Oklahoma Tax Authorities Outrageously Overreach

September 24, 2008

Tax Bill Owed

Advertisements often have puffery: statements like “longest lasting” or “best tasting” or the like. Indeed, many advertisements feature the improbable, from cars racing (safely) through obstacles or scantily clad women suddenly dancing when a soda bottle is opened. Most of us take these claims with a healthy amount of skepticism. Officials at the Oklahoma Tax Commission evidently lack this ability.

Evidently they had spare time while “collect[ing] and administ[ering] taxes, licenses, and fees” in Oklahoma, enough to wander around MySpace.com, an online social networking website. There, they came across the profile of Kegheadz, a small group of twenty-something-year-old friends who throw parties for hire. The profile included such puffery as “Over a billion served,” “Biggest party in the state,” and “Biggest party in the country.”

The Oklahoma Tax Commission checked its common sense at the door and spent enough staff time and taxpayer resources to conjure up an estimate on how much Kegheadz owed in back taxes for these billions of customers. Over 4 pages, Commission staffers assumed 675 attendees per party, that they all paid a cover, and that the group threw 2 such events a month. Adding up the tourism taxes, liquor taxes, and sales taxes, and tacking on late fees, interest, and penalties, the Commission sent the kids a bill for $162,832.60.

Far from a world-known megaparty contractor, Kegheadz actually threw only 22 events, attended by mostly their friends at small venues incapable of holding 675 people, and, they sheepishly admit, they had to let girls in for free. They concede that they failed to pay tax, but estimate the amount they owe as $1,370.39; the kids can’t even afford to hire a $6,000 lawyer.

The story has been making the rounds (here, here, and here, for instance) as one of those funny odd stories on page 2. That’s unfortunate, because it’s outrageous. It’s fine for Oklahoma’s tax collectors to send a letter of inquiry to the kids, asking what activities they’ve done and what taxes they owe. But it’s not professional to treat a claim like “a billion served” as truth, and waste time and resources coming up with an implausible tax bill.

This story also serves as a reminder about the backwards presumption of innocence in the tax world. Instead of the government having to prove its case about who these kids are and what they owe, they can just impose a tax assessment based on ridiculous allegations. It’s then up to the kids to prove that they are innocent, or at least less guilty than the tax collector says they are.

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