how state taxes impact businesses of ALL sizes

Are you a start-up business?  A mid-sized business? Or a Fortune 500 company?  No matter the size of company, it doesn't really matter when it comes to state and local taxes.  If your company is doing business across state lines, your business is impacted by multistate taxes.

Common questions and issues:

1. Is my company required to register to file returns and pay income taxes?
2. Is my company required to register to collect and remit sales and use taxes?
3. Property taxes?
4. What credits and incentives is my company eligible to obtain?
5. My business operates as an affiliated group of multiple entities.  Does the state require us to file separate returns or one combined return?
6. How are intercompany transactions treated?  Do we have to addback intercompany expense deductions?
7. Is my affiliated group of entities unitary?
8. Does my affiliated group of entities need a transfer pricing study?
9. Are sales of services sourced differently than sales of tangible personal property?
10. What types of sales are included in the apportionment factor?
11. How are sales determined?  Gross sales or net sales?
12. Our company sales a service and a product.  Are we required to collect sales tax?  If so, on the whole charge or part of it? 
13. Our company has foreign (non-U.S.) operations.  How does that impact our state returns?
14. Our company is a foreign based company (non-U.S.) with operations in the U.S. If we don't have a permanent establishment in the U.S., are we still required to file state income tax returns?
15. How will changing the ownership and/or organization structure of our affiliated group of companies impact our state tax filing requirements? 
16. Do we owe sales tax on the purchase of a company's business assets?  Is there a bulk sale notification requirement?
17. If our company buys the assets of another company, are there any real estate transfer taxes due?
18. When can our company remove our FIN 48 reserve for uncertain state tax positions?
19. If our company owns an interest in a partnership, does that ownership interest give our company a taxable presence in the states in which the partnership operates?
20. If our company sells assets or liquidates a division of our company, is that treated as business or nonbusiness income?

state throwback rules make bad dinner guests

Let's imagine I invited 12 people over for dinner. For this particular dinner, each plate is filled and sat on the table before the guests arrive. As time goes by, all of the guests show up except for dinner guests #1 through #3. After about 20 minutes, dinner guest #4 asks if he can eat the food sitting on dinner guest #1's plate.

Another 20 minutes goes by and dinner guest #4 asks if he can eat the food sitting on dinner guest #2's plate.

Another 20 minutes goes by and dinner guest #4 asks if he can eat the food sitting on dinner guest #3's plate.

The above scenario is similar to what happens when a state has a throwback rule and another state doesn't tax the company. Dinner guest #4 represents the state with the throwback rule. Dinner guests #1 through #3 represent states that don't tax the company. As a result, the state with the throwback rule wants what is left or what isn't taxed by the other states, regardless of the fact that the food (or sales) was not meant for dinner guest #4.

The Council on State Taxation (COST) recently commented on a bill in Indiana that would repeal the state's throwback rule. COST has a formal policy statement on throwback rule provisions that asserts throwback laws seek to require companies to pay tax in one state on income that another state has chosen not to tax or is legally unable to tax. According to COST, a company's tax liability in one state should not be measured by its tax in another state. Throwback rules discourage investment in a state. Consequently, such rules must not be adopted and be repealed.

I agree with COST's position. A company's liability in one state should be measured by the company's activity in that state. A state should not be able to tax a company on activity that does not occur in that state simply because the other state chooses to not tax the company or doesn't have the legal authority to tax the company. 

As COST's policy statement mentions, repealing throwback laws will remove the constant discrepancies and arguments related to determining when a taxpayer is 'taxable in another state.' Throwback laws generally allow a taxpayer to not throwback sales as long as the taxpayer can prove that it is 'taxable in the other state.' Unfortunately, states have different thresholds and definitions for what it means to be 'taxable in another state' causing unnecessary confusion and controversy.

What do you think? Should dinner guest #4 get to eat other guests' food?

leverage salt - new and improved

I have been blogging since January 2009 and have written almost 800 posts on a variety of state tax topics. As of today, I have updated the site and it is now located at:

www.leveragesalt.com.

All new posts will be written and published on the new site.

All previous 800 posts are still online and will remain available to read at the previous site:

www.leveragestateandlocaltax.com

I want to thank everyone for making my blog the #15th best tax blog in 2015, according to Wallet Hub.

If you are currently subscribed to the blog, you will automatically be subscribed to the blog at the new site location.

Please let me know what you think about the new site. I would really appreciate it.

I'm looking forward to continuing to provide you with state tax developments and commentary resulting in practical insights and an independent view.