State Tax Simplicity and Uniformity

I wrote the following in a blog post back in 2009. As I was re-reading it this morning, it dawned on me that several of the items I mentioned still apply in 2016. The more things change, the more they stay the same.

Side Note: PwC just released a nice document entitled, "2015 Year-End State Tax Review and A look Ahead to 2016 and Beyond."

Simplicity and Uniformity

The terms "simplicity" and "uniformity" are not usually discussed in the same breath as state and local tax. With all of the taxing jurisdictions in the United States (when you include all of the states, cities, and counties, etc.), there is very little uniformity, and nothing seems simple.

With that said, I think the states are starting to act in a uniform manner which, in some sense, is creating simplicity. What do I mean?

Well, during the first four months of this year it appears that most, if not all, states are experiencing the following:

1. Budget and financial difficulties of historical proportions

2. All tax revenues are down, including: income tax, sales tax, property tax, etc.

3. Proposing or passing legislation that closes loopholes, raises taxes or creates new taxes, and attempts to encourage in-state economic development.

4. Proposing or passing legislation enacting new minimum fees or taxes.

5. Proposing or enacting legislation to adopt combined reporting, single-sales factor apportionment, market-based sourcing of revenue from service activities instead of the past cost-of-performance rules, adopting economic nexus and "amazon" type nexus, etc.

6. Proposing or enacting "amnesty" programs to encourage delinquent taxpayers to step-forward and pay back-taxes with the benefit of penalties waived (and interest decreased, in some cases).

7. Adopting language that treats all income as "business income," as much as the U.S. Constitution allows.

8. Adopting similar language in regards to what is considered to be a "unitary group."

9. Adopting or proposing legislation that accelerates the payment of tax revenue to the taxing jurisdiction by either increasing the % paid with each quarterly estimated payment, and/or requiring non-resident withholding to be paid quarterly instead of annually.

10. Increasing interest rates and penalties for late payment of taxes.

I am sure there is more, but these are my top ten (for the moment).

CONCLUSION

In summary, the world of state and local tax has always been a world that changes daily or continually, due to court cases and legislative developments.

In 2009, the state and local tax world feels like it is changing at a whirl-wind pace with the only simplicity and uniformity being created is that soon, everything will be taxable, and penalties and interest will be a revenue stream of their own (if they weren't already).

Is Your Auditor M.I.A.?

Where is the auditor? I haven't heard from him or her in a while.

Should I call them? Or should I just wait it out, and see if they contact me again?

Have you ever asked yourself those questions?

Some taxpayers have an audit begin where the auditors come to their place of business, ask questions, review records, and then leave. When the auditors leave, they say they will let the taxpayer know if additional information is needed or if they have any questions.

Then, months go by without any contact from the auditor.

But wait, three weeks before the statute of limitations is about to expire on one of the tax years within the audit period, the state contacts the taxpayer and asks the taxpayer to sign a waiver of the statute of limitations, usually a year extension (you should attempt to negotiate a smaller extension; some states have a minimum of 6 months).

After the extension is signed, the taxpayer may receive another information request or list of questions from the auditor, with a short timeline or due date for the taxpayer to respond. After the taxpayer responds, another 6 months go by without any contact from the auditor.

Then, once again, one month before the statute of limitations is about to expire, the taxpayer receives a preliminary audit assessment. This time the state won't extend the statute, and the taxpayer has less than a month to dispute the audit assessment's findings before a final assessment is received.

QUESTIONS
If your auditor goes M.I.A. in the middle of an audit, what should you do?

Should you just play the "wait and see game"? Or should you contact the auditor sooner to find out what the status is?

If you contact the auditor sooner, you may or may not receive a response earlier? It really could go either way.

The same is true if you don't contact the auditor. You could get "lucky" and the statute of limitations could expire without receiving an assessment. On the other hand, you could receive an audit assessment with a short amount of time to respond.

What do you think? Have you experienced this?

2016 State Tax Amnesty Programs

The Council on State Taxation (COST) has released a chart reflecting state tax amnesty programs scheduled to occur in 2016. Here's the link.

If you are curious as to what states had amnesty programs in 2015, go here. 

Is amnesty the way forward? Does your company have past liabilities that need paid without paying penalties or interest? Should your company participate in a state's amnesty program or utilize the state's Voluntary Disclosure Program?

These questions plague companies when faced with identified compliance exposure and failures for multiple tax years. Some states offer one-time, short time-frame amnesty periods allowing companies to come forward, file prior year tax returns, and pay tax with the promise of future compliance. Depending on the specifics of the state's amnesty program, penalties and/or interest may be abated.

Key to remember: if your company has exposure and does not come forward, then the state may assess more significant penalties and interest when it finds your company later.

If you would like to read more about amnesty, check out my previous posts here.

Specifically, you may like: Amnesty and Voluntary Disclosure Agreements: What, When, Why?

Does Your Apportionment Reflect Your Business Activity?

In other words, does your apportionment result in a fair and accurate portion of your federal taxable income being taxed by the applicable state? If not, then opportunities may exist to utilize an "alternative apportionment method."

Some, if not all, states provide an opportunity to request or use an "alternative apportionment method" when the standard apportionment method creates "distortion" or does not properly reflect the amount of business activity in the state.

I'll be honest, the request for alternative apportionment is not an easy one, but when the apportionment factor results in a questionable amount of your taxable income being taxed in a state where you really have very little business activity, an alternative apportionment method may be the solution.

