THE GREATEST SALT CONSULTANT: WHAT ARE YOU SELLING?

The Greatest SALT Consultant (GSC) sells knowledge and solutions to improve cash flow and profit margin, and reduce the costs of doing business. The GSC does not sell time.

How you might ask? Through the identification of SALT issues and opportunities applicable to a client’s business, the GSC can:

• Mitigate exposure to assessments of back taxes, penalties or interest;
• Reduce audit assessments of taxes, penalties and interests;
• Obtain refunds of overpaid taxes;
• Stop payment of taxes not legally owed;

Example:
Scenario (a): GSC conducts 8 hours of research to answer your question.

Scenario (b): GSC conducts 1 hour of research to answer your question.

Which scenario is worth more to the client?

Answer: several factors determine the value of what GSC is providing in both scenarios, but the value is not based on how long it took GSC.

Would you want to buy a house that was built in six weeks or six months?

Or do you just want a house built to your specifications by a builder that keeps you informed and stays on schedule and on-budget? (note: the schedule and budget was agreed to upfront)

P.S.

I know some arrangements call for an hourly-billing arrangement due to an open-scope project, retainer agreement, etc. The point is, the value of what the GSC provides is not based on time, but based on the knowledge, guidance, solutions the GSC provides.

(this is PART 2 in a 7 part series) - Part 1 was last week. 

THE GREATEST SALT CONSULTANT: "ONE-HIT WONDER"

Question: What makes a remarkable state and local tax consultant or client experience?

Over the next 7 weeks, I will share one of the 7 best practices of being "the Greatest SALT Consultant" or GSC each week. Here is this week's.

Strategic Partner or  “One-Hit Wonder”

My first point, based on years of experience, is that state and local tax consultants should seek to be strategic partners with their clients, not be a “one-hit wonders.” Meaning, the Greatest SALT Consultant (GSC), should be someone that develops strong relationships with their clients. Through those relationships, the GSC will gain a deeper understanding of his or her client’s, or prospective client’s business, and be in a better position to provide practical, customized SALT solutions.

The opposite of the GSC is a “one-hit wonder,” or a SALT consultant that “hits up” clients with the “idea of the day.” This SALT consultant is more focused on meeting his or her personal/firm goals instead of focusing on solving the client’s problem with the most practical solution.

The “one-hit wonder” is here today, gone tomorrow; not only before or after a project, but sometimes even during a project. As a client, you can be “in the dark” as to the status of the project, what the consultant is finding, and what the potential solutions are (this should not happen).

The GSC provides updates throughout the project to the client, and advises them as to changes or alternative solutions that arise.

Have you experienced a "one-hit wonder"?

State Tax Burden v. Compliance Costs: 2009 v. 2016

PricewaterhouseCoopers (PwC) conducted a survey of U.S. taxes paid by Business Roundtable member companies entitled, the "Total Tax Contribution Report." It was released back in 2009, and I found a few items very interesting:

1) Large companies are major contributors to U.S. tax revenues:

The 40 companies participating in the survey remitted $94 billion of taxes, of which $71 billion were attributable to federal taxes.

2) On average, survey participants needed a full-time team of 44 staff to comply with federal, state and local tax payment obligations.

U.S. tax compliance staffing is more than three times that in any other country surveyed.

3) The decentralized U.S. tax system is more complex than in any other country surveyed:

In addition to 30 federal taxes, companies are potentially liable for over 1,100 taxes imposed by the 50 states and the District of Columbia, as well as local taxes too numerous to count due to the more than 89,000 local governmental entities in the United States.

Although state and local taxes account for only 24.5% of U.S. taxes borne and collected, companies spend 41.7% of their compliance budget on these taxes. Per dollar of tax remitted, compliance costs for state and local taxes are more than double that for federal taxes.

I obviously found this last point very interesting and to be true in my own experience. It has always seemed that state and local tax has been the "ugly step-child" to its federal tax counterparts in corporate tax departments. Yet, it is extremely complex and burdensome to keep a company in compliance with so many different jurisdictions and very little, if any, uniformity among state and local tax laws.

Do you think these same points apply today in 2016?

Tax Foundation "Climate Index" Criticized by CBPP

Erica Williams, Assistant Director of State Fiscal Research at the Center on Budget and Policy Priorities (CBPP), wrote an article last week highlighting a new website,"Grading the States: Business Climate Ranking and the Real Path to Prosperity." According to Erica's article, the website seeks to "debunk the state rankings from several organizations purporting to measure each state's 'business climate' and prospects for economic growth." In other words, the website does not believe the rankings represent a state's true business climate.

