Monthly Archives

December 2010

Dec 30
0

States Relying More on Sales Tax to Increase Revenue

By | Sales Tax, Uncategorized

The week between Christmas and New Year is pretty slow.  This gives me a chance to clean out files, gather my year-end financial information, line up meetings for January, and take a look at some of the articles that have been laying around my office for a few months.  In my last blog entry, I noted that states are going to be short of revenue overall in the coming fiscal year and that sales tax will get special attention for closing the revenue gap.

I was looking at the fall 2010 NASBO report and decided to compare this to the fall 2008 NASBO report.  The contrast was dramatic.  For Fiscal 2008, the states were reporting sales tax, individual income tax, and corporate income tax collections of $541.4 Billion.   For Fiscal 2010, the states are reporting only $496.9 billion from the same revenue sources.  That is a decline of $44.5 billion or 8.2%.  For Fiscal 2008, sales tax revenues were 39.6% of the total revenue.  For Fiscal 2010, sales tax revenue is estimated to be 41.6%.  That is a 5% increase in sales tax revenue in a 2 year period of time.  Individual income tax stays pretty constant at 51%.  Corporate income tax receipts declined from $5.2 billion to $39.3 billion. That is a 9.3% decline.

These numbers support my thesis that sales tax is quickly becoming the tax of choice for states as a way to raise revenue.  This increase in sales tax comes from increased rates, increased enforcement, expansion of the tax base, and expansion of the taxpayer base.

In 2011, you should expect more of the same.  More enforcement, more rate increases, more tax base expansion, and more taxpayer base expansion.  Many companies are completely unaware of the unrecorded liabilities they face by not paying attention to the sales tax rules in the states where they operate.  There is so much in correct information being circulated on web chat rooms about sales tax. There is also a lot of incorrect information being distributed by well meaning CPAs who really don’t know what they are talking about.

If you any questions or even suspect that your company has a sales tax issue, give me a call.

Happy New Year

Ned Lenhart
President
States Rely More on Sales Tax Revenue

Dec 02
0

State Revenue Looking Bad for 2011

By | Legislative, Tax Audit

If the states thought they were facing difficult revenue and budget issues in 2010, they may not have seen anything yet.  Based on a report issued by the National Association of State Budget Offices (NASBO), the 2011 fiscal condition for many states may be much worse than the 2010 position.  This revenue shortfall has direct implications for tax policy and tax enforcement, including changes to sales tax collections and audits.

According to NASBO, the slow organic revenue growth combined with decreased funding from the 2009 “Stimulus” program combined with increased Medicare payments will lead to a dramatic need for budget cuts and increased revenue. 11 states are reporting budget gaps of nearly $10 billion which must be closed through revenue and budget cuts.   Because so many of the new governors were elected on an anti-tax campaign, it is unlikely that taxes will be changed much and that most of the shortfall will be made up by budget cuts.  The full report can be found at http://www.nasbo.org/LinkClick.aspx?fileticket=C6q1M3kxaEY%3d&tabid=38

Finally, with the revenue shortfall comes greater enforcement.  States have already ramped up enforcement but I suspect more is to come in 2011.  For businesses that have not carefully assessed their multistate obligations, now is the time to do so.  Each week I talk with companies that are getting notices for audits, nexus questionnaires, and sales tax complaints from customers.  These are strong signals that there is a problem and a possible sales tax exposure.

Failing to act does not make the problem go away.

Ned Lenhart
President
2011 state revenue outlook