State Taxation: Post-Election Fiscal Management and Priorities

State Taxation: Post-Election Fiscal Management and Priorities

In the aftermath of November election results, the states are all taking another hard look at their fiscal prospects.  For the most part, but with a few exceptions, the picture is anything but bright. Incoming leadership (new and old alike) is reflecting intensively on the new political landscape. 

But what does the new mix in Statehouses around the country have in store to pull their finances together in 2011 and beyond? On the revenue front, collection efforts are intensifying. For example, the states are using jeopardy assessments as an effective collection mechanism. There are situations in which state tax authorities determine that ordinary assessment and collection efforts will be ineffective. Although most practitioners do not experience application of the jeopardy assessment provisions often, it is important to maintain an awareness of the provisions, since the circumstances in which they are applied contain many pitfalls for practitioners.

The states are also doing what they can to change the scope and breadth of sales tax nexus. Internet retailer protection from sales tax collection, reporting and payment requirements is commanding increased attention of state departments of revenue. Colorado HB 1193, for example, imposes strict reporting requirements on out-of-state sellers, creating administrative duties for retailers, as well as constitutional issues. Similar legislation is pending in California. (See Click, Buy, Report: Colorado's Use Tax Reporting Law for Out-of-State Retailers). However, it is interesting indeed that Colorado House Republicans plan to use their new majority to repeal that state's new 'Amazon' law and restore tax exemptions that Democrats ended this year. On the other hand, conventional wisdom is still that New York's 'Amazon' law is only the first of many. Moreover, our cities are also in financial distress, and many of them are engaged with online travel companies in hotel occupancy tax litigation.

Separately, and in general, the future looks brighter in this environment for conservative, low tax states than for "spendthrift," high tax jurisdictions.  This may seem intuitive. But in the context of our social fabric, the ALEC-Laffer State Economic Competitive Index for 2010, released by the American Legislative Exchange Council, is thought-provoking, especially so as we look through the prism of a chronically distressed economy. In this context, our focus on timeless social policy questions is intensifying. At the state level, this crescendo will reach a climax as state legislators try to divine solutions to daunting, and perhaps insurmountable, budget gaps. State budget crafting in 2011 and for many years to come will make unmistakably clear how lawmakers define themselves. We must look at ourselves in the mirror in evaluating our vision of social services and what role the states should play in providing them. States in distress are facing a Hobson's choice syndrome. We cannot hide from ourselves any more.

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