According to the U.S. Census Bureau, state government tax coffers are overflowing. They rose for the third consecutive year to $846.2 billion in 2013, with total state tax revenues increasing by 6.1% over the year before.
It’s a safe bet to say states are pleased with their progress and will use every tool in their playbook to ensure that future years are just as rewarding. Which means multistate taxpayers should be prepared to face more intense efforts by the states to squeeze additional revenue from them in 2014 and beyond.
A recent article in Bloomberg highlighting the States’ record tax collections cites the Census Bureau report and Donald Boyd, a senior fellow at the Albany, New York-based Nelson A. Rockefeller Institute of Government , who said that the figures “reflect higher income-tax collections resulting from strong financial markets and an incentive for taxpayers to take profits before higher federal tax rates began.”
Unlike the New York Knicks’ lackluster results this year, New York’s tax revenue for 2013 not only continues to increase but as Crain’s noted recently, despite the economy, New York’s tax revenue “outpaces that of rival states.” (Perhaps Albany can provide some insights to the Knicks to give them the boost they need to outpace their own rivals.)
Is States’ Tax Revenue Three Peat Attributable to Our Economy Improving?
Whether the states’ three year increase in total tax revenues culminating in a second straight tax revenue record is attributable to an improving economy and acceleration of income may be subject to debate. However, our experience is that the states continue to develop and implement new strategies to increase taxes from businesses and their owners.
One may expect that the states will proceed with several of the following strategic initiatives with the goal of notching additional record breaking tax years ahead:
- “New Taxpayer” and nexus initiatives. In addition to state specific “New Taxpayer” and nexus initiatives, the Multistate Tax Commission has an ongoing Nexus Program including a Nexus Committee that meets regularly each year to facilitate the nexus initiatives of its member states. We are aware of at least one state that now includes a MTC Nexus Questionnaire as part of the State’s information or document request.
- State Expansion of Transactions Subject to Sales & Use Tax especially in the area of services and digital products.
- Increased Reliance and Importance of “Desk Audits.” For additional information regarding New York State’s “Desk Audit” and perhaps a predictor of New York’s increasing reliance on “Desk Audits,” New York recently revised its Publication 130-D dedicated to desk audits.
- Adoption of new tax legislation that will enhance the states’ ability to subject out of state taxpayers to their taxing regimes and to source additional income to their state from multistate taxpayers.
Many of you may have already experienced one or more of the above. However, what is new is that the States appear to be implementing several or all of these techniques as part of a more sophisticated and integrated ongoing approach.
Multistate Taxpayers Should “Be Prepared”
More now than perhaps ever in recent memory should multistate taxpayers heed the advice and guidance of the Boy Scouts of America – BE PREPARED. Multistate taxpayers should not rely on past state exam experiences or even successes. Multistate taxpayers should seek out their tax advisors to discuss their current as well future business operations in this new ever increasingly dynamic and demanding state tax environment.