The Swelling 'State' of Taxation

30.06.2011
State governments have borne a heavy burden in the economic malaise of the past several years. States like California, Illinois, and Wisconsin have waged very public -- and painful -- battles against ballooning budget deficits caused by declining tax revenue and continued government spending.

Some states now are fighting back by looking for new ways to collect taxes. of states taxing the sales of their affiliates. Amazon has already ceased affiliate relationships in several states, and California may join the growing list after passing a law assessing sales taxes on Amazon affiliate sales. Many states are also looking to enforce use tax laws more diligently, which would impact consumers purchasing items across state lines or via the Internet (again, Amazon is the prime example).

Finance organizations long have focused on minimizing their federal tax burden, with some companies, such as General Electric, finding ways to reduce their federal tax burden to zero. But companies now will need to devote more tax resources toward compliance with these increasingly stringent state tax laws. Many are taking the threat of new state taxation quite seriously. Industrial equipment giant about its latest 67% state tax rate increase, and some states are lobbying CAT to leave Illinois, and move to their jurisdictions, where the tax rates are lower.

It's not a popular opinion in the business community, but the fact is that tax increases will be part of any attempt to ease rampant budget deficits. While companies can argue that lower taxes will spur investment and job creation, legislators and governors can set their tax crosshairs on businesses to ease state financial burdens.

Smart businesses will continue to press for lower taxes, but the smartest businesses also will accept reality, and begin to manage the inevitable efforts of states to collect more for their coffers.