State tax authorities are using AI to go after wealthy taxpayers.

Even as the IRS makes headlines for its crackdown on the wealthy, state tax collectors have become even more aggressive with their audits of high earners, according to tax attorneys and accountants.

In New York, the tax department reported 771,000 audits in 2022 (the latest year available), a 56% increase from the previous year, according to the state Department of Taxation and Finance. At the same time, tight budgets cut the number of auditors in New York by 5 percent to less than 200.

So how is New York auditing more people with fewer auditors? Artificial intelligence.

“States are becoming very sophisticated in using AI to determine the best audit candidates,” said Mark Klein, partner and chairman emeritus of Hodgson Russ LLP. “And guess what? When you’re looking for income, it’s not going to be someone making $10,000 a year. It’s going to be someone making $10 million.”

Klein said the state is sending out millions of AI-generated letters looking for revenue.

“It’s like a fishing expedition,” he said.

Most of the letters and calls focused on two main areas: tax residency and changes to remote work. Many wealthy people have moved from high-tax states like California, New York, New Jersey and Connecticut to low-tax states like Florida or Texas during the Covid-19 pandemic.

High earners who moved, and took their tax dollars with them, are now being challenged by states that claim the move was not permanent or justified.

State tax auditors and AI programs are examining cell phone records to determine where taxpayers spent most of their time and most of their lives, Klein said.

“New York is very aggressive,” he said.

On remote work, states like New York have so-called “convenience rules” that argue that if you’re employed by a New York company, from their New York office, you owe New York taxes — even if You live and work in Colorado.

Many wealthy New York City residents who moved kept their apartments with most of their belongings. The state tax authorities are claiming that since they did not move with all their household goods, they were not actually moved for tax purposes.

“The state says, ‘Well, you haven’t really moved because all your TV and all your stuff is in New York.'” They don’t understand, the rich can buy more stuff for a Florida home, Klein said. . They can buy another TV.”