Louisiana's Gross Receipts Tax Proposal - So Good (NOT)

I just finished reading a post by Nicole Kaeding at The Tax Foundation about how confusing and bad the Louisiana Gross Receipts Tax proposal is. I couldn't agree more.

Why do states continually try to raise revenue by making tax calculations more complex which end up producing unintended consequences or unconstitutional tax regimes?

Many answers are possible, but I digress. Back to Louisiana's gross receipts tax proposal.

I had noticed that Louisiana proposed a gross receipts tax, but hadn't drilled down into the details. When I read Nicole's article, I couldn't believe what I was reading. I particularly love the flow chart she provides which shows the complex tax structure under HB628.

As the corporate income tax becomes less of a revenue source, will more states adopt something similar? I hope not, but as history tells us, states like to play copycat.

Here is a link to another post Nicole wrote which discusses what states currently employ gross receipts taxes and other states considering such a tax. 

FREE WEBINAR TOMORROW: STRATEGIC PLANNING FOR STATE NOLS

I will be co-presenting a FREE Bloomberg BNA webinar tomorrow on state net operating losses. I hope you can make it! Sign up here.

Some of the questions we will attempt to answer are:

• Is strategic planning for state net operating losses possible? 
• Do we care about federal NOLs?
• How are state NOLs determined and how can we plan?
• How does group reporting change everything and how can we plan?
• State IRC. Sec. 382 limitations - do they exist?
• How will federal tax reform impact state NOLs?

We will also cover some crazy state NOL rules.

Please join me.

State Taxes and The Compound Effect: Ticking Time-Bomb or Nest-Egg?

Some things change and some things remain the same.  Unfortunately, a lot of the time, the things we want to change, remain the same (and vice versa).  Hence, what can we do about it?  How can we change something, improve, and get the results we desire?  

I read a book a few years ago that I want to encourage you to read as well.  It is called, "The Compound Effect" by Darren Hardy.  It is a great book about how small actions, small differences in behavior or small changes can make a big difference over time.  

I'm sure most of us are aware of the compound effect when it comes to money, i.e., the earlier you start investing in your 401k, the bigger the "pot" in the future.  Well, the same principle applies to any area of your life that you want to change, whether it is relationships, your fitness level, finances, career, etc.  

Small changes made today and every day (completed with consistency) will produce big results at some point in the future.  Consistency is the key.  Hence, you have to have the perseverance and discipline to stick with the small change you are making on a daily basis so you see the result in the future.  The biggest reason people don't get the results they desire is because they give up too soon.  

How does this apply to state and local taxes?  Well, small errors, or areas of neglect (such as nexus, apportionment, inter-company expenses, etc.) can add up over time.  If no action is taken, an audit, a nexus questionnaire, etc. can arrive at your doorstep and the liability can be much greater than if action had been taken years earlier.  

On the flip-side, if action is taken today (i.e., restructuring, voluntary disclosure agreements, planning, etc.) cash tax savings can be achieved not only for one tax year, but on an annual basis creating additional funds (or "nest-egg") to be used in your business.

The compound effect is a great principle.  Just make sure that it is producing a "positive" effect for you and your business, instead of a "ticking time-bomb."

I leave you with this question from the book, "The Compound Effect:"  

"If you were given a choice between taking $3 million in cash this very instant and a single penny that doubles in value every day for 31 days, which would you choose?"

Many States Facing Revenue Shortfalls

According to the Center on Budget and Policy Priorities (CBPP) and the National Association of State Budget Officers, in 2017, 25 states are facing or have addressed revenue shortfalls.  More states expect mid-year revenue shortfalls than in any year since 2010.

This does not bode well for taxpayers as states will look for ways to solidify revenue either through more aggressive enforcement, or enacting new legislation that broadens the tax base, eliminates deductions, credits or exemptions, or raises rates.

The question remains - will federal tax reform increase state tax revenue?

Read the full report here.

COST: Retroactive Legislation and 2017 State Tax Amnesty Programs

I apologize for not writing more over the past couple of weeks, but I've been busy with client work. Regardless, I wanted to touch base and send you a link to a couple of items that you might find interesting.

First, COST (Council on State Taxation) has published an Op-Ed piece by Douglas Lindholm, the President and Executive Director of COST, regarding retroactive tax legislation. 

Second, COST has also published a list of 2017 state tax amnesty programs. Always a useful tool. When it comes to amnesty, continue to weigh the cost/benefits between amnesty and voluntary disclosure agreements before choosing to move forward with an amnesty application.

California Proposes Eliminating Water's-Edge Election

California Senator Ricardo Lara has introduced SB 567 which would eliminate the water's-edge election for corporations who file California combined returns. Corporations would be required to file on a worldwide basis.

The bill would remove the water’s-edge election for taxable years beginning on or after January 1, 2017, and would specify that existing electors would be unable to elect to file using the water’s-edge method for taxable years beginning on or after January 1, 2023.

I have written on this subject before as to why states may not want to require worldwide reporting. The California Department of Finance believes water's-edge reporting is costing the state $2.3 billion in revenue currently. The problem with that figure is that it may not be accurate every year once worldwide reporting is the only option. Also, since the goal of federal tax reform is to encourage and increase investment in the United States, would requiring worldwide tax reporting lower tax revenue in California due to apportionment factor dilution?