to notify DOF that the company is no longer in business.

While conducting the tests that addressed the objectives to this audit, we identified an outstanding unpaid balance of $2.1 million owed to the City. We also noted that UTX billing periods are kept independent of each other. As a consequence, previous period balances are not carried over to the next billing period, which may hamper collection efforts. Further, we found an additional $469,740 in revenue loss due to missing filing transactions.

Audit Recommendations

To address these issues, we make three recommendations, that DOF should:

• Collect the outstanding taxes due from prior periods and from the filing periods for which returns and payments were not received.
• Ensure that the billing process is corrected by developing a mechanism to check that there are no filing periods lacking returns and that account balances are carried forward.
• Ensure the ‘final return’ indicator field is captured in Fairtax.