Taxpayer typo costs Suffolk $5M in sales tax revenue

A whopping mistake on a single state tax return from one Suffolk taxpayer has cost the county $5 million in sales tax revenue, reducing first-quarter tax receipts by nearly half and partially deflating hopes for an early economic rebound.

The State Department of Taxation and Finance in March credited Suffolk with $5 million in sales tax, because a taxpayer by mistake said $10 million in sales tax was owed on out-of-state Internet purchases, county budget officials said. Suffolk gets about half the sales tax revenue, and the rest goes to the state and the Metropolitan Transportation Authority.

Connie Corso, County Executive Steve Levy's top budget aide, said state officials told her that the taxpayer had intended to list owing $1,000.

"It seems that someone left their finger on the zero button too long," said Robert Lipp, a legislative budget analyst.

But county budget aides also said the $10-million figure should have raised an immediate red flag as it would have meant the taxpayer would have had to have made $116 million in purchases.

Brad Maione, a spokesman for the state Department of Taxation and Finance, said he could not identify the taxpayer, whose privacy is protected by law. He also could not immediately comment on how the mistake originally slipped by or how it was ultimately uncovered.

"It's unbelievable," Corso said. "When I found out it took me an hour to get my chin up off the floor."

"It just shows how volatile tracking sales tax can be and how archaic the state system is." Even more amazing, she added, "the state fronted the money."

The mistake, according to budget aides, means that instead of having a first-quarter sales tax growth of 5 percent over the past year, the increase is only 2.6 percent. Lipp said that when all adjustments are taken out, the receipts from large and small vendors - a signal of economic activity - are up only 1.5 percent.

The mistake is just the latest piece of bad sales tax news for Suffolk officials, who had hoped the first-quarter results indicated the start of an economic rebound.

"Other indicators made you cautiously optimistic everything is pointing to a slow economic recovery," Corso said. "In one fell swoop, the state took it away. It wiped away one third of the county's growth for the year."

While the county generates more than $1 billion a year in sales tax, receipts last year plummeted amid Wall Street's plunge; revenue was down 8.4 percent, rather than the 6 percent drop projected. Earlier, Levy had projected 5 percent growth for this year, but lawmakers lowered the estimate to 4 percent and in January, Corso again revised sales tax growth estimates down to 3 percent.

Levy aides say the mistake will not further change their projection of sales tax growth for the coming year. But Corso added, "This is why we have to continue to take the county executive's budget restructuring plan seriously and start acting on it."

The Breakdown

Amount the taxpayer said was owed in sales tax payments:

$10 million

Amount taxpayer intended to report:

$1,000

Amount of tax revenue the state and Suffolk thought they were getting:

$5 million

Source: Suffolk County Budget Office; Legislative Office of Budget Review