STATE TAX REQUIRES 'DEEP WORK'

DEEP WORK: Professional activities performed in a state of distraction-free concentration that push your cognitive capabilities to the limit. These efforts create new value, improve your skill, and are hard to replicate. - definition by Cal Newport

I started reading "Deep Work: Rules for Focused Success in a Distracted World" by Cal Newport last night. I am only in about 60 pages, but so, so good. I highly recommend all knowledge workers to read this book, especially accounting and law firms that have adopted the open office concept, instant messaging and collaborative meetings upon collaborative meetings.

Cal first emphasizes the value of Deep Work or batching work in blocks of time to allow yourself to really go deep and focus. Stop checking e-mail, instant messaging, etc. Our brains are easily distracted. We will also feel like we are busy and doing valuable work by simply responding to messages, e-mails all day and going from meeting to meeting, but did you really do anything valuable? With that said, Cal does caveat this with the fact that some management roles require quick connectivity and rely on others to do the deep work and come to them with conclusions. High level execs may produce value by being connected and not being isolated or disconnected to do deep work. 

For those who are not high-level execs, deep work is required and a necessity. Cal mentions in the book that "as knowledge work makes more complex demands of the labor force, it becomes harder to measure the value of an individual's efforts." So true. Why do you think accounting and law firms have timesheets? Why do we have performance reviews that seem like a waste of time? This supports Cal's thesis that we need to do deep work. Deep work produces value.

He mentions that we all follow the principle of least resistance. This is why, even if we agree with Cal, we will default into the 'fragmented' attention, as he calls it, simply because of the workplace culture we are in. In other words, we won't change unless our culture allows or supports us to change.

Accounting firms and law firms (and corporate tax departments) rely on their associates to do complex work, yet expect that to get done while listening to other people talk on the phone, conduct conversations a few feet away or while having a meeting every hour. 

We need to get back to doing deep work, focused work. We need to block out time. Our clients and companies deserve the best we have to offer, and we owe it to ourselves.

The above was some random reflections from reading the first 60 pages. More to come. Let me know what you think and if you have read the book.

A STATE TAX 'MUST READ' FOR 2017

With federal tax reform highly likely and international tax reform working in the background, state tax reform may be close behind.

It is definitely an interesting time to be working in the tax field. With new ideas and new perspectives, we are most assuredly closer to change than we have ever been. If we have learned anything about change, is that change requires 'us to change.' We must be open to new ways of thinking, but we must also be involved. Stay informed. Speak up. Play a part.

Liz Malm at Multistate Associates, Inc. has written 3 recent posts in their Multistate Insider publication that you have to read if you are curious at all about what will happen with multistate taxes in 2017. 

First, "Tax Issues to Watch in 2017: Taxation of Services."  According to the post, the sales taxation of services could be seriously debated in 16 states during the upcoming state sessions. The post provides a great explanation, recap and overview of all states as its relates to the sales taxation of services.

The second post you must read is "State Tax Policy in 2017: What to Expect." The post covers some of the biggest policy trends impacting multistate taxation. Trends that grew in strength in 2016, and may get even stronger in 2017, such as: sales tax nexus, sales taxation of services, short-term rental taxation, tangible personal property taxes, combined reporting and apportionment changes, tax havens, general rate increases and elimination of exemptions and deductions, and last but not least, questions surrounding what the state tax fallout will be from federal tax reform.

Third, find out what the National Conference of State Legislatures is thinking by reading "NCSL Tax Task Force Meeting Spots Emerging Issues for 2017." 

How I Learned State Tax Planning is Essential

At the beginning of my career (20+ years ago), I worked in a large Fortune 500 company tax department solely in the state income tax area (compliance, audits, etc.). It was a lean tax department. It was just the state tax manager and myself handling all of the state income taxes for the company. The company had 40+ subsidiaries operating in 40+ states; meaning, we had a large volume of state tax returns and complex calculations. The group had an insurance company, a financial organization and a few transportation companies. Needless to say, I learned a great deal about state income tax rather quickly. 

They didn't teach you state tax in college, so it was all new. I became very interested in analyzing the corporate structure, the filings, and defending the company in audits. During that time is when my interest in state tax grew. I found the lack of uniformity and daily changing of tax laws challenging and surprisingly fun. 

At that time, I noticed the group was paying a large amount of tax in one state, so I analyzed the facts and law, and played around in excel and the compliance software to attempt to find a planning idea that would change the result. After some time, I did. I found an idea. I brought the idea to my manager and we mulled it over. About a week later, our external consulting firm brought us the same idea. That's when it hit me, tax departments (especially lean tax departments) are so busy with compliance and audit defense that they leave the planning to their consulting firm.

The problem with leaving the planning to the consulting firm is that the compliance and audit defense areas is where planning ideas often are identified. A consulting firm is generally bringing you ideas that they are applying to multiple clients, or they are doing a reverse audit and reviewing your returns and audit results. Consequently, the tax department is in a perfect position to identify planning ideas.

The next step involves finding a tool that allows you to quantify the idea efficiently, especially for those lean tax departments.  Helping tax departments and consulting firms analyze data and find solutions, whether it be compliance, provision, planning or audit defense, is what I am about. In the end, I don't care if the consulting firm or the tax department comes up with the idea. We need both tax departments (close to the facts) and consulting firms (close to multiple clients = opportunities to develop numerous solutions based on different fact patterns = ability to provide a fresh and unique perspective to a company's situation) to be engaged in state tax planning. What I do care about is the ability to more efficiently identify and quantify ideas.

