The Kentucky Department of Revenue has signed a five-year contract with Xerox to replace the state’s manual, paper-based tobacco tax system with an electronic process to improve excise tax collections and detect fraud and illegal cigarette smuggling. Xerox’s new tax system will include licensing, surety and tax return processing, inventory controls, electronic reporting, collection/payments processing, desk and field audits, and the tracking of shipments at the invoice level.
Kentucky has previously increased its state revenue with Xerox’s fuel tax and tracking product and realized the potential to regain revenues from lost tobacco taxes through automated reporting, regulatory compliance, and data analytics.
When people think of tax collection, cigarette smuggling may seem like something of a niche market for tax evasion. However, states lose an estimated $5 billion each year on illicit cigarette trade. States often turn to cigarette taxes as part of regular “vice tax” hikes, which amount to increases on the excise and sales taxes of vices like tobacco, or alcohol instead of raising taxes on critical items like milk or food.
“By streamlining current manual processes, the Kentucky Department of Revenue can eliminate additional operational costs,” said Rich Bastan, vice president, Americas Commercial & State Government Transportation Sector, Xerox.