Lee Zoeller, a partner at the international law firm Reed Smith LLP, recently began leading the Institute for Professionals in Taxation.

The international organization promotes the equitable administration of state and local taxation of businesses. As president, Zoeller’s duties include spearheading the institute’s training schools, symposia and seminars around the U.S. He will also preside over meetings of the board of governors and direct the institute’s activities and administrative staff at the group’s Atlanta headquarters.

Zoeller also chairs Reed Smith’s state tax practice group in the firm’s Philadelphia office. He oversees 20 lawyers in the group who perform state and local tax controversy work for Fortune 500 companies.

What does the Institute for Professionals in Taxation do?

The IPT is a nonprofit organization and educational institution that provides training for corporate taxpayers, consultants and lawyers throughout the country. We have over 5,000 members, and we hold seminars on sales tax, income tax and property tax. We’re the only organization that provides a certification, called the Certified Member of the Institute, or CMI. That is a two-week-long school that you need to take for each of the separate disciplines, with exams, and then there’s an exam that takes about five hours to complete to get your certification.

Many states are benefiting from the extra federal stimulus dollars this year to help balance their budgets. Do you think we will see many more of them resorting to tax increases next year to balance their budgets?

I think it will inevitably be a combination of both. State tax revenues are down about 17 percent in the second quarter of 2009, based on a study that was done by the Nelson Rockefeller Institute. Even with the stimulus package, state revenues are down dramatically because about a third of the revenue they get is from income taxes. Obviously, in this economy, when personal income taxes are down, the revenues are down. Another big chunk that comes into states’ coffers is from sales tax, and when people shut off the purchasing of items, sales tax revenues just plummet.

Do you see more of a trend toward taxes on services?

One of the more fundamental issues that the states are always wrestling with is that most of the state tax laws were enacted in the ’60s and early ’70s. The laws were based on more of an industrial nation. They taxed sales of personal property. Very few states impose a tax on services. But as they become more and more service oriented, they need to enact new laws so that they can keep the revenues up to where they can provide the services that they historically have been providing.

What other trends do you see in state corporate taxes?

There is the trend to move away from income-based taxes on corporations because now with corporations having significant losses, the states are not receiving significant revenues. Some states are moving to more of a gross receipts tax, which is just a small rate based on the total revenue, not income, of a company. States like Texas, Ohio and Michigan have moved to that type of tax because in theory it’s recession proof. It taxes the transactions as opposed to whether the company is making revenue or not. I think you’re going to see more states consider that.

When services cross state lines, is that producing conflict between the states, like who’s going to get this or that share?

Yes, historically there has been a fair amount of litigation over that issue, about which state gets to tax the service. Another aspect is taxing computer services. Back in 2001, during the last recession, they had a tax on computer services in Pennsylvania. They ended up repealing it in 2006 for the simple reason that it was extremely difficult to administer. A lot of appeals and litigation resulted from that tax. It was difficult to categorize what is a computer service. Everything you do could be classified as a computer service. The more important problem is which state gets to tax it.

Are your members dealing with the tricky nexus questions that come up as more states try to claim a bigger share of tax revenue from cross-state business?

That’s a constant issue that the members are always facing. The concept of nexus is whether a state has sufficient contacts with the seller of a product to force them to collect that state’s sales tax. There’s always a lot of litigation about that. When state tax revenues are down 17 percent in the most recent quarter, states are becoming more and more aggressive with respect to collecting tax on those types of transactions, stretching any sort of contact to say that the company has sufficient nexus to force it to collect that state’s tax. Another interesting aspect is that all states with sales tax have a corresponding use tax. Just because the vendor didn’t collect sales tax doesn’t mean that the transaction isn’t taxable. Our corporate members that purchase things from companies outside of the state that don’t collect the state sales tax are faced with paying that tax anyway in the form of a use tax.

There seems to be more of a trend toward proposing taxes on sugary drinks, a kind of obesity tax. Do you see that happening more?

Yes, it’s the age-old method of using the Tax Code to encourage or discourage specific types of behavior. The cigarette, liquor and tobacco taxes, the sin taxes, are always the first to get hit. Those are almost automatic. This is a new thing that’s starting to filter through. You get less people arguing about imposing the new sin taxes on obesity-related products. I haven’t seen a whole lot of it, but there certainly are a few states that have moved in that direction.

The Obama administration is proposing many tax changes at the federal level. Do you have any thoughts about where you see that heading next year?

Those changes do have effects on the state and local tax. The starting point for computing the tax base for any given state is federal taxable income, so if there are changes that affect the federal tax numbers, those numbers will then flow through to affect the state and local tax numbers as well. It’s going to be a double whammy because you’re going to have the federal changes taking place and the inevitable state tax increases as well.

Do you think there will more people moving across state lines to get away from heavy taxes in one state? I understand more people are moving to Wyoming because it doesn’t have an income tax. Texas is also popular from that standpoint.

Sure, Texas and Florida and Wyoming. I’ve never seen a study on the economic impact of a state not having any personal income tax, but you have to wonder why there are so many corporations headquartered in Texas and some other states. You do find the cost of living is very different in some of those jurisdictions. You’re always going to have some New York-based companies that are going to be in New York no matter what happens, but in the last couple of decades, there’s a lot less brick and mortar. It’s hard to move a manufacturing plant from state to state, but it’s easy to move a couple of servers and 50 or 60 people. That’s always at least one of the considerations that corporate leaders look at when they decide where to locate their business. It depends on what kind of business they’re in and what tax structure exists in the state, not just personal income tax, but also corporate and sales tax. If I headquarter my company here, is it one of those states that taxes where the services are performed or will it tax where our customers are located? Those kinds of questions can have a big impact on the final determination as to where to locate.

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