All ideas don't have to be huge and sophisticated. Sometimes a little tweak here or there can produce unexpected value.

I will talk more about this subject in the upcoming Bloomberg BNA webinar on January 19, 2017 entitled, Unitary/Combined vs. Separate Reporting. It is the first of 4 monthly webinars exploring state tax planning strategies. I will be co-presenting with Diane Tinney. Here's a link to the webinar. I hope you register and get practical insights.

Be the state tax hero.

Identify and quantify.

New Year, New Legislative Sessions and the MTC

I hope your new year is going well. State tax legislative sessions are beginning and talks of crazy tax hikes (Illinois), and imposing sales taxation collection obligations on remote retailers is commencing (Wyoming). Some may even try to eliminate the corporate income tax (Missouri).

The Multistate Tax Commission continues its Sec. 18 Regulatory Project. According to the MTC, the Section 1 and 17 workgroups have identified a list of issues that may need to be addressed by the Uniformity Committee in light of changes to Article IV (UDITPA) adopted by the Commission in 2014 and 2015. The list includes (but is not limited to) the following:

•  Address the possible distortion that could be caused by the exclusion of functional receipts from the definition of “receipts” for purposes of the receipts factor in certain circumstances.
• Consider exceptions to the definition of “receipts,” which now excludes receipts from securities and hedging, where these receipts might represent “transactional” receipts for certain taxpayers (e.g. brokers) as well as how possible distortion might be avoided (e.g. churning of investments).
• Consider whether receipts from factoring of receivables should ever be included in the receipts factory.
• Address any situations where general population data, used under the draft Section 17 sourcing rules, might result in distortion and what methods might be used to address that distortion.
• Consider whether there needs to be a “de minimis rule” for sourcing of receipts in certain instances so that the taxpayer may use a proxy for sourcing, or possibly throw out those receipts from the factor.
• Address regulations that might be needed to interpret and implement the amendments to Article IV, Section 18 made by the Commission in 2015.
• Consider other special industry rules that might be necessary.

In addition to the technical matters we deal with, I hope your career is moving in the direction you desire. If not, remember, action over intention. Can't get a different result by doing the same thing over and over again.

DON'T BE A SALY - PREPARING FOR 2017

I hope everyone had a great Christmas. Most of you are probably sleeping in today, unless you are working this week. 

I am working this week - as is the life of a freelance consultant and writer. I work all the time, anywhere, anytime around my daily life. For example, over the past week, we have moved in to our newly renovated home and been unpacking all week. In the middle of this chaos, I have been working at night, early morning and sometimes all night (this is after being exhausted from unpacking). I don't say this to brag or get sympathy, simply to relay what it takes to work on your own. You don't work, you don't get paid. However, along with that responsibility comes freedom and the ability to work anywhere and anytime. 

Regardless of whether you are working or taking time off to spend with family this week, I hope you take a breath and appreciate 2016 (the good and the bad), and prepare for 2017 as something to look forward to. 

State taxes are constantly changing which makes this career interesting and challenging. Some of you dread your job and think of it simply as something to do, to get through the day, to pay the bills, so you can live for the weekend. DON'T LIVE THAT WAY. Either make it exciting and challenging or find something else to do. Life is too short. Live while you are alive. Be self-aware. Know what you are good at. What your strengths are. Do that. Don't focus on what you aren't good at or what others want you to do. 

As I have stated in previous posts, my story is not the traditional one, but who wants to be a cookie-cutter, spec-house. Be a custom car, a custom house. Conformity breeds mediocrity. 

Looking to do something amazing in 2017. Looking to do something new in the state tax profession this year. I hope you are too. DON'T BE A SALY (SAME AS LAST YEAR).

COST Releases 14th Annual Study of State and Local Business Taxes

The Council On State Taxation (COST) recently released its fourteenth annual study of state and local business taxes. The report, "Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2015," prepared by Ernst & Young LLP, shows all state and local business taxes paid in each of the 50 states and the District of Columbia. These taxes include business property taxes; sales and excise taxes paid by businesses on their input purchases and capital expenditures; gross receipts taxes; corporate income and franchise taxes; business and corporate license taxes; unemployment insurance taxes; individual income taxes paid by owners of non-corporate (pass-through) businesses; and other state and local taxes that are the statutory liability of business taxpayers.

According to the report, businesses paid more than $707.5 billion in state and local taxes in FY 2015, an increase of 1.9% from FY 2014. State business taxes grew less quickly than local taxes, with state taxes growing 1.0% compared to local tax growth of 2.9%. In FY 2015, business tax revenue accounted for 44.1% of all state and local tax revenue. The business share has been within one percentage point of 45% since FY 2003. 

I always enjoy these reports as they provide additional insight and context into the debate around state tax policy. The difference in the amount of sales taxes paid versus income tax paid always stands out to me: 

• General sales taxes on business inputs and capital investment totaled $150.6 billion, or 21.3% of state and local business taxes. 
• State and local corporate income and business gross receipts tax revenue was $67.3 billion, or 9.5% of all state and local business taxes. 

Will the report encourage changes in state tax policy? 

Will the report encourage taxpayers to change tax planning or operations?