December 12, 2016
Joseph F Bigane, III, CPA, MST
JFB Tax Consulting LLC
Many bulletins deal with yearend planning and tips to minimize or mitigate taxes. Strangely, few bother to mention state and local taxes. This is an area which has been growing due to the State’s more sophisticated approach to finding businesses which have not been dealing with either income taxes or sales taxes, or both, in their jurisdictions. You can show yourself to be a top-of-the –line consultant when you add SALT to the planning discussion.
Nexus – sufficient contact with a jurisdiction which subjects a business to their tax laws – creates the obligation to deal with the taxes and can cause a substantial and continuing liability if it is not dealt with. Reviewing with the client an overview of whether they are doing business with customers in other states, how they come to have this business and whether they have registered to collect sales tax will get the conversation rolling. It will also allow you to determine what income tax returns need to be filed for the current year (for purposes of your engagement letter) and whether there should be any yearend nonresident withholding for any nonresident owners of a flow-through business.
A partial list of issues which can give rise to either sales tax or income tax would include:
Do you perform services in other states?
Installation (direct or thru third parties)
Repairs (direct or thru third parties)
Do you have property in other states?
Inventory at fulfillment sites (think Amazon)
Inventory at public warehouses
Dies, jigs, molds, equipment at contract manufacturers
Do you have employees in other states?
Employees who work from home
Employees who travel for sales solicitations
Employees who travel for repairs and maintenance
Company officers or partners who are actively involved in the business
Raising and discussing the issues before the State sends a bill for taxes, penalties and interest will always work to your benefit.
Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.