Potential State Tax Liability??

“What  steps should I or my CPA take to determine if I have a potential State tax liability” was the question that was asked at Podcamp Nashville.”  An interesting question indeed for today’s intenet economy.

The Senate just passed the Fair Market Place Act or as I would call the act “The Federal Government gives the states permission to tax out-of-state companies for sales tax on internet sales.” The act is supposed to make it an even playing field when it comes to brick and mortar stores and cyber stores when it comes to collecting and remitting sales tax on internet sales.

Getting back to the original question on the steps to take to determine if you have a potential state tax liability, the steps to determine if you have a state tax liability.

  1. Review your sales to determine where your sales are being made.  Are your sales being made to in-state or out-of-state customers or a combination of both?  Do you make deliveries to another state in a company vehicle?
  2. Do you have employees doing more than mere solicitation living in another state?  If so, who approves the order?
  3.  Do you have property or assets located in another state?

The three steps listed above determine whether you have nexus (or Connection) to  another state.  If yes to any of the steps listed above the next steps to take are:

  1. Research the state to determine their tax rules when it comes to sourcing income or sales.
  2. Determine your potential tax liability.
  3. Determine if you can file under a voluntary disclosure or request tax amnesty program if the state has a voluntary disclosure.
  4. If you are not using a tax professional, determine what the requirements are to file a voluntary disclosure program.  Usually the voluntary disclosure program requirements can be found on the States website.
  5. Prepare a letter to the state requesting a voluntary disclosure if the state has a voluntary disclosure or tax amnesty program based on the requirements.

Once you get voluntary disclosure or tax amnesty approval from the state or you are not filing under one of these programs:

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