New state law stops predatory audits-for-hire against businesses

Swain County is considering hiring a firm to ferret out businesses that are evading property taxes on equipment — but it can’t wait too long to decide.

Firms that go after businesses for taxes has become a brisk business, offering their services at no upfront cost to counties

and instead taking their payment in the form of a finder’s fee — in other words a cut of whatever unpaid taxes they can find.

“If they don’t find anything, it don’t cost you anything,” said County Manager Kevin King.

A change is coming down the pipe that will instead require counties to pay a flat fee.

A new measure by the N.C. General Assembly will go into effect next fiscal year, intended to halt the predatory nature of the business.

Business personal property includes equipment, office furniture and work vehicles, basically anything the business uses to do its job, from ovens and cookware in restaurants to computers and fax machines in attorneys’ offices. Figuring out whether businesses have properly listed all their equipment is a time consuming process, and one reason firms have cropped up to marketing their audit services.

Under the new law, counties will have to negotiate a flat fee for the service. It could be more risky to counties, as they will have to fork over a set amount no matter what the firm turns up.

N.C. State Sen. Jim Davis, R-Franklin, attended the Swain Board of Commissioners meeting Monday and shed some light on why the change occurred.

“The horror stories I heard were not pretty,” Davis said. “Some of these businesses get harassed.”

The agencies hired to find unpaid tax revenue would badger innocent business owners until they threw their hands up in frustration and asked how much they needed to pay to get the agency off their back, Davis said, adding that he has not heard about any abuses by such firms in Western North Carolina.

If the audit firm finds a business had improperly listed their equipment, they could be fined and forced to pay back taxes as well as higher taxes going forward. Some business simply aren’t aware of what equipment they are supposed to pay property taxes on. Other purposely dodge the taxes, either underlisting their equipment or flying under the radar, such as someone who works from a home office.

King indicated that a couple of agencies had approached him about audit businesses within the county limits. King informed the commissioners that they must decide whether to hire one of the firms within the next couple months if they prefer to pay a contingency fee rather than a flat fee.

“I just need a feel if you all want to go down that route,” King said.

Commissioner Robert White asked how much an audit would likely bring in.

“What is the possible gain for us?” White said.

King responded that he did not have an estimate.

Firms doing business property audits typical keep 30 percent of unpaid taxes that are uncovered, King said.

Swain County has between 1,200 and 1,400 businesses but is somewhat unique, in that some of the businesses lie within the Qualla Boundary. The county cannot tax those businesses.

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