Lou's Commentary

Publishers Beware: States are Hungry for Tax Revenues

Friday, September 18th, 2009

State governments whose revenues are dramatically lower because of the recession and are required to balance their budgets are reluctant to cut spending. Thus, state tax authorities are looking everywhere for additional revenue and turning their collections people loose on easy targets.

Who might be an easy target? Could be out-of-state publishers that do business within that state. State authorities might look at whether or not the “foreign” seller of a product has been collecting taxes on sales made within their state and whether the seller has been paying state income taxes.

Out-of-state publishers usually feel protected because they don’t believe they are required to collect taxes and where they don’t have any physical location or employees in-state, they believe that they are exempt from state income taxes. But in one instance that was recently shared by someone, aggressive state tax authorities came up with novel interpretations of what it means to have “nexus” in a state and therefore to be subject to taxation. A publisher who distributes data via CD’s mailed to customers in other states got caught up in just such a mess. It took thousands of dollars and countless hours of staff time to fight this in just one state!

Another area to watch is states that determine state tax liability where a publisher has hired a collection firm to dun overdue accounts. And who hasn’t done this? The collection agency is considered an agent of the seller which, through creative interpretation, mean that the foreign company has a location in that state.

Last? There is no statute of limitations on back tax liability.

Talk to your lawyers and review your situation.

 

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