If alternative apportionment is wide open and anything goes, why have statutes?
Are we moving from apportionment to allocation when we use single-sales factor apportionment and market-based sourcing?
Is single-sales factor apportionment 'fair apportionment'? It moves income to customer states, not to states where the activities occurred that generated the income. Income is not based solely on sales.
Are throwback and throwout rules unconstitutional because they look beyond the borders of the state?
Should states be able to enact retroactive legislation to protect the state budget from financial loss?
Should retroactive legislation be limited to a state's statute of limitations?
Should judicial decisions only apply to the taxpayer involved in the litigation if it involves a refund?
- State income tax reform/response to federal tax reform (which covers a wide variety of issues - depreciation, foreign income, dividends, charitable contributions, NOLs, Domestic Production Deduction, Sec. 199A, M&E, interest expenses, Sec. 118, related party expenses, deemed repatriation, like-kind exchange repeal, Sec. 179 expense, R&E expenses amortization)
- Wayfair Supreme Court Case regarding sales tax nexus/collection obligations/possible overturn of Quill/physical presence
- State taxation of foreign income
- Market-based sourcing impact (continuing trend)
- Alternative apportionment (is it all alternative?)
- Management & utilization of NOLs / 382 NOL issues
- Combined reporting vs. separate reporting
- Single-sales factor apportionment impacts (continuing trend)
- Whether to utilize Voluntary Disclosure Agreement/Amnesty programs
- Utilizing and negotiating credits and incentives
- State income taxation of pass-through entities (new pass-through entity audit rules)
- Related party expenses / transfer pricing
- Private letter ruling requests
Businesses are playing a game where the rules keep changing, in the middle of the game.
Taxes keep changing. A constant battle for businesses to keep up when all businesses want to do is business, not taxes.
Businesses must be able to do business with certainty. State tax laws already lack uniformity and create so many opportunities for businesses to screw up. Now, they keep changing, year to year, day to day.
Over the past few months as state governments have been in session, they have passed numerous pieces of legislation to balance the budget including changes to tax rates, filing methodologies, sourcing rules, etc. along with how or if they will conform to all or parts of federal tax reform.
I have been monitoring state tax legislation and have submitted approximately 30 alerts to clients regarding the changes (and we aren't done yet). More to come.
Let's work together to make state taxes less important, so businesses can thrive.
Potential state tax policy / law changes in response to federal tax reform are starting to look ridiculous. Some proposing a new payroll tax instead of income tax. Creating a charitable contribution fund instead of paying property taxes. Changing the definition of taxable income, etc., etc., etc. Simplicity and conformity at its best (NOT).
Whether it is the individual income tax or corporate income tax, most states use federal taxable income as the starting point to calculate state taxable income. Each state either conforms as of a specific date, or they are a 'rolling conformity' state which means they automatically conform to federal changes. The way a 'rolling conformity' state does not conform to federal changes is by passing legislation to 'decouple' from the federal law. Examples of areas where states have 'decoupled' historically include federal bonus depreciation, and the domestic production deduction.
Each state will be making tough decisions during their legislative and budgeting sessions this year - what federal provisions to conform to and which ones to decouple from. Just like corporations should be doing, the states will be doing a lot of 'modeling' or 'what-if' calculations to determine the tax or revenue impact.
Buckle your seat-belt. It's going to be a bumpy ride.
Well, it's the day - solar eclipse day. A once in a lifetime event. Are you ready? Do you have your glasses? Will you see the total eclipse or partial eclipse?
According to the Washington Post, "the path of totality — the 70-mile-wide strip of America from Oregon to South Carolina in which the moon will, for a couple of minutes, block the sun — crosses the homes of an estimated 11 million people."
A total eclipse is something that happens once in a lifetime (if you are lucky; every 400 years or so). Well, today, our modern economy is converging with past sales tax law creating a sales tax 'eclipse' and is having difficulty figuring out how to look at it. We need the 'right glasses' to be able to tax remote retailers (online sellers) and marketplace platform providers. Amazon, since it is the largest marketplace provider I am aware of, has become the creator of this convergence, or sales tax 'eclipse.'
We - state and federal governments, departments of revenue, taxpayers and tax professionals - must accept the fact that this sales tax 'eclipse' is happening. We must also work together to find the 'right glasses' or we will cause damage to our 'eyes' (economy and state revenue).
Currently, states have imposed economic nexus standards and use tax notice and reporting requirements ALL with the intent to skirt the physical presence standard established by the Quill court case. The physical presence standard requires a retailer to have a physical presence standard in the state before the state can require the retailer to collect sales tax.
I am all for states figuring out the best way to tax these remote retailer transactions; or first determining if they should tax it. I get that the states need revenue. What I disagree with is how states are going about trying to make it happen. Adopting economic nexus laws that fly in the face of Quill to simply get companies to challenge the economic nexus law is ridiculous. States want taxpayers to either comply or challenge the law, hoping the U.S. Supreme Court will take the case and overturn Quill.
The use tax notice and reporting requirements are more burdensome and complicated than simply collecting and remitting sales tax. Again, another indirect way that states are simply trying to get companies to collect sales tax. If you can't change the law, create a law that is more complicated so companies choose the less burdensome road. I get it, but I disagree with it.
Companies want certainty. Companies don't want to focus on sales tax, they want to focus on their business. They want taxes to get out of the way or at least be something easy and clear to comply with. Companies don't want to get caught not complying and have to pay additional taxes, interest and penalties. The problem is, states are trying to force new tax collecting obligations without working together with businesses and tax professionals. They are forcing it, which is producing uncertainty and more confusion.
State taxes already present a maze of taxing jurisdictions all competing for business and revenue with non-uniform tax laws. With this sales tax 'eclipse' staring us down, all I ask is that we work together to find the 'right glasses.' I ask the states to stop forcing damage to our eyes.
The following are state tax and business developments I have curated since August 2nd, and posted in the LEVERAGE SALT LinkedIn group:
The above represents 'general curating' of state tax developments into one spot. If you still feel overwhelmed by the volume of state tax developments, please consider my 'custom curating' service. Meaning, clients hire LS to daily curate state tax developments relating to a specific industry, state(s), tax type and issue. You can make it as granular as you prefer. This allows you to reduce information overload, and only get the information you need to help your clients or company. This service is provided on a fixed-fee or subscription basis. Contact me at firstname.lastname@example.org.