[US][Advice][Discussion] Corporate Level State Income Tax Filings

Okay so I wanted to get some thoughts from some fellow CPAs (not homework, but setting it up as such to make it easier, imo, to discuss):

Let's say I have a corporate client, TPP Inc, headquartered in State X who is making sales into State Y.

TPP Inc is family owned, 5 employees, no controller or financial abilities. They just got lucky with the right product at the right time. They deliver to customers all over State X and State Y.

However, like all good family owned businesses, they don't make much money. Related party rents, family member employees, glorious end of year bonuses, etc. With bonus depreciation/179, they rare have significant taxable income.

As a bright and bushy tailed CPA, I get given this client on my first day on the job at a new firm. In reviewing the tax only workpapers, I notice TPP Inc is making sales into State Y.

State Y rules say that no matter what, if a company is making sales to customers who reside in State Y, that company is required to file a corporate tax return and pay at a minimum $5,000, no matter the company's net income. If a company does not file a tax return timely, they are subject to a penalty of $100 per month until the tax return is filed and the penalty is paid. After 6 months of non-payment, the penalty and tax are transferred to the corporate officers. On top of this, State Y has a preparer level penalty that can include up to 10% of the total amount oustanding on assessment and 5 years of jail time; their penal code states tax evasion is a class E felony.

Being a diligent CPA, I know this and bring it to the tax signer/partner's attention. The tax signer/partner laughs and says "We don't have to worry about that, State Y never enforces that rule." To his credit, I agree on that fact - I have never known State Y to aggressively enforce the penalty or the tax. He then says "We don't need to bring that up to the client. He gets all hot and bothered when we talk about tax filings, and he pays us well. I don't want to jeopardize the relationship by talking about something that will never happen."

What is my responsibility, as a CPA, to disclose this information to the client?

I've read through the SSTS' and have e-mailed AICPA ethics, but I wanted to get some additional insights. I am finding at firms that service small family owned businesses the attitude is "they'll never enforce it so we'll never tell them because we are afraid we will lose them". At larger firms that service large businesses (private and publicly traded), the attitude is "tell them, get them to file, or fire them."

So give me your thoughts please.