that's the worst thing I've ever heard

We have tried to raise our daughters to have good morals and values, and we have tried to keep their exposure to 'bad movies' to a minimum. Consequently, we don't let our girls watch "R" movies or movies with sexual content or lots of bad language, if possible. However, my oldest daughter loves action movies, like the Bourne movies. Thus, sometimes, the limit gets pushed. I know they are exposed to these things through other kids at school, etc. We just try to be a positive influence and a place of refuge at home.

With that said, about a year ago on a rainy, cold weekend, my oldest daughter wanted to watch an action movie. So we looked through the movies we own, and found "Collateral." If you don't know what it is, it's a movie about a hit man (Tom Cruise) that comes to town for one night to kill several people. Jamie Foxx is the unfortunate taxi cab driver that drives Tom around town. In one part of the movie, Tom Cruise's character gets on the radio and puts on a 'tirade' to Jamie Foxx's boss, putting Jamie's boss in 'his place.' During the 'tirade,' Tom Cruise's character uses a lot of expletives and cuss words. Right after that, we paused the movie and my oldest daughter said, "that's the worst thing I've ever heard." My heart sank (and we laughed). We had been trying to keep our daughters from being exposed to bad language. We hadn't let them watch bad movies at other kid's houses, and here, at our own house - we expose them to the worst thing they have ever heard. We laugh about it today. (Note: we stopped watching the movie at that point)

What does this have to do with state taxes? Well, I'm sure you have heard auditors say some things that just don't make sense - that go blatantly against statutes, regulations and court rulings. I recently had an auditor take a position that was obviously against the state's law. I dug up the statutes and regulations and sent them to him. After a few days, he responded saying he sent them off to the legal department and the department said I was right. A few days later, he sent me revised assessments. As I opened the files, I was thinking I would see a better number for my taxpayer. To my surprise, I saw a worse number. Why? The auditor had corrected the issue I won, but subsequently, took a new position on another issue that raised the assessment. At first glance, I thought the new position was clearly wrong. I did some research and my instincts were correct. I called the auditor and we talked about the issue. During our call he said one of the worst things I've ever heard - "I know the law doesn't say it, but it should." He went on to say that rules weren't written to explain all of these issues and the department was taking a position on 'what should be there.' I got off the phone - a little shocked and to admit, a little pissed. The department was taking a position not supported by law and requiring my client to protest it. 

I know other tax professionals and taxpayers have their own horror stories that are very similar to what I just described. Why is this the case? Why do states take policy positions that are not supported by law? Why are taxpayers forced to fight or to surrender when the rules are clear?

I would love to hear your 'horror story.' Please feel free to comment on this post; or for confidentiality reasons, you can contact me directly. 

collaborating with Bloomberg BNA on new state tax analysis tool

Working in the state tax field for 20+ years, I have experienced companies using all kinds of excel spreadsheets for what-if planning, tax provision analysis, quarterly estimates, and tax audit response. Some have worked well, and others, not so much. If your company or your clients are looking for a new tool, I suggest you check out the BNA State Tax Analyzer by Bloomberg BNA.

The BNA State Tax Analyzer is the industry first and only multi-state, multi-year, multi-scenario state tax analysis tool for corporate income tax. It is a cloud-based solution that delivers a full-audit trail, permissions control, and automatic tax-law updates. In fact, I collaborated (and continue to collaborate) with Bloomberg BNA’s software products group to ensure that state tax law (back to 2000) and recent legislative changes are integrated into the product.   

Some of the features include:

• Out-of-the-box calculations, with built-in tax rules and rates for all states that have a corporate income tax, plus the District of Columbia
• Familiar grid approach fits into your current work style
• Audit trail shows who did what when, giving you the SOX controls you need
• Permissions control protects your work
• Customized computations allow you to handle special industry calculations
• Side-by-side comparisons let you see the difference between two scenarios or total across multiple scenarios
• Flexible reporting basis allows you to switch between combined/unitary, consolidated, and separate entity reporting as needed

With its comprehensive set of calculations and audit trail capabilities, BNA State Tax Analyzer can complement or replace risky, time-consuming spreadsheets – saving tax departments hundreds of hours of time and effort every year.

• Take complexity and risk out of corporate state tax calculations
• Gain greater insight with reserve planning for ASC 740 analysis
• Ensure accuracy of state tax returns
• Accelerate tax audits
• Demonstrate compliance with thorough documentation

To learn more, visit here.     

states change interpretation without any change in law?

