Thriving in the State Tax Lifecycle

Planning, provision, compliance and controversy - all the stages of the Tax Lifecycle.  Each stage contains its own trials and tribulations, as well as opportunities. 

My questions are:

• Which stage do you spend the most time on?
• Which stage would you like to spend more time on?

Depending on your answers to the questions, the next question is, why or why not.  Why do you spend the most time on a certain stage?  Internal or external pressures?  Cost-benefit analysis?  Resources? 

Why do you want to spend more time on a certain stage than others?  Requirements or desire?  Strength or weakness?

What am I trying to say?  Well, each company either endures each stage or thrives in each stage.  Each company most likely focuses on one stage (usually compliance) than any other.  Although, the provision stage is a close second (maybe first) for public companies.  Controversy and planning - ahhh, the fun stages (at least I think so).  This is the area that most companies seem to neglect or focus on less.  Less focus on these stages is often a result of the lack of resources (financial and people). 

CONCLUSION

Answer the questions above for yourself, then re-prioritize based on what is most important to your company and to yourself.  Make a difference.  Make your state tax lifecycle fun!  You might as well, we only live once.  Let's not just endure or survive, let's thrive (at work and at home).

Are Your Refund Opportunities Expiring on March 15th?

Corporations may be missing out on refund opportunities if they do not act prior to March 15th!

If it was determined that your corporation overpaid state tax in prior years, and this same error was made each year for several years, then your corporation may want to file amended returns to obtain refunds. However, the number of years for which your corporation could file amended returns would be limited by the statute of limitations.

Most state's statute of limitations (or time period for filing refund claims) last either three or four years from the later of the original due date or the date the return was filed, or some other variation.  Each state is different, so it is important to confirm the statute of limitations for the states you are dealing with.

For example, New York's statute of limitations is the later of three years from the date filed or two years from the date paid.  The original tax return for calendar tax year 2008 would have been due March 15, 2009.  Therefore, if the original return for 2008 was filed (and the tax was paid) by March 15, 2009, New York's statute of limitations for filing refund claims for the 2008 tax year would expire on March 15, 2012.

This analysis should be done for each state for which a refund claim (amended return) is desired to be filed. 

State Tax Audit Assessments: Who Has Burden of Proof?

Two recent court cases in Indiana, and one in South Carolina make you pause and ask - who has the burden of proof?

The Indiana Tax Court ruled in AE Outfitters Retail Co. v. Indiana Department of State Revenue (No. 49T10610126TA66, October 2011) and in Rent-A-Center East, Inc. v. Indiana Department of State Revenue (952 N.E. 2d 387) that Indiana could not force a taxpayer to file a combined return until it has determined that other, less drastic departures from "standard" separate return and apportionment methodologies will not provide an equitable allocation and apportionment of a taxpayer's income.

In both of the Indiana cases listed above, the taxpayer filed a separate return as required by Indiana law.  Upon audit, Indiana attempted to force the taxpayer to file a combined return.  The taxpayers protested and ended up in Indiana's Tax Court.  The Tax Court in both cases stated the burden of proof that the standard separate return and apportionment is invalid rests on the party that is deviating from the standard method.  Hence, the burden of proof was ruled to be on the state of Indiana. 

The state of Indiana has appealed the Rent-A-Center East, Inc. case to the Indiana Supreme Court.

In South Carolina, the Administrative Law Court recently ruled in Carmax Auto Superstores West Coast, Inc. vs. South Carolina Department of Revenue (Ct. of Appeals, Case No. 09-ALJ-17-0160-CC), that the alternative method proposed and assessed by South Carolina was reasonable.  In this case, the taxpayer filed its original return using the standard apportionment formula.  Upon audit, South Carolina deviated from the standard apportionment formula.  The Court said the taxpayer had the burden of proof to show that South Carolina's alternative method was not reasonable or that the standard method was reasonable. 

This case is currently in South Carolina's Court of Appeals.  Oral arguments in the Court of Appeals focused on who had the burden of proof. 

Normally, when a taxpayer receives an audit assessment, the taxpayer has the burden to challenge it.  However, the burden of proof can also relate to specific issues.  For example, in the case of whether an affiliated group of companies is unitary, generally, the taxpayer is presumed to be unitary and the burden of proof is on the taxpayer.  In regards to business vs. nonbusiness income, generally, all income is presumed to be business income.  The burden rests on the taxpayer to prove that income is nonbusiness income.

Now, in regards to alternative apportionment, most state statutes say the burden of proof to prove that distortion exists rests with the party that requests to deviate from the standard apportionment formula. 

What do you think?  What will happen in Indiana's Supreme Court and South Carolina's Court of Appeals?  How does this impact your company's or client's filing positions?  When can a taxpayer request alternative apportionment or combined reporting?  Is combined reporting an alternative apportionment option? Must the state consider ALL other reasonable options before forcing a taxpayer to file a combined return?

Are You Brave?

I was reading Seth Godin's blog post, "Time Doesn't Scale," and was thinking about it's application to the public accounting world.

It seems to me that we think "time does scale." We seem to think that if we can just bill more hours, we will have more revenue. However, in reality, we must at some point be brave. We must create more value for a client that allows us to make more money in less time.

We must truly become knowledge workers and NOT assembly line workers.  I mean, what did you go to college for?

Read the post and let me know what you think.

What State Tax Issues Would You Like Me to Address?

I have been writing this blog for over three years now, and often wonder what you (the readers) think.  What topic or issue is most important to you? What Leverage | SALT blog post did you like the most?

What issues would you like me to address in the future?

Perhaps its not a state tax issue, but a state tax profession issue?  Practice development?  Building relationships with clients?  What it's like to work in public accounting or industry?  Big 4 firm consulting versus middle market firm consulting?  Working with Fortune 500 companies or middle-market companies?

What does our industry need to do to better communicate with each other, and with all of the parties we deal with (i.e., governments, clients, consultants, SALT organizations, universities, etc.)?

Is Giving the New Marketing?

I came across a blog post by Jay Shepherd (with links to Hugh MacLeod), and it made me think about the SALT consulting world.

What do clients (companies large and small) want? How do they want to be reached? What free gifts can consultants provide? What gifts can consultants provide and still get paid for the services they provide?

I believe this has been a continual dilemma in our industry for years. Consultants often give away ideas, only later to see the client implement the idea themselves or worse, use another firm to implement the idea.

I have worked in industry and public accounting, and have been on both sides of the fence.

What do you think is a good gift? What is fair? What do, or should consultants really get paid to do?

Can Non-Tax Court Cases Impact State Tax Nexus?

Over at the Bloomberg BNA State Tax Blog, a recent post entitled, "State Tax Snapshot: The Most Important Nexus Cases You’ve Never Heard Of," covered some court cases that you may not be aware of. 

The blog post discusses non-tax court cases that may be applied to state tax nexus situations, and determining if and when a company has nexus with a state. 

I'm not sure that many companies or SALT professionals have thought of applying non-tax court cases when trying to make nexus determinations. 

If your company or your clients deal with nexus situations, the blog post and the cases may be worth reading.