Louisiana passed “temporary” taxes and limited exemptions within the past two years in an attempt to combat its budget shortfall. Now that the temporary “clean penny” sales tax and limited exemptions are mostly set to expire July 1, 2018 when the state’s new fiscal year is to begin, a Fiscal Cliff is looming. A budget shortfall in excess of $1 billion is projected and there is not agreement on a clear solution to address the situation. We are monitoring some of the proposed ideas that are circulating and will provide updates as things progress.
When it comes to tax compliance, often businesses are not concerned with small tax exposure items. Nexus in a state with small sales typically are ignored and if unchecked can grow into a big issue. A snapping turtle has minimal worries of being eaten by a small alligator, as the alligator grows so does the risk of the turtle of becoming a main course.
This is a great analogy for tax exposure in a state or parish. While it is small, the exposure would can have minimal impact on your bottom line even after penalties and interest. However, if unchecked it can grow and become a significant issue. Too often unmonitored nexus exposure becomes an issue during due diligence on an acquisition of a company resulting in a large tax escrow or even in some cases causing the transaction to fail.
What steps should you take to monitor the nexus tax alligator?
- Periodically review your tax footprint.
- Take proactive action on the jurisdictions where material exposure exists or if you anticipate growth in the jurisdiction. Voluntary disclosures when available can help reduce your exposure.
- Monitor your website for the marketing statements related to your business activity. Many times, the tax department is the last group to know about transactions. Remember your website viewing is not limited to customers or investors, tax auditors also can view it.
The statute of limitations (prescription period) only applies when you are filing returns. I have seen tax jurisdictions go back up to 10 years during an audit of unregistered taxpayers for uncollected sales tax. It is easier to correctly do things on the front end than trying to resolve old years when a jurisdiction finds an unregistered company.
Remember Louisiana is not the only state known for alligators.