mission impossible?

Multistate tax laws are so complicated that businesses are set up to fail, to be exposed to audit assessments, to miss out on refunds due to expired statute-of-limitations, pushed to appeal assessments because of unreasonable positions by department audit divisions, and coerced to pay computer generated notices simply because the cost of fighting outweighs the benefit. Companies are forced to obtain elaborate accounting software, put procedures in place to comply, and hire experts to plan to minimize tax and mitigate the risk of exposure. The compliance burden for multistate businesses is overwhelming.

State statutes and regulations, court cases, rulings, internal audit division policies, etc. change daily. The constant change and lack of uniformity among the states produces unintended consequences. Even years later, after statutes or regulations have been in place and businesses have complied, states may choose to change the rules again(or sometimes they change their interpretation of the same rules without actually changing the rules). To complicate matters even worse, these changes may be imposed prospectively or retroactively; whichever has the least impact on the state's revenue. Consequently, taxpayers who have relied on the state's interpretation or challenged the state's interpretation, may owe additional tax or be unable to obtain refunds they deserve.

Conclusions:

1. Tax policy must be fair and provide reasonable certainty (no bait and switch).
2. The tax professional community must have access to the best tools possible (i.e. timely and accurate information), and be able to navigate their way through the minutiae to support tax positions. 
3. Fortune 500 company tax departments are continually being required to do more with less as state tax complexity worsens. 

Mission:

1. Collaborate with tax policy organizations on policy statements, amicus briefs, studies, articles, reports, comments and testimony (positively influence state tax policy)
2. Write or review technical material to expand or build out tax research publisher libraries (build better tools)
3. Act as a 'stop-gap' independent contractor to Fortune 500 company tax departments that lack resources to accomplish a variety of projects (provide companies with a partner-level experienced resource who has low overhead and isn't bound by audit independence issues or bureaucracy, so companies can achieve desired results)

This is my mission. Is the mission impossible?

What is your mission?

I challenge you to find it. Pursue it. Engage.

Bloomberg BNA releases its 2015 state tax survey

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%).

Depending on the situation, 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 BNA released its 2015 Survey of State Tax Departments this week, which according to BBNA, clarifies each state’s position on the gray areas of corporate income tax and sales and use tax administration, with an emphasis on nexus policies. 

BBNA has added new sections addressing income and sales tax nexus for registration with state agencies, as well as sales tax nexus for drop shipment transactions. The survey also has a new focus on each state’s rules for sourcing sales factor receipts for income tax purposes. 

As I have stated in previous posts, 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.

You can download the report for FREE, just go here.

be imbalanced, but make it matter

Happy Memorial Day! 

I spend my days in the technical 'weeds' of multistate taxation, and today I felt like writing about a non-technical matter (especially, since most of you probably aren't working today).

Does success require imbalance? 

If you look at those that are successful in their career, they usually spend more time focused on it than they did on other things, such as their family. We don't like it when people sacrifice their families for their careers, yet we celebrate those who achieve success - strange? Maybe.

For years we have had discussions, seminars, books, and human resources pushing the need for 'work/life balance.' To many in the 'real world,' work/life balance seems unobtainable. Especially with our 24/7 technology. If anything, work has taken up more of our lives, not less. This is why we need to be disciplined in what we say 'yes' to. We can't say yes to everything and hope to spend our time on what matters most - it is impossible. If we do, we will be busy all the time and not accomplish anything.

I think the key to success is imbalance - doing more than what is expected. Spending more time doing something, practicing, etc. than others. However, that imbalance doesn't mean doing busy work or just being busy. It means you are working on something specific - your main objectives and priorities. Thus, when you are spending extra time on your unique goal, talent, pursuit, you will actually make progress to being the best at it.

Don't let your life be unbalanced without gaining ground. So many of us are so busy, we feel like a pin ball. Unfortunately, when that happens, we are busy, but not accomplishing anything.

Let yourself be imbalanced in a disciplined manner. Also, let yourself become imbalanced towards your family as well. The pendulum doesn't always need to swing towards work to be successful. Actually, if you say 'no' to the things that don't matter, then you will only be saying 'yes' to work that matters, giving you more time for family.

Success requires discipline, imbalance and family. When the pendulum swings towards work - make it matter.

building a sustainable state tax consulting practice takes a 'village'

what people think, but do not say

Did you ever see the movie, "Jerry Maguire"?  In the beginning of the movie, Tom Cruise (as Jerry Maguire) has a breakdown or "break-through" as he called it.  He had been working for a large sports agent firm and had grown tired of the profession, the way he treated clients, the focus on money, etc.  Hence, he woke up in the middle of the night and wrote a several page "mission statement."  The mission statement described how the firm should change everything - how it should change its focus from solely making money and treat clients like people, develop true relationships and actually care. 

The mission statement was called, "What People Think, But Do Not Say."

I have been working in the public accounting field for 20 years and most of that time I have been a state and local tax consultant.  I worked in industry at some large Fortune 500 companies and several accounting firms (large and small).  Based on my experience and from talking to my SALT colleagues at other firms, some disturbing trends exist in our profession:

1. SALT consultants tend to move from firm to firm at a high rate, with the average length of time at one firm being 2 years.
2. Accounting firms that hire SALT consultants to build SALT practices don't always know what that actually means; they don't know what it actually looks like for their size firm (or office) and target market.  They just know they want to build one.
3. SALT consultants often struggle in getting the tax and audit folks to invite them to client meetings and pull them into projects earlier rather than later.
4. Most tax and audit folks are often used to doing things themselves - hence, their first inclination is to use SALT consultants on an as needed basis or as a "help-desk."  I get it.  I am a "do it yourself" kind of guy as well.  Often times, it is a cost/benefit or materiality issue.  I understand.
5. SALT consultants struggle with their billable time getting written off by tax or audit partners because SALT consultants are often not in control of the billing process on engagements which were obtained or started by non-SALT folks.
6. Most firms recognize SALT is a growing area and need/want a SALT resource to grow their firm; however, most firms may not be able to support or sustain a full-time SALT group.

