eVade, an online retailer, fulfills its online orders by shipping its products directly to
customers in all 50 states. eVade does not have a brick-and-mortar store presence in any
state, but does operate distribution centers in various states across the country, including
State X. Consistent with its practice in all 50 states, eVade does not collect or remit sales
tax to State X.
In recent court rulings, State X has taken the position that operating a distribution center
within a state ...view middle of the document...
On March 15, 2012, Mr. Needmoney, the governor of State X, established a tax amnesty
program. The program provides that any unregistered taxpayer who voluntarily registers
to collect sales tax on a prospective basis will be forgiven (1) 50 percent of all unpaid
sales tax and (2) all interest and penalties on unpaid taxes. eVade management decides to
take advantage of this program.
On June 15, 2012, eVade completes the necessary paperwork and other actions to
participate in the program and pays State X $25 million to settle its obligation through
December 31, 2011.
1. As of December 31, 2011, what amount, if any, of sales taxes due should be
recognized in eVade’s financial statements?
2. What effect, if any, does eVade’s decision to participate in the tax amnesty
program have on the amount recognized as of March 31, 2012?
3. What amounts should be recognized in the financial statements for the $25
million payment on June 15, 2012?
Copyright 2012 Deloitte Devel