Throughout my career I have faced several instances where states have made audit assessments or taken positions under audit that contradict the position the state has taken in the past when it has audited the company.  This change in position by the state has occurred even when there has been NO CHANGE in the state's statutes, rulings and court cases since the last audit.

Should the state be able to change their position without any change in authority?  In most cases I would say no.  Unfortunately, when you challenge the position within the audit, you may not get anywhere.  You may have to go to appeals or even court to resolve.  My experience is that resolution is highly likely at the appeals level (this obviously depends on the facts of each case).

With that said, getting back to my original question, should a state be able to change its position without any change in authority?  Allowing states to do so causes a taxpayer to incur time and money to challenge the change in position, when there is no reasonable basis for the change.  

Why would a state make an assessment when there is no change or basis for the assessment?  Well, the answer may be that the state has changed its policy or interpretation of a statute or regulation.  The state may believe that this change in interpretation is enough.  It may or may not be, depending on the facts of the case.

Overall, if you run into this situation don't just accept it.  Question it.  Challenge it.  Just remember, you may have to go to appeals to resolve the matter.  

DISCLAIMER:  Each case is different and states may have justification for their change in position.  This is a reminder to not just accept the change, but to seek to clearly understand the state's position so you can determine if you should challenge it. 

the first day . . . . . "elbows and knees"

Today is the first day of school for my daughters. One is a sophomore in high school and the other is starting middle school. I know for some of you, school started weeks ago. Well, regardless of when, the situation is the same. We all go through the preparation, the planning, the registering, the fee-paying, school supplies and clothes shopping, etc. Then the day draws closer, the last day of summer dawns, the night before comes. After all of the preparation, the reality of new classes, new teachers, new schools, new friends, tests and quizzes sets in. A little anxiety (or a lot) comes to mind. That's when we pray. We trust. 

As my daughters start back today, I have the innate feelings of my responsibility. My natural instincts and priorities are to: provide, protect and lead. These are my objectives and my role in my family. As most parents, we seek to provide for our families. Provide them not only with material things, but with love, confidence, self-worth and a place of serenity so they can grow to be strong and independent. We want to provide them with opportunities and freedom to pursue the gifts and talents that were given to them. 

We also want to protect them. I can't tell you how strong this emotion is in me. Maybe it's because I have daughters, but I would do anything to protect them. I have a phrase that I created and I tell my girls, "elbows and knees." It stands for two things. One, the elbows and knees are the hardest parts of your body. Use them to defend yourself physically if necessary. Second, it is a philosophy for life. Many things in our lives will push us down. Will attempt to discourage and make us feel less than. The road to achieving our dreams and goals will be difficult (if the dream is worth pursuing); thus, we must be willing to do the work. To dig in. To fight back against a world that seems to push. We must use our "elbows and knees."

Last but not least, we must lead our families. We cannot rely on the world, the schools, church or the government to teach our kids how to live, how to treat others, how to achieve, how to love, etc. That is our jobs as parents. 

How does this relate to state taxes?

Well, state tax compliance, audits or planning can sometimes cause anxiety. That's when we are instincts to provide, protect and lead our companies and tax departments must kick-in. We must use our 'elbows and knees' to stand. To fight for what we know is right. To dig deeper. To have wisdom to discern when to fight and when to walk away.

taxpayer rights have expiration dates

Taxpayers have rights at the federal and state levels. Do you know what they are? Have you really looked at them? We often assume we know what the taxpayer bill of rights say, or that they don't really matter, but it's good to be reminded.

I am planning a series of blog posts covering private letter ruling request procedures by each state, but wanted to start with taxpayer rights. Since I am based in Virginia, let's start here.

In Virginia, the Taxpayer Bill of Rights are provided to guarantee that (1) the rights, privacy, and property of Virginia taxpayers are adequately safeguarded and protected during tax assessment, collection, and enforcement processes administered under the revenue laws of the Commonwealth, and (2) the taxpayer is treated with dignity and respect.

The Taxpayer Bill of Rights compiles, in one document, brief but comprehensive statements which explain, in simple, nontechnical terms, the rights and obligations of the Department and taxpayers. The rights afforded taxpayers to assure that their privacy and property are safeguarded and protected during tax assessment and collections are available only insofar as they are implemented in other sections of the Code of Virginia or rules of the Department.