The trends listed above do not apply to every firm.  Some SALT consultants have had long careers at one firm.  This is especially common in larger firms. The trends described are just a product of reality - or economic pressures on the firm or the partners themselves.  Everyone is just trying to meet their goals in the best way they can.  With that said, it is also a fact that so many SALT practices suffer from these trends.  Hence, the question is - is there a cure? 

You have probably heard the saying - "don't keep doing the same things and expect a different result."  Well, I very much agree with that statement in this area.  I am passionate about changing these trends - in helping SALT consultants get off of the "merry-go-round." 

These trends can be overcome by building strong relationships with partners, positioning the SALT practice effectively within the firm and/or office, marketing the SALT practice effectively in the marketplace and focusing on your highest and best use - the actions that will produce the most effective results. 

Another solution for firms would be to outsource their SALT function - this would allow the firm to have access to SALT resources they need, when they need it, without having to invest a great deal upfront or year after year.

What do you think?  Have you suffered from these trends?  What solutions can you think of?

connect and build community

Join with me in building a state tax community that builds real relationships and works together to help each other resolve complex state tax problems, influence state tax policy and further our careers and profession. 

CONNECT WITH ME ON LINKEDIN

JOIN THE LEVERAGE SALT LINKEDIN GROUP

don't let state tax 'blind spots' wreck your company

WHAT IS A BLIND SPOT?

According to Wikipedia, a blind spot, also known as a scotoma, is an obscuration of the visual field. A particular blind spot known as the blindspot, or physiological blind spot, or punctum caecum in medical literature, is the place in the visual field that corresponds to the lack of light-detecting photoreceptor cells on the optic disc of the retina where the optic nerve passes through it. Since there are no cells to detect light on the optic disc, a part of the field of vision is not perceived. The brain fills in with surrounding detail and with information from the other eye, so the blind spot is not normally perceived.

Now, that wasn't exactly what I think of when I think of a blind spot.  I usually think of a blind spot when I am driving my car.

In that context, Wikipedia says a blind spot in a vehicle is an area around the vehicle that cannot be directly observed by the driver while at the controls, under existing circumstances. Blind spots exist in a wide range of vehicles: cars, trucks, motorboats and aircraft.

As one is driving an automobile, blind spots are the areas of the road that cannot be seen while looking forward or through either the rear-view or side mirrors. The most common are the rear quarter blind spots, areas towards the rear of the vehicle on both sides. Vehicles in the adjacent lanes of the road that fall into these blind spots may not be visible using only the car's mirrors. Rear quarter blind spots can be:

• checked by turning one's head briefly (risking rear-end collisions),
• eliminated by reducing overlap between side and rear-view mirrors, or
• reduced by installing mirrors with larger fields-of-view.

STATE TAX BLIND SPOTS

Now, what does this have to do with state taxes?  

Well, I believe most, if not all, companies have state tax blind spots.  These blind spots may include:

1. nexus (taxable presence) in states in which the business is not filing income tax returns or collecting sales tax
2. using the incorrect apportionment formula, including the wrong items or amounts in apportionment factors or using the wrong method to apportion different types of income (tangible, intangible, service, etc.)
3. including the wrong entities in a combined or consolidated state income tax return due to incorrect unitary group analysis
4. classifying business income as nonbusiness income (or vice versa)
5. misapplying P.L. 86-272 protection (i.e., business is not operating within limits of protection or business is applying P.L. 86-272 protection to the wrong type of tax)
6. misapplying sales and use tax exemptions
7. not self-assessing and remitting use tax on purchases of taxable items
8. assuming the business is selling is a nontaxable service, when it is actually selling tangible property
9. assuming the business is selling intangible property, when it is actually selling tangible property
10. not adding back related-party expenses on the business' state income tax return when required
11. adding back related-party expenses on the business' state income tax return when NOT required
12. when acquiring or merging entities, failing to perform state and local tax due diligence to uncover liabilities and determine a tax-efficient way to combine the entities (before and after the acquisition/merger)
13. failing to comply with state bulk-sale notification requirements
14. filing a separate return when a combined group return should be filed
15. allowing a FIN 48 reserve for state uncertain tax positions to grow year after year without attempting to reduce uncertainty

And the list goes on and on and on.

YOUR COMPANY / YOUR STATE TAX BLIND SPOTS

In regards to your company's state tax "blind spots," it usually depends on the stage your company is in and the size of your business.

As your business grows and changes, it is vital that your business examines its state tax "blind spots" before a "wreck" (audit assessment, nexus questionnaire, etc.) occurs.

Do you know what your state tax 'blind spots' are?

Do you need to install a warning system?

it depends on the state

We have all heard the phrase from a state tax consultant, "it depends on the state." Why do they say those words? Why can't they just answer my question? Well, the states are not the same. Each state has it's own unique rules. Even if they have the same rule, they have different interpretations and applications. Each day, states are proposing legislation, issuing court case decisions and other rulings that impact a state's position or a taxpayer's ability to take a position. 

All state tax consultants could provide you with a general answer - a likely answer. But without conducting specific research for that state and applying that state's specific rules to your specific facts, the answer would be just that - a general answer with no authority to stand on. We most likely don't know the answer to your specific question at this very moment without performing research to some extent. Generally.