Why Corporations Don't File State Tax Private Letter Rulings

• Taxpayers must disclose their identify before obtaining an answer from the state.
• Facts may not be accurate, or disputed later, making the answer invalid.
• Ruling may be revoked at any time.
• Timing of the proposed and prospective transaction with obtaining an answer from the state.
• Rulings are binding unless the facts are not accurate.
• Unsure as to how deep of an analysis of the law the corporation is required to provide.
• The length of time to obtain a ruling.

Why would you request a private letter ruling?

• To avoid receiving an assessment for additional tax, interest and penalties in the future

How do you file a private letter ruling?

• get your facts straight
• do it timely

Any questions?

Middle Market Companies Fight State Tax Surprises

As a CFO, controller or finance executive in a middle market company, you have a wide range of responsibilities to manage.  State and local tax matters can pop up when you least expect it and cause compliance and financial burdens.

Some of those state tax surprises could be (regardless of industry):

1. State tax registration requirements - when should you register?  If you register, will that create tax filing obligations?  When can you withdraw your registration?
2. State income tax apportionment - when can your company allocate income instead of apportion income?
3. Sales taxability of digital goods, licenses, subscriptions, computer hardware, software, cloud computing, etc.
4. Sales tax audits and appeals
5. Choosing sales tax codes for your sales and purchases to correctly utilize your sales tax compliance/decision software with your ERP system
6. Knowing when your company has a filing obligation in a state
7. Filing Voluntary Disclosure Agreements to mitigate prior year tax exposure
8. Determining sales tax consequences of "bundled transactions" or "mixed transactions" (transactions that include taxable items with non-taxable items)
9. Determining sales and use tax consequences for entities that conduct transactions with governmental entities.  When does the exemption apply?  What does the exemption apply to? 
10. If my company is a service provider, is my company paying use tax on purchases?

Several of my clients have had these issues recently.  Do any of the above items sound familiar to you?  

Current State Tax Amnesty Programs

In case you missed what states have amnesty programs going on currently, I thought I would send you a link to COST's (Council on State Taxation) quick summary.

Amnesty can be a great tool for states and taxpayers, but sometimes a voluntary disclosure agreement is a better option.

What is an Amnesty Program?

An amnesty program is generally a time period established by a state to allow taxpayers who are delinquent on their taxes to come forward, and pay those taxes without penalties being imposed. Usually interest is still imposed, but sometimes it may be waived as well. Each state amnesty program is different or unique; meaning, they each contain their own set of rules, guidelines and qualifications. Amnesty programs usually pertain to certain tax periods, specific tax types, and taxpayers who meet certain criteria. In other words, "look before you leap."

Taxpayers who are eligible for an amnesty program, but don’t take advantage of the program, are often faced with harsh penalties if caught after the program has ended.

Voluntary Disclosure Agreements

When amnesty programs are not in effect, most states still have what they call “Voluntary Disclosure Agreement” (VDA) programs which allow taxpayers to come forward on an anonymous basis, limit the number of prior years required to be filed (usually 4), and pay taxes and interest. Under most VDA programs, penalties are waived, but not interest.

Remember, a voluntary disclosure agreement is only able to be utilized if the state has not already contacted the taxpayer (in most cases). If the state contacts the taxpayer first, technically, the state can make the taxpayer file returns for all previous years in which the company had nexus in the state. However, generally, the state does not require returns to be filed for all previous years. The number of years a state will require depends on the facts of each case. In addition, unlike a voluntary disclosure, there is no relief for interest and penalties.

Post ITALY Vacation: Reflections on PURSUING LIFE: WHAT DO YOU WANT?

I just got back from a 10-day family vacation with friends to Italy. We stayed in Venice, Florence and Capri. We also visited Tuscany, Positano and Naples. We traveled on planes, trains, boats, taxis, ferries and private cars. We ate pasta and pizza every day. We also ate gelato twice a day. We took tons of pictures and tried to speak in Italian. It was an awesome trip. It was our first trip outside the U.S. in years, and it made traveling to a foreign country not seem so daunting.

This vacation made me stop and reflect on life. It made me think how short life is and how we often accept the routine and mundane. We waste time, days and years doing things we don't enjoy only to find ourselves later in life full of regrets because we didn't have the courage to chase our dreams. 

I watched the movie, "The Founder," on the plane ride home from Italy. It's about the founding of McDonald's. I recommend it strongly for any entrepreneur. Ray Kroc was persistent and persevered. Some may argue that he became ruthless and a bully, but what I took from the movie is that he was a big thinker, willing to take risks and to go after the "dream."  I really like the part that shows him struggling and having to give himself daily motivation to push himself not to give up. That is what it takes. Most people don't try. Those that do try, often give up. Without his drive, we would not have McDonald's in every city on practically every corner. In fact, there would be no McDonald's.

I also watched American Sniper. I hadn't seen it. I really liked it. I thought it did a good job of showing the human side of war and how he struggled with separating the war from life back home. It made me think about how fragile life is, and how men and women have died to give me the freedom and liberty to pursue life. I don't want to waste that life just dragging through it - do you?

Some people have been living each day like a zombie for so long, doing what comes, that they don't even know what they want. You can't pursue something if you don't know what to pursue. So I ask you, "what do you want?" That is the first question you must answer. Then pursue it. Do the work. Don't give up.

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.