The following is an excerpt from my December 2, 2013 article in Tax Analysts State Tax Notes:
Here’s a multiple choice: the difference between tax avoidance and tax evasion is (a) whatever the IRS says, (b) a smart lawyer, (c) 10 years in prison, (d) all of the above. — Avery Tolar (Gene Hackman) in The Firm
According to the courts, tax avoidance is legal, but tax evasion is not. However, tax avoidance without business purpose or economic substance may be treated as a sham and disallowed. The history of state tax planning and two recent conflicting state decisions raise a question: What level of tax avoidance is acceptable?
Senate Finance Committee member Chuck Grassley, R-Iowa, once said that at the heart of every abusive tax shelter is a tax lawyer or accountant. That may be true, but what about legal tax planning and avoidance? Who, or what, is at the heart of tax avoidance? The answer to that may depend on the experience of the individual responding — whether he has worked for the government or has represented taxpayers against the government. Hence, we all decide whether tax avoidance should be allowed based on our own biases. For example, I have always worked as a taxpayer representative or advocate. Thus, I naturally lean toward the taxpayer’s point of view.
From the taxpayer’s side, I have experienced tax authorities abuse power, neglect the law, and use vague laws to raise revenue. States have imposed unconstitutional state taxes and pleaded bankruptcy when found guilty. On the other side, I have experienced taxpayers and advisers who analyze laws to the finite detail to wiggle around corners and yet stay within the boundaries of the law. As a result, both government and taxpayers can take advantage of the law, but who is right? What is acceptable? What came first — aggressive tax planning or overreaching and vague tax laws?
When Will Your State Make Tax Law Changes?
If you are looking for some insight into 'when' your state will make tax law changes in 2016, I have provided a link to Multistate Associates schedule of state legislative session dates, and a Map of Current Legislative Sessions.
Let me know if you have any questions or any insights into what changes your state may make. Some of the hot topics or possibilities seem to be a continuation of prior years, depending on what your state has enacted in the past:
- Imposing nexus on remote retailers for sales tax collection purposes
- Market-Based Sourcing for apportionment of services
- Combined Reporting
- Single-Sales Factor apportionment
- Tax Haven legislation
- Transfer Pricing
- Addback legislation for related party expenses
- Sales taxation of services
- Credits and Incentives
State Tax Haven Legislation Got you Down? Read COST Report.
The State Tax Research Institute (STRI), a foundation affiliated with the Council On State Taxation (COST) released a study on state “tax haven” legislation. The report, “State Tax Haven Legislation: A Misguided Approach to a Global Issue,” provides an in-depth analysis of the problems, fallacies, and risks associated with adopting tax haven legislation.
States have been attempting to reach income that they perceive is escaping taxation through sophisticated tax planning for the past 20+ years. To that end, states have enacted economic nexus, addback rules for related party transactions, worldwide combined reporting and scrutinized transfer pricing studies. Over the past couple of years, tax haven legislation has gained some traction as a new tool to combat unintended consequences created by state tax policy.
If tax haven legislation is impacting or could impact your company, read the COST report for a detailed analysis. It may help you defend your company or lobby against such legislation.
WE ARE WHAT WE ALLOW
"We are what we allow" - if you watch Grey's Anatomy, then you may know I got this quote from last week's show. When Dr. Grey made the comment, I was like 'yes,' we are what we allow. If we allow others to treat us small, then we will be small. If we allow others to define who we are and what we do, then we will become that version of ourselves.
We have a choice. We have a daily decision. Are we going to be what we want to be? Or will we allow others to decide who we will be and how they treat us?
In regards to working in the state tax profession, whether you work in a corporate tax department, the Big 4 or a small regional firm, people in your department or partners will try to define who you are. They will treat you a certain way. You need to decide if you are okay with how they are treating you. Are you who you want to be? Is how they are treating you interfering with who you want to become? Just say no. Stop it today. Decide for yourself.
In regards to state taxation, corporations can get ran over by auditors, by unconstitutional laws, by unreasonable compliance deadlines and notices. Will you sit by and let it go on? Or will you stand up? Will you fight? Will you take action? Will your company defend itself? Will your company lobby for better policy? Will you take your audit issues to appeals?
We are what we allow.
Peace.
Rhode Island Adopts Final Combined Reporting Regulations
Hopefully you extended your 2015 Rhode Island corporate return that was due on March 15, 2016, because Rhode Island recently adopted final combined reporting regulations with an effective date of March 30, 2016 applying to tax returns filed for tax years beginning on or after January 1, 2015.
You can compare the final regulations to the proposed regulations which I described in a previous post.
Rhode Island has also published a FAQ page on its website which should be helpful in beginning the analysis and application of the regulations.
WEBINAR: STATE NOL MANAGEMENT CHALLENGES AND PRACTICAL STRATEGIES
Managing NOLs using spreadsheets with thousands of complex formulas to forecast state NOLs manually can lead to lost cash tax opportunities. This is why we need to learn more about this area and identify new tools to predict the impact that state NOLs will have on cash, minimize effective tax rate (ETR), and improve corporate earnings per share.
By attending a free Bloomberg BNA webinar on March 22, 2016 at 2 pm EST, which I have the privilege of co-presenting, you can become the hero of your tax department by learning more about major hurdles of NOL management and practical strategies you can apply to effectively and efficiently track state NOLs. You’ll discover how to better manage NOL assets, including accurately predicting the burn-down of NOL assets as your company comes into profitable tax years.
This webinar will introduce BNA State Tax Analyzer with NOL Manager as a great tool that automatically computes the generation and utilization (carrybacks and carryforwards) of state NOLs across multiple years and multiple scenarios.
I hope you will join us.