STOP THE 'CYA'

Is your state tax research getting bogged down? Are your consultants doing research and providing answers at a high-level without providing actual, practical, implementable guidance?

CYA - a common term for language firms put in their engagement letters to cover their XXX. 

Every state tax question is a research question. The complexity in the state tax field requires professionals to deal in the 'grey.' Which causes tax pros to use a lot of disclaimer language when giving advice - usually before they give advice (and after). 

What's my point?

 My point is that clients need practical advice. Something they can actually act upon. 

We all know the facts and law can change. We know the advice isn't 100% reliable, and that states could audit the client and challenge the position. We also know that the law could be wrong and perhaps should be challenged. The question is - what do we do now?

We don't need another high-paid consultant to do work, and give us a piece of paper that doesn't tell me anything. 

Agreed?

I HATE STATE TAXES AND WHY YOU SHOULD TO

I am a state tax consultant and I hate state taxes. Why? Because state taxes are a burden to every company doing business. The registration to do business, the business licenses, the sales AND use tax, franchise taxes, income taxes, property taxes (personal and real property), local income or gross receipts taxes, etc.

Companies are in business to make money and use it to grow their business, not pay the government. I am not a state tax consultant because I love the complexity of state taxes and the fact that it changes daily. I am a state tax consultant because companies need help navigating the complexity of state taxation or they can end up in some big financial trouble that impacts cash flow. 

Now, your Fortune 500 companies may not care as much - meaning, their federal tax liability is usually relatively much larger than their state tax liability, so state taxes usually take a back-seat. However, your growing middle market companies and smaller companies must pay attention or face material liabilities that impact their ability to do business. 

The problem for a state tax consultant is that the correlation between the size of a company and importance of state taxation, is sometimes in contrast to how much a state tax consultant can charge for his or her work. Fortune 500 companies can afford to pay more for state tax consulting services and usually the project or issue has more zeros behind the dollar amount involved. So it makes sense that the fee is larger. 

For middle market companies and smaller companies, even though the dollar amount at issue may not be as large as it is for a Fortune 500 company, the issue is just as valuable or more so because of the relative effect it could have on the cash flow of the company. 

As a result, state tax consultants often have a hard time deciding which type or size of companies they should focus their services on. Each group (large and small) have a need with different means to pay or priorities. 

Regardless of size, companies are not in business to pay taxes. CFOs, Controllers and privately held company business owners are not in business to learn and study state taxes. They don't want to know the technical complexities, they just want solutions. They want to do business with as little tax burden as possible (in dollar amount and compliance). Our job as a state tax consultant is not to explain the technical difficulties and show how smart we are. Our objective should be to resolve state tax issues in practical and cost-effective ways, with as little technical jargon and difficulty as possible. If the client wants to know more, provide it. But otherwise, just do it without explaining the technical theories and potential 'greyness' of the issues involved. Clients don't want to know how difficult it is, they want to know you are on top of it and can resolve it with as little pain as possible.

As a state tax professional, don't fall so in love with the complexity of state taxation that you forget why you are studying it in the first place. That's why I like to keep my perception as one that hates state taxes, because every business does. This ensures that we are on the same page.

ONE-STOP SHOP FOR FREE STATE TAX RESOURCES

I have put together a web page of sites that offer FREE updates on state tax developments. I have also included some of my favorite business and practice management sites, magazines and blogs. 

Please take a look - ONE-STOP SHOP.

Please let me know which sites you find most useful and if you have a site I should add. 

Thank you and enjoy.

Manufacturers May Elect Single-Sales Factor Apportionment in Tennessee

HB 0534 was signed by the Governor on April 26, 2017 which allows manufacturers in Tennessee to elect to use a single-sales factor apportionment method. The election provides:

For franchise tax and excise tax purposes, a taxpayer whose principal business in Tennessee is manufacturing may elect to apportion net worth and net earnings to Tennessee by multiplying such values by a fraction, the numerator of which is the total receipts of the taxpayer in Tennessee during the tax year and the denominator of which is the total receipts of the taxpayer from any location within or outside of Tennessee during the tax year. A Tennessee taxpayer’s principal business is manufacturing if more than 50 percent of the revenue derived from its activities in Tennessee is from fabricating or processing tangible personal property for resale and consumption off the premises.

The new election is effective for tax years beginning on or after Jan. 1, 2017.

TN Notice #17-11 - Single Sales Factor for Manufacturers

It has been reported that the election is "worth about $113 million for an estimated 518 Tennessee companies."

Bloomberg 2017 Survey of State Tax Departments

Taxpayers are always trying to obtain certainty regarding their tax issues. Unfortunately, it is not possible to achieve 100% certainty when the facts are complex and the state's rules are grey. Consequently, the taxpayer and adviser generally review all binding authority (statutes, regulations, cases, etc.) and unbinding authority (informal guidance, etc.) to develop support for a tax position. This is why we have the lovely 'levels of assurance' such as the 'realistic possibility of success' (33%), 'substantial authority' (40%), or 'more likely than not' (> 50%).

Taxpayers are commonly balancing risk and the amount of dollars to spend to chase down this elusive certainty.  Accordingly, taxpayers are trying to attain the most cost-effective and practical solution that reduces risk to an acceptable level. Thus, other factors (business, legal, financial) may determine how much effort is taken to support a specific tax position, resulting in some taxpayers choosing to default to paying more tax to avoid risk.

Bloomberg recently released its 2017 Survey of State Tax Departments. Now in its 17th year, Bloomberg BNA’s 2017 Survey of State Tax Departments clarifies each state’s position on the gray areas related to the income taxation of corporations and pass-through entities, as well as to the sales and use taxation, with an emphasis on nexus policies. 

This year, new survey questions for the following topics include:

  • Disposition of pass-through entity interest,
  • Nexus standard applied to non-U.S. entities, and
  • Factor presence nexus standard.

The survey also features 40 new questions, plus a new sales tax category on the sharing economy. 

CAUTION

Surveys like this provide great insight into how a state will treat certain issues and fact patterns. The problem is that many answers provided by the state may not be based on actual statutes and regulations or court rulings. The answers may be based on internal policy or simply be an interpretation of a grey area (right or wrong). Regardless of the basis, the states' answers help a company formulate a conclusion.

Get your free copy here.