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State Tax Revenues Suffer 2nd Record Decline – Arizona Down 26.7%

The Nelson A. Rockefeller Institute of Government announced the results of its latest study on state tax revenue collections. See its news release and the actual report.

Total state tax collections as well as collections from two major sources — sales tax and personal income — all declined for the third consecutive quarter. Overall state tax collections in the April-June quarter of 2009, as reported by the Census Bureau, declined by 16.6 percent from the same quarter of the previous year. We have compiled historical data from the Census Bureau Web site going back to 1962. Both nominal and inflation adjusted figures indicate that the second quarter of 2009 marked the largest decline in state tax collections at least since 1963. The same is true for combined state and local tax collections, which declined by 12.2 percent in nominal terms.

State Sales Tax Ranking

The Tax Foundation studied state and local sales taxes in all fifty states and ranks the states from highest to lowest. Tennessee has the highest combined sales taxes of 9.41%. Delaware and Oregon are the only state that do not have any state or local sales taxes. Arizona is 9th at 7.92% (5.6% state and average local tax of 2.32%).

IRS Announces 2010 Federal Income Tax Rates

Phoenix Business Journal: See the story in the October 16, 2009, edition of the newspaper that summarizes some of the new tax rates.

Top 5 Compliance Problems for 501(c)(3) Organizations

Nonprofit Law Blog: “IRS exempt organizations audit manager Joe Kroll spoke at a program for the Bar Association of San Francisco yesterday and discussed five common ways charitable organizations jeopardize their 501(c)(3) tax-exempt status.

Private inurement / private benefit.
Lobbying and political activity.
Filing requirements. Small 501(c)(3) organizations that have not previously filed Form 990 or Form 990-EZ may be required to electronically file Form 990-N. Failure to file for three consecutive years will result in revocation of exempt status.
Unrelated business activities.
Employment issues (particularly the employee-independent contractor-volunteer distinctions).”

GAO Study Finds 70% of Sole Proprietorships Under Pay Tax

The Government Accountability Office released the results of a study called “Tax Gap: Limiting Sole Proprietor Loss Deductions Could Improve Compliance but Would Also Limit Some Legitimate Losses,” aka GAO-09-81.

About 5.4 million or 25% of all sole proprietors reported losses in 2006. 95% percent of these loss filers deducted some or all of their losses against other income, deducting a total of $40 billion. According to IRS estimates last made for 2001, 70% of the sole proprietor tax returns reporting losses had losses that were either fully or partially noncompliant. About 53% of aggregate dollar losses reported in 2001 were noncompliant. This noncompliance would correspond to billions of dollars of lost tax revenue.

IRS’s compliance programs address only a small portion of sole proprietor expense noncompliance. Despite investing nearly a quarter of all revenue agent time in 2008, IRS was able to examine (audit) about 1 percent of estimated noncompliant sole proprietors. These exams are costly and yielded less revenue than exams of other categories of taxpayers, in part because sole proprietorships are small in terms of receipts.

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