With the states on the perpetual march to lower the threshold of obtaining "nexus" or a taxable presence in a state, the apportionment factor is a way to help ensure that a state does not tax more than its "fair share" of income.

Connecticut's Amended Tax Laws Not Enough for General Electric

It was reported by the press today that General Electric has decided to move its headquarters from Connecticut to Boston. This comes days after the Connecticut General Assembly amended its tax laws with the hopes of alleviating GE's tax concerns regarding Connecticut's law requiring combined reporting starting January 1, 2016.

On December 29, 2015, the Governor signed the 2016-2017 Budget Bill (SB 1601) which made several tax law changes including placing a $2.5 million cap on the amount by which a unitary group's tax liability computed on a combined bases could exceed the group's tax liability computed on a separate basis. The bill also replaced the current three-factor apportionment formula with a single sales factor apportionment formula. Regardless of these changes and the others included in the bill, GE still decided to move its headquarters. This raises the question once again - does state tax law play a major role in a company's location decisions?

Well, according to a Wall Street Journal article, GE had several motives for relocating such as GE's outdated Connecticut suburban campus. According to the article, the campus was not allowing GE to attract the most promising talent that now desires to live and work in urban areas. Notably, according to the article, GE has been getting ready to leave Connecticut for months. This begs the question as to why Connecticut amended their tax laws last month. 

The article also mentions the fact that other states were offering generous tax incentive packages. Consequently, perhaps state tax laws or incentives do play a part in where a company chooses to relocate, but not the only part.

Interesting side fact: Connecticut is ranked #44 on the Tax Foundation's 2016 State Business Tax Climate Index. Massachusetts is ranked #25.

7 YEARS: BUILD IT AND THEY WILL COME

This is a message for those of you desiring to do something different: 

the tools exist, but are you willing to do the work? To do what others are not willing to do. To do what others may think is silly or a waste of time. Are you willing to do something because deep down you feel you must?  

I started writing the LEVERAGE SALT blog on January 10, 2009, seven years ago. It's hard to believe it has been that long.

Back when I started, there were no state tax blogs. In fact, most accounting firms didn't have a blog. I remember searching the Internet and always reading blogs by law firms based on a variety of practice areas, but none of them were based on tax.

In 2009 I was working at a large corporation and was thinking of re-entering the world of public accounting. I thought I needed to increase my visibility and credibility to enable me to re-enter with some leverage, displaying my expertise and insights. Consequently, I spent nights and weekends writing blog posts. I would read state tax developments on a daily basis for my day job, highlight specific items I thought would have broad application or high impact, and then write posts. After a while it became second nature. I had developed a process, a routine that became part of my daily life. Sometimes I would write multiple blog posts on the weekend and schedule them to post throughout the week. 

Today, the blog has over 800 posts on a variety of state tax topics, and I still enjoy having the outlet to communicate my thoughts on state tax developments and perspectives on the profession. 

I could not have imagined that when I started my blog in 2009 that it would also serve as a catalyst to launching my successful solo practice in 2013. Since October 2013, I have been extremely blessed by the relationships I have developed, and clients I have worked with. They have allowed me to pursue and live a dream I had for several years.

'Accountant types' are naturally risk averse, so starting your own firm can seem scary. At first you are simply trying to pay the bills. Then you are trying to save for a rainy day. Then you are trying to save for retirement. And then one day, boom, you find yourself making more money than you originally planned. Surprisingly, from day one, I have made more money working on my own than I did working for other firms (even my first year). Last year (my second full year), I made even more money. I still can't believe it. Please know, I am not saying this to brag, I am sharing this as a word of encouragement to my fellow professionals that may be considering such a move.

I think a few things helped me achieve success so quickly. First, starting my blog back in 2009 helped me build a network of contacts across the U.S. The blog also showcased my strong interest in state tax and my writing capabilities. Consequently, the blog made it easier to obtain clients, resulting in the building of a practice based on research and writing. Third, during my career I have switched jobs many times (working in industry and various accounting firms). I know switching firms can often have a negative connotation, but I truly believe that switching jobs so many times actually helped me develop key characteristics that has led to my success. Characteristics such as being comfortable with new situations that lack clarity and certainty, and having the ability to adapt and improvise to create successful outcomes.

Throughout my 20+ year career, I have always had this desire to be different. To do something different in this profession. The Internet, blogging and social media has definitely enabled me to do so.

What are you thinking about doing? What is driving you? What have you been thinking about doing, but haven't started? I want to encourage you to do it. To start. You may not see the fruits of your labor today. This year or next. It may be several years down the road. but it will come.

I leave you with this quote:

"It is better to fail in originality than to succeed in imitation." - Herman Melville

Also, here are few of my favorite books that may help you succeed:

•  "The Compound Effect" by Darren Hardy
•  "Essentialism" by Greg McKeown
• "Making Ideas Happen" by Scott Belsky
• "The One Thing" by Gary Keller
• "Tribes" by Seth Godin
• "Start with Why" by Simon Sinek,
• "Rework" by Jason Fried & David Heinemeier Hansson
• "The 10X Rule" by Grant Cardone

If you want to learn more about my perspective on blogging, check out my interview with Bloomberg BNA: Expert Insight: Brian Strahle on Blogging, Creativity, and Coping with SALT Celebrity