» States’ sickly budgets could ding your pocketbook next

States’ sickly budgets could ding your pocketbook next

May 7, 2008 by Carol Katarsky
Posted in: Best practices, Sales and use tax, Special report, Tax compliance

Fewer tax dollars into state coffers means they have to make up the funds from somewhere. So how will it affect your company?

There’s a lot of debate about whether or not the U.S. is in a recession, headed for one or on track to improve shortly. What’s not up for debate is this: Whatever the larger picture may be, many individual states are hurting — badly.

According to the National Conference of State Legislatures, 23 states and Puerto Rico are expecting deficits in the next fiscal year. We’re not talking peanuts — in California alone, the two-year deficit is expected to be $16 billion. And more than two-thirds of state officials said they’re “concerned” about the health of their budgets in the short-term.

Why it’s scary for companies like yours: Falling real estate values, rising unemployment and other consumer-related credit troubles make it unlikely states can squeeze any more blood from those stones. So when they attempt to make up those budget shortfalls, they’re going to be looking at business taxes.

One likely target on their hitlist: sales and use taxes. States can easily increase revenues from these taxes without ever technically “raising” rates, since they can simply change definitions to make more products and services taxable. (And a bonus for government officials is that in an election year, changes like that don’t garner any gripes from voters.)

To keep your company safe, you’ll need to be extra alert for upcoming changes in these rules. Be nimble: If a previously exempt item becomes non-exempt you’ll need to not only make sure your internal processes account for the change, but you’ll need to make sure your vendors or customers are caught up on the change too.

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