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.
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.