Just as state taxation was the new frontier in the mid-20th century, local taxation has garnered increasing attention as political subdivisions seek new and creative ways to assert their authority in the pursuit of revenue.
A recent trend tax professionals are seeing as localities seek more revenue is the outsourcing of tax services. Similar to what states do as they look for revenue from transfer pricing and unclaimed property, two areas where they may not have large staffs or expertise, localities are using third-party auditors to deal with general tax matters. Christopher T. Lutz, Partner and Chair of the State and Local Tax Group, said he has seen, in the last several months, questionnaires sent out by third-party law firms on behalf of two different localities. He was taken aback, Chris said.
"It just comes down to, OK, how aggressive are these firms going to be? Because if a state issues a questionnaire, we [understand] it. But this is a gray area," Chris stated.
Representatives of groups that advocate for localities told Law360 they could not speak to specific tactics that localities use for enforcement but said that localities are seeking different ways to fill their coffers, especially after the pandemic.