Case 14-07 eVade Pays Up
Synopsys
eVade, an online retailer, operates distributions centers in many states including State X. eVade does not collect or remit sales taxes to State X. As a December 31, 2011 eVade has operated in state X for five years. In recent court ruling, States X states that the company would be subject to collect sales taxes.
Although the company considers the risk of detection to not be probable, eVade estimated the total amount of sales tax payables for the past five years to be $50 millions plus $6 million in interest and $ 4 million in penalties. On March 15, 2012, State X established a tax amnesty program. Any unregistered taxpayer who voluntarily registers to collect tax will be forgiven 50 percent of all unpaid sales tax and all interest and penalties. eVade decides to take advantage of this program.

Issue 1
As of December 31, 2011 What amount, if any, of sales taxes due should recognized in eVade ‘s financial statements?
Scope
In order to analyze what part of the sections sections
of the FASB Accounting Standards Codification applies to the case, ASC 450 section was examined since non-income taxes are often accounted for under the contingencies guidance. Next, ASC 740 section was also studied. ASC 740-10-20 defines “income taxes as domestic and foreign federal (national), state, and local (including franchise) taxes based on income.” Since sales taxes are under the umbrella of local and state, the following step will be defining if eVade should recognized a tax position.

Definition of a Tax Position ASC 740 includes the following implementation guidance on recognizing tax positions. ASC 740-10-20 states some examples of tax positions as: “A decision not to file a tax return” (e.g., a decision not to file a specific state tax return because nexus was not established). What does nexus mean? Economic nexus refers to