The California Department of Motor Vehicles is interested in seeing if data analytics software could detect buyers and sellers who collude to underreport the sale price of vehicles in order to pay a smaller tax bill.
The DMV is inviting vendors to participate in a proof-of-concept of fraud detection platforms, at no cost to the state.
The department said fraud is especially problematic among private parties who buy and sell used cars, and pay "use tax" that's collected by the DMV and then sent to the Board of Equalization. The use tax is paid in lieu of sales tax that's collected when a vehicle is bought at a dealership.
"Anecdotal evidence and sampling from DMV’s NRLs [Notices of Release of Liability] both suggest that vehicle purchase prices are routinely underreported when the seller and buyer of a vehicle are private parties," DMV write in the proof-of-concept invitation released March 23. "The actions often go undetected because buyers and sellers routinely collude to thwart detection. The tax losses resulting from these practices are substantial."
The DMV said the underreported purchase prices are believed to "significantly" impact the collection of use tax in California. The department said in 2012 it compared reported purchase prices to DMV with Kelley Blue Book Prices and found "startling" results: 16 percent of vehicles were reported as gifts; 60 percent of transfers involved a reported sale price under $1,000; and 85 percent involved a reported sale price under $3,500.
"One area of fraud the DMV would like to analyze is transfers of ownership of previously owned vehicles, by comparing vehicle data such as make, model and model year sold by private parties against other like vehicles sold by dealerships and then comparing the purchase prices in private party sales with purchase prices from dealer sales. This analysis could identify possible underreported sale prices in private-party transactions," DMV wrote in the proof-of-concept invitation.
For every $1,000 in underreported value, governments lose between $75 and $100 in tax revenue, DMV added.
DMV collected $539 million in use tax during fiscal year 2013-14, according to the Board of Equalization's open data portal.
