Introduction: The Increasing Multi-State Tax Burden
State and local taxes are becoming an increasingly large expense for multi-state businesses.
There are multiple taxing jurisdictions, varied tax structures and a broad combination of different bases on which state and local governments seek to impose tax. Despite the complexity and magnitude of these multiple taxes, many businesses have not extended their cost reduction/recovery strategies to include a systematic, comprehensive approach to tax planning in these areas. Often, businesses simply lack the personnel and state tax-specific experience to address the numerous and complex state and local taxes. For such businesses, there often are certain areas in which a more comprehensive tax plan can be implemented to minimize state and local tax exposure in a cost effective manner. Three areas that often offer material tax saving opportunities are apportionment, sourcing, and corporate structure analysis.
Apportionment and Sourcing
Multi-state businesses bear a significant burden with respect to determining how different tax bases must be apportioned (i.e., divided among the states in which they do business) and, within the apportionment computation, how property, payroll and, in particular, sales must be sourced to different states.
Apportionment and sourcing analysis, along with a thorough review of potentially applicable elections, can be used to uncover tax savings (cost reduction) and often refund (cost recovery) opportunities in many instances. The variation in state tax laws and approaches to apportionment and sourcing can offer numerous planning opportunities.
Corporate Structure Analysis
Multi-state business operations are conducted in a variety of corporate structures. Moreover, states are increasingly attempting to increase the tax burden on out-of-state businesses. Depending on the states in which business activity is conducted, there may be different combinations, structuring or inter-company tax planning that can be done to minimize the overall state tax burden. Again, the varied state tax laws often provide planning opportunities.
For most multi-state business operations, there often are strategies that can be used to combat the increasing multi-state tax burden.