An excellent business tax consultant is a business consultant first and a tax consultant second. This remains true whether they are an external consultant serving clients or an internal consultant serving a singular business in the day-to-day demands of a tax function.
This does not mean that anyone with minimal knowledge of taxes but a great mind for business can be an excellent tax consultant – in fact, quite the opposite. A good tax consultant is someone who has the education and experience in tax issues to make critical decisions or recommendations for the business but is able to do so while maintaining the goal of identifying what is best for the business as a whole, and not just the tax segment specifically.
At Allyn, we have come to identify four critical and measurable areas within the tax function that when achieved in harmony with one another provide the best circumstances for the specific businesses on the receiving end of the consulting. All tax consultants would do well to take heed of the four aims:
#1 – Maintain Compliance
Each of the four aims is equally important to a healthy tax function, but if pressed to pick the most important aim, Maintain Compliance would be the one to choose.
The integrity of the business is a paramount concern and responsibility of a tax consultant. A business is expected to understand the tax obligations imposed upon it by the jurisdictions it is conducting business in. It has an obligation to the business community and broader society as a whole by paying their fair share in taxes. Tax Consultants value the business first by ensuring there are reasonable and thorough processes in place to achieve tax compliance so the business can be in good standing and the remaining goals can be pursued with integrity. An intentional lack of integrity here can go so far as to incur criminal penalties.
Beyond the matters of integrity and ethics, it is simply good financial practice to be compliant with the tax authorities. At a minimum, a business that lacks compliance will be subject to steep financial costs including back taxes and often hefty penalties and interest charges. Furthermore, becoming compliant is much more complex and expensive for a business that has been out of compliance for years than one that is starting off on the right foot.
#2 – Minimize Liabilities
Minimize liabilities is the second aim that a tax consultant balances as they ensure the businesses they are supporting are in compliance. An excellent tax consultant not only ensures that the business is paying its fair share in taxes – they ensure that the business is not paying a penny more.
Aim #1 could be achieved much easier by the tax consultant if they needed not to concern themselves with Minimizing Liabilities. A tax consultant could simply be registered everywhere, pay tax on everything, and overall cast a big net of compliance so the risk of incompliance is minimal. Of course, this is an extreme example, but the principle remains even when scaled back to minor levels and unfortunately is far too often the strategy employed. An excellent tax consultant helps you balance those two aims to achieve ideal results for the business.
Take sales tax registrations for example. Some businesses elect to register for sales tax accounts everywhere, even where they may not be legally required to. This way, they never have to worry about tracking where they need to be registered as business growth occurs. This is certainly advisable for some businesses that have substantial connection creating activities that are difficult to track, but if this strategy can be avoided, it should be. That is because when a business registers in a state where they don’t have the legal obligation so as to voluntarily collect, they will now be liable for uncollected taxes, exemption certificate mistakes, or calculation errors, even though their participation is essentially a favor to the state. They may have achieved aim #1, but they have done so at the cost of aim #2.
#3 – Maximize Savings
As we engage the third aim, here is where the true meaning of excellence comes into play. We know that achieving aim #1 is necessary for the most basic functional tax operation, and the achievement of both #1 and #2 together is necessary to rise to the level of a mediocre tax operation. When you expand to aim #3, this is where you begin to go pro.
At first glance, aims #2 and #3 look the same. What is the difference between Minimize Liabilities and Maximize Savings? While success in these aims shares the same measurement of success - tax dollars reduced – they differ in overall scope. Minimize liabilities is about ensuring the business is not overpaying taxes. Maximize Savings is about identifying and attaining additional savings beyond the avoidance of overpayment.
A good example of this is freeport exemptions. In certain states, you must pay a property tax on your assets in place at business locations as of a specific annual date, typically to localities. In some of these jurisdictions, your inventory is considered taxable. In order to prevent discouraging businesses from establishing locations in their states, these jurisdictions typically offer a freeport exemption, or an exclusion/reduction in taxes for inventory that was shipped out of the state or jurisdiction within a certain time frame. Taking advantage of a freeport exemption can be difficult, but almost always results in justifiable tax savings. (Read more on freeport exemptions in one of our most popular articles here: Reduce Your Inventory Taxes with Freeport Exemptions)
Aim #1 calls for the tax consultant to identify the tax obligation and to file a property tax return with accurate information. Aim #2 calls for the tax consultant to ensure that only the assets and inventory taxable by that jurisdiction are reported so that no excess taxes are incurred. Aim #3 calls for the tax consultant to additionally pursue savings opportunities such as freeport exemptions to ensure that any legally available tax savings methods are employed.
#4 – Mitigate Costs
In conjunction with achieving aims #1 -3, an external tax consultant seeks to make as minimal money off the client as possible, and the internal consultant seeks to have the smallest budget applicable.
An excellent tax consultant seeks to achieve all aims with as minimal resources as possible and seeks to find those reductions wherever available. You may achieve aim #1 by ensuring every individual purchase is reviewed by the tax team for use tax reporting, you may achieve aims #2 and 3 by hiring the most seasoned (and most expensive) tax advisor to defend your business when under audit or by engaging a local specialist, but chances are these choices will not achieve aim #4.
Additionally, excellent tax consultants ensure that processes are developed and documented, not just for general practices but for client specific circumstances. An excellent consultant ensures that such streamlined procedures allow for efficiencies as tax periods pass, and that the documentation weathers the inevitable arrival of issues in business continuity or practitioner turnover.
In an era of tax where every consultant has a niche, every function has a pricey software solution, and every business tends to lean into abundant thoroughness, aim #4 acts as a brake in reminding consultants to not throw out the baby with the bathwater, and to not only make the best tax decisions but the best business decisions as well.
Tips for the Taxpayer
The Four Aims of an Excellent Tax Consultant is a reliable framework for identifying if the core elements of your tax function are being supported by business decision-making beyond basic tax decision making. Your tax consultants, whether internal or external, should be considering these four aims in their everyday pursuit of a successful tax operation.
Ask your consultant what they are doing to achieve the four aims. Each of the four aims can be quantified by key performance indicators. If they aren’t already, ask them to provide monthly or quarterly reporting on the KPI’s that capture these aims and the actions being taken for continuous improvement.