The rights guaranteed to Virginia taxpayers in the Code of Virginia and the Department's rules and regulations are:

1. The right to available information and prompt, courteous, accurate responses to questions and requests for tax assistance.
2. The right to request assistance from a taxpayers' rights advocate of the Department, who is responsible for facilitating the resolution of taxpayer complaints and problems not resolved through the normal administrative channels within the Department.
3. The right to be represented or advised by counsel or other qualified representatives at any time in administrative interactions with the Department; the right to procedural safeguards with respect to recording of meetings during tax determination or collection processes conducted by the Department; and the right to have audits, inspections of records, and meetings conducted at a reasonable time and place except in criminal and internal investigations.
4. The right to abatement of tax, interest, and penalties attributable to any taxes administered by the Department, when the taxpayer reasonably relies upon binding written advice furnished to the taxpayer by the Department through authorized representatives in response to the taxpayer's specific written request which provided adequate and accurate information.
5. The right to obtain simple, nontechnical statements which explain the procedures, remedies, and rights available during audit, appeals, and collection proceedings, including, but not limited to, the rights pursuant to this Taxpayer Bill of Rights and the right to be provided with an explanation for denials of refunds as well as the basis of the audit, assessments, and denials of refunds which identify any amount of tax, interest, or penalty due and which explain the consequences of the taxpayer's failure to comply with the notice.
6. The right to be informed of impending collection actions which require sale or seizure of property or freezing of assets, except jeopardy assessments, and the right to at least fourteen days' notice in which to pay the liability or seek further review.
7. After a jeopardy assessment, the right to have an immediate review of the jeopardy assessment.
8. The right to seek review, through formal or informal proceedings, of any adverse decisions relating to determinations in the audit or collections processes.
9. The right to have the taxpayer's tax information kept confidential unless otherwise specified by law.
10. The right to procedures for retirement of tax obligations by installment payment agreements which recognize both the taxpayer's financial condition and the best interests of the Commonwealth, provided that the taxpayer gives accurate, current information and meets all other tax obligations on schedule.
11. The right to procedures for requesting release of liens filed by the Department and for requesting that any lien which is filed in error be so noted on the lien cancellation filed by the Department and in a notice to any credit agency at the taxpayer's request, provided such request is made within three years of the release of the lien by the Department.
12. The right to procedures which assure that the individual employees of the Department are not paid, evaluated, or promoted on the basis of the amount of assessments or collections from taxpayers.
13. The right to have the Department begin and complete its audits in a timely and expeditious manner after notification of intent to audit.

The key to the taxpayer bill of rights is to know them and know the procedures surrounding each right. Some taxpayer rights require action by the taxpayer to enforce the right within a specific passage of time (i.e., 30 days, 60 days or 3 years). This is specifically true in regards to protesting audit assessments and filing refund claims. Consequently, some rights have expiration dates.

They say, "knowledge is power." They also say, "the greatest gap in the world is the gap between knowing and doing." When dealing with state taxes, they couldn't be more right.  

random thoughts from your fellow state tax professional

Taking a break from working this afternoon. In the middle of doing multiple state market-based sourcing research. Earlier this week I spent time researching California apportionment and allocation rules and writing technical support. I also worked on Florida enterprise zone refund claims and other miscellaneous research.

Question for the day: what did you spend your time doing this week? what would you do differently if you could? what would you change?

My philosophy is that life is too short to be boring or do boring work. I have been a state tax consultant for 20+ years and I know what part of my work I enjoy and what part I don't. Consequently, I seek to spend more time doing what I like and less time doing otherwise.

Random thought - one of my favorite television shows is "Suits." A little sad that the season finale was this week. Looking forward to it starting again in the winter. If you enjoy "Suits" as well, drop me a line. The show can be a little tense and stressful. Nobody takes any crap from anyone, and they are constantly jumping to incorrect conclusions. However, I enjoy the creative problem solving and perspectives they execute.

I hate the 'bait and switch.' I hate it when products at the store say they solve a certain problem or perform a certain function, then you get it home and does nothing. Isn't that false advertising? How many products or services have you experienced this phenomenon with? Unfortunately, that's how it feels with state tax laws. They are so complicated to begin with, and then states pull the bait and switch after a negative court ruling. 

I leave you with this - life AND work are supposed to be fun. I hope you had a great week and don't spend your days living for the weekend.

Take care and talk to you next week.