State tries to crack down on tax evaders

HONOLULU (HawaiiNewsNow) - The state is missing out on big bucks each year in unpaid taxes. Authorities are trying to crack down on cheating businesses, but the cash-only deals are tough to track.

While shoppers look for bargains at this weekend's Made in Hawaii Festival, investigators from Hawaii's Department of Taxation are on a mission. They want to make sure that new vendors are following the rules, especially when it comes to paying taxes on cash transactions.

"Cash economy is everywhere, and so the biggest problem we're having now is trying to focus in on certain areas because there's so much to do," said Alicia Burnham, supervisor of the Special Enforcement Section.

"We have an iPad-based sales system that tracks all cash transactions as well as credit card transactions so it's kind of already taken care of for us," said Monika Kathuria, president of Hawaii Nutrition Co., a vendor at the festival.

The state created the SES in 2009 to reduce an estimated $1 billion tax gap tied to the cash economy. There are six positions, but two are unfilled. Investigators generated about $903,559 in Fiscal Year 2012 and $679,570 in Fiscal Year 2013.

"There's so much work to be done. We have large non-compliance rates," said Burnham. "Generally, it's about 30% across the state... that would be the percentage that we've spoken to."

In June, a judge sentenced the owner of "Taste Tea" on Kapiolani Boulevard to three years probation for trying to smuggle $100,000 on a flight to Taiwan to avoid paying U.S. taxes.

Investigators have reached out to restaurants and other types of businesses by heading to Waikiki and Chinatown. They also follow up on complaints they receive.

"The biggest one that we're getting right now is rentals. Someone renting a room in a house and the person who owns the house not reporting that rental income," explained Burnham.

Burnham said going after small businesses adds up over time and her team is trying to stop tax evaders from cashing in.

"I want to make sure everything is done correctly, by the book. I never want to be in trouble," said Jessica Matsumoto, owner of Matsumoto Studio.

Burnham said the revenue raised through enforcement may be higher than the statistics since there is no way to measure indirect results. For example, a business owner that investigators speak to may talk to another vendor who then ends up filing their taxes.