CREDITS AND INCENTIVES - My Notes From the Paul J. Hartman SALT Forum

The following are some of my notes and thoughts from attending the Credits and Incentives session at the Paul J. Hartman State and Local Tax forum last week, presented by Chris Grissom, Robert Boehringer and Ron Rabkin.

1. All politics are local.
2. Taxpayers often obtain multiple letter rulings for credit and incentive deals due to the sophistication of the rules.
3. Credits and incentives are the opposite of simplification. Similar to market-based sourcing and single-sales factor apportionment, credits and incentives pick winners and losers - shifting the tax burden to out-of-state taxpayers and/or to other tax types such as property taxes and personal income taxes. How does this impact schools? Does the positive outweigh the negative?
4. Credits and incentives require so much knowledge of the deal, the incentive, the contacts at the jurisdiction, the procedure, etc. So many 'hoops' to jump through to obtain an incentive. Is it fair to have a system that requires so much investment of time, money, and energy? Those who are unwilling, or unable to invest the time, money and energy lose out. Is that fair? You could miss out on a great incentive package simply because you did not hire the right person to negotiate for you? Is that what it should take?
5. If a company makes an investment in a project before getting the credit and incentive, did the company actually need the credit and incentive?
6. Credits and incentives require companies to 'tell the story.'
7. Is everybody 'winning'?
8. What tool are you using to determine the type of credits and incentives that will benefit your company the most? A modeling tool or excel spreadsheet? Using the right tool will allow your company to negotiate with a state/city to get the right incentives package (i.e., incentives you can actually use).

Transfer Pricing, Treasures in the Attic and Using Social Media

Next week I will be attending the Paul J. Hartman State and Local Tax Forum in Nashville. A few of the sessions on Tuesday that I am extremely interested in are:

1. Transfer Pricing - MTC - ALAS program by Carley Roberts and Marshall Stranburg. The MTC program has been struggling to gain traction among the states. With all of the other activity around transfer pricing (i.e., BEPS, IRC Sec. 385 regulations, etc.), I wonder if traction will be found or will states remain in pause mode waiting for the dust to settle from other initiatives? For more info, check out my previous post - State Tax Transfer Pricing - What's Next?
2. Treasures in the Attic - Tried and True Legal Principles in SALT by Janette Lohman and Brian Kirkell. This should be a good session to refresh our knowledge of principles that we can use to help clients avoid and resolve controversy. If this interests you, you may like my previous post - Should the Federal Government Pre-empt A State's Taxing Power?
3. Ethics and Social Media for Tax Professionals by Brett Carter, Mark Holcomb and Glenn McCoy. I have a personal interest in this session as I have used social media for the last 8 years. Personally, social media has been a great tool to meet new people all over the country and help more companies, firms, publishers and policy organizations. If you haven't read it, here is a link to an interview I did for Bloomberg BNA about blogging.  For more history on my blogging adventure, check out this post.

Other sites I have used as a resource during my blogging years are:

Real Lawyers Have Blogs

Lawyerist

The Greatest American Lawyer

Amazing Firms, Amazing Practices

In Search of Perfect Client Service

Cordell Parvin Blog

Seth Godin Blog    

Adrian Dayton

*Please note that I am not an attorney, just so happens that most of the resources or people blogging when I started in 2009 were lawyers, not accountants.

The 'Most Significant State Tax Policy Issues'

David Brunori will be in Las Vegas this week speaking at the Council On State Taxation annual meeting (Friday morning) with Doug Lindholm, Helen Hecht, and Richard Pomp. They are leading a debate/discussion on the most significant issues in state tax policy. I can't be there, but thought I would give my two cents. 

I think some of the most significant state tax policy issues are:

• the imposition of sales tax collection obligations on remote retailers;
• expanding the sales tax base to services;
• whether states should ramp-up transfer pricing training/positions or join the MTC ALAS program;
• whether states should adopt tax haven legislation which allows them to cherry-pick the taxation of foreign income or simply adopt mandatory worldwide combined reporting;
• whether states should continue to enact unconstitutional legislation forcing taxpayers to go to court;
• whether states should continue to enact retroactive legislation;
• whether states should continue to enact legislation that benefits in-state taxpayers vs. out-of-state taxpayers (i.e., market-based sourcing, single-sales factor apportionment, credits and incentives).

What do you think are the most significant issues in state tax policy?

STATE TAX PRACTICES: WHAT PEOPLE THINK BUT DO NOT SAY

(Note: I wrote this blog post originally in 2014, but unfortunately, it still applies today. It has also been one of my most popular posts.)

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 worked in the state tax profession 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. 

Be a Control FREAK! and Are You Attending the Paul J. Hartman SALT Forum THIS MONTH?

I am a control freak. I hate problems, but what I hate even more - are problems that could have been avoided or problems caused by unintended consequences. Life is uncertain. Thus, it is important for us to embrace uncertainty if we are going to be happy on a daily basis. We must learn to let go. However, in regards to state taxes, embracing uncertainty can cause unintended consequences and problems that could have been avoided. Consequently, we need to be a control freak when it comes to state taxes. We must use our power for good.

If you are going to the Paul J. Hartman State and Local Tax Forum in Nashville on October 25-27, 2016, please comment or e-mail me at strahle@leveragesalt.com. I would love to meet you and talk shop.

TEI Says Retroactive Legislation Disrupts Taxpayer Expectations

On September 20, 2016, Tax Executives Institute, Inc. (TEI) issued a new policy statement on retroactive tax legislation. The policy statement takes the position that sound tax policy and administration require governments to provide taxpayers with certainty and fairness, and these principles are not satisfied when legislatures are permitted to enact retroactive tax legislation without meaningful limits.

In TEI's statement it asserts that allowing retroactive legislation to overrule a judicial decision "disrupts taxpayer expectations." I agree. As I have stated before in several blog posts, retroactive legislation creates unnecessary uncertainty, and unintended consequences. States have an obligation to create a stable and reasonable compliance environment that doesn't keep taxpayers guessing.