Clearly, state tax enforcement is becoming more aggressive and complex. Not only are state revenue agencies utilizing the Internet more and more to search for and identify businesses directing sales activities towards their respective states, but these agencies are also entering into agreements to share information with each other. Ohio is a member of at least five associations which have agreed to share information in an effort to identify taxpayers who are ignoring their state tax obligations. The two most prominent information sharing agreements are those facilitated through the Multistate Tax Commission and Federation of Tax Administrators, boosting information sharing agreements between 47 and 34 states, respectively. Additionally, the Internal Revenue Service has entered into agreements with 48 states and two cities to share information in order to combat abusive tax avoidance schemes.
These agreements increase state tax revenue by identifying those taxpayers failing to file or pay their share of taxes, who would otherwise go unnoticed. However, it is also creates an environment where businesses or individuals with a questionable presence, or nexus, with a state cannot merely “ignore” their tax obligations. Only after you are aware of such obligations, are you able to plan in order to minimize the underlying state tax liability.