One of the several business tax climate indexes the website criticizes is the Tax Foundation's well-known index. I respect the Tax Foundation and have always viewed their research as thorough and well done. I have also always viewed such indexes and reports as helpful insights into a state's business and tax environment. However, regardless of the index or the organization releasing such a report, I always take the report with a 'grain of salt.' Any report can display facts and statistics, but just like statistics in general, I believe any report can be slanted to tell a specific story. I also believe any report or statistics cannot tell the whole story. For example, a state's tax environment and incentives will always play a role in a corporation's location decision. However, a state's tax environment is never the only factor. Also, a corporation's location or relocation decision is a 'customized' option. Meaning, every corporation does not receive the same treatment because states make custom incentive packages for different corporations. Thus, just because a state's climate index says one thing, each corporation may feel a different tax impact based on the incentives they receive or don't receive.

In summary, I do not criticize or endorse the website or the Tax Foundation's index. I believe the conversation is healthy and puts a spotlight on the importance of a state's business and tax climate for everyone. 

Just like with most things, we can all usually agree on the problems we face, we just can't seem to agree on the solutions.

State Tax Simplicity and Uniformity

I wrote the following in a blog post back in 2009. As I was re-reading it this morning, it dawned on me that several of the items I mentioned still apply in 2016. The more things change, the more they stay the same.

Side Note: PwC just released a nice document entitled, "2015 Year-End State Tax Review and A look Ahead to 2016 and Beyond."

Simplicity and Uniformity

The terms "simplicity" and "uniformity" are not usually discussed in the same breath as state and local tax. With all of the taxing jurisdictions in the United States (when you include all of the states, cities, and counties, etc.), there is very little uniformity, and nothing seems simple.

With that said, I think the states are starting to act in a uniform manner which, in some sense, is creating simplicity. What do I mean?

Well, during the first four months of this year it appears that most, if not all, states are experiencing the following:

1. Budget and financial difficulties of historical proportions

2. All tax revenues are down, including: income tax, sales tax, property tax, etc.

3. Proposing or passing legislation that closes loopholes, raises taxes or creates new taxes, and attempts to encourage in-state economic development.

4. Proposing or passing legislation enacting new minimum fees or taxes.

5. Proposing or enacting legislation to adopt combined reporting, single-sales factor apportionment, market-based sourcing of revenue from service activities instead of the past cost-of-performance rules, adopting economic nexus and "amazon" type nexus, etc.

6. Proposing or enacting "amnesty" programs to encourage delinquent taxpayers to step-forward and pay back-taxes with the benefit of penalties waived (and interest decreased, in some cases).

7. Adopting language that treats all income as "business income," as much as the U.S. Constitution allows.

8. Adopting similar language in regards to what is considered to be a "unitary group."

9. Adopting or proposing legislation that accelerates the payment of tax revenue to the taxing jurisdiction by either increasing the % paid with each quarterly estimated payment, and/or requiring non-resident withholding to be paid quarterly instead of annually.

10. Increasing interest rates and penalties for late payment of taxes.

I am sure there is more, but these are my top ten (for the moment).

CONCLUSION

In summary, the world of state and local tax has always been a world that changes daily or continually, due to court cases and legislative developments.

In 2009, the state and local tax world feels like it is changing at a whirl-wind pace with the only simplicity and uniformity being created is that soon, everything will be taxable, and penalties and interest will be a revenue stream of their own (if they weren't already).

Is Your Auditor M.I.A.?

Where is the auditor? I haven't heard from him or her in a while.

Should I call them? Or should I just wait it out, and see if they contact me again?

Have you ever asked yourself those questions?

Some taxpayers have an audit begin where the auditors come to their place of business, ask questions, review records, and then leave. When the auditors leave, they say they will let the taxpayer know if additional information is needed or if they have any questions.

Then, months go by without any contact from the auditor.

But wait, three weeks before the statute of limitations is about to expire on one of the tax years within the audit period, the state contacts the taxpayer and asks the taxpayer to sign a waiver of the statute of limitations, usually a year extension (you should attempt to negotiate a smaller extension; some states have a minimum of 6 months).

After the extension is signed, the taxpayer may receive another information request or list of questions from the auditor, with a short timeline or due date for the taxpayer to respond. After the taxpayer responds, another 6 months go by without any contact from the auditor.

Then, once again, one month before the statute of limitations is about to expire, the taxpayer receives a preliminary audit assessment. This time the state won't extend the statute, and the taxpayer has less than a month to dispute the audit assessment's findings before a final assessment is received.

QUESTIONS
If your auditor goes M.I.A. in the middle of an audit, what should you do?

Should you just play the "wait and see game"? Or should you contact the auditor sooner to find out what the status is?

If you contact the auditor sooner, you may or may not receive a response earlier? It really could go either way.

The same is true if you don't contact the auditor. You could get "lucky" and the statute of limitations could expire without receiving an assessment. On the other hand, you could receive an audit assessment with a short amount of time to respond.

What do you think? Have you experienced this?