ACTG 493, Accounting Cases, Research and Analysis
Group Case 1
Memorandum

To: Professor Siyi Li
From: Group 4
Date: July 5, 2016
Subject: eVade Pays Up (Deloitte Trueblood Case 14-07)

I. Case Description and Key Facts eVade is an online retailer that fulfills its orders by shipping its products directly to customers across all 50 states in the U.S. eVade does not have a brick-and-mortar store presence in any state, but does operate distribution centers in various states, including State X. eVade does not collect or remit sales tax to State X. This practice is consistent with eVade’s practice in all 50 States.

In recent court rulings, State X has taken the position that operating a distribution center within the state constitutes nexus and thus would subject any company operating a distribution center to collect and remit sales tax on all sales made within the state.

As of December 31, 2011, eVade has operated a distribution center within State X for the past five years. Although the company considers the risk of detection to not be probable, eVade estimates total sales tax payable to State X to be $50 million. In addition, eVade estimates that $6 million in interest and $4 million in penalties are also payable to the state.

On March 15, 2012, a tax amnesty program was established by the Governor of State X. The program provides that an unregistered taxpayer who voluntarily registers to collect sales tax prospectively will be forgiven 50 percent of all previously unpaid sales tax. In addition all interest and penalties on unpaid sales tax will be forgiven as well.

On June 15, 2012 eVade completes the necessary paperwork and other actions to participate in the amnesty program offered by State X. As a result, eVade pays State X $25 million to settle its obligation through December 31, 2011.

II. Issue One: