Accounting Question

Accounting Question.

You are the Commissioner of Revenue of a small state that relies on its sales and use tax to provide about 60% of its revenue collections. Corporate and personal income taxes provide 30% and miscellaneous property and excise taxes provide the rest. The state has some small cities and rural areas, but also serves as a suburban community for a large city located across the border in another state. You have been appointed by your pal Rodney, the governor, who was elected on a "no new taxes" platform. He has told you: "yours is a cake job and you are guaranteed it for 4 years during my term. Don't mess it up. Collect the taxes, just like they did in the past, and don't tick off the fine citizens who elected me!"

After a few days in office you are given a report that indicates that over the next 4 years the sales tax revenue will decline by 25% primarily due to the large volume of internet and catalog sellers selling to your state's citizens. You find further that this trend is not new, but that the sales tax base has been declining for the last 10 years. It was masked by the fact that the economy had boomed resulting in income tax revenue being way up and sales tax volume going up from instate retailers even while out of state sellers were increasing.

You do some research and find that your state has a traditional sales tax, primarily based on "sales or use of tangible personal property to the end user." There are the usual exemptions and only certain limited services are taxable, like dry cleaning, shoe repair, and the like.You also discover that there is a recent US Supreme Court decision dealing with sales tax and wonder if that might impact your approach to your job. Other states seem to have come up with some ways to deal with online retailers. Your state has followed the Quill rule and has not implemented any changes to date to reflect the recent Supreme Court decision. Your state's personal income tax rate is about the same as the neighboring states. A nearby neighboring state is a common vacation destination for your states' residents and a good number of your residents have second homes on the beaches there. That state has no income tax and many retirees from your state as well as full time working people often claim to be resident there. Because of the suburban nature of the community and ideal location, a number of multistate and multinational companies have expressed interest in relocating some or all of their headquarters operations to your state. Lastly, your state needs to address how to handle the recent federal tax law change that occurred in late 2017, The Tax Cut and Jobs Act. You wonder if the state should conform in whole, part, or not at all to the new federal law or if it even matters.

What can you do to keep the state running and avoid serious cutbacks in services because of the sales tax shortfall? What can you propose to the governor even if it makes his pledge about taxes difficult to keep? Your answer is expected to be as long as it takes to address your plans as Secretary of Revenue. You should consider all possible revenue sources, not only sales and use taxes. You don't have a whole lot of time to deal with the state revenue crisis that is brewing so your plan cannot be too long term in nature.

Your answer will be graded on creativity, technical accuracy, and realistic solutions. Your solutions should be as specific as you can be and take into account how they achieve your goals. If you need any additional information, please identify what you need and why. If you are making assumptions on the fact pattern, clearly state what assumptions you are making and why.