If the states thought they were facing difficult revenue and budget issues in 2010, they may not have seen anything yet. Based on a report issued by the National Association of State Budget Offices (NASBO), the 2011 fiscal condition for many states may be much worse than the 2010 position. This revenue shortfall has direct implications for tax policy and tax enforcement, including changes to sales tax collections and audits.
According to NASBO, the slow organic revenue growth combined with decreased funding from the 2009 “Stimulus” program combined with increased Medicare payments will lead to a dramatic need for budget cuts and increased revenue. 11 states are reporting budget gaps of nearly $10 billion which must be closed through revenue and budget cuts. Because so many of the new governors were elected on an anti-tax campaign, it is unlikely that taxes will be changed much and that most of the shortfall will be made up by budget cuts. The full report can be found at http://www.nasbo.org/LinkClick.aspx?fileticket=C6q1M3kxaEY%3d&tabid=38
Finally, with the revenue shortfall comes greater enforcement. States have already ramped up enforcement but I suspect more is to come in 2011. For businesses that have not carefully assessed their multistate obligations, now is the time to do so. Each week I talk with companies that are getting notices for audits, nexus questionnaires, and sales tax complaints from customers. These are strong signals that there is a problem and a possible sales tax exposure.
Failing to act does not make the problem go away.
Ned Lenhart
President
2011 state revenue outlook