February 18, 2020
It seems that state and local taxes (SALT) are in the news every day. States and municipalities are constantly changing the rules of who or what is taxable. To further complicate matters, the landscape of how we conduct business continues to evolve. With the ease of e-commerce, more companies are now doing business across state lines. These and other factors make it very difficult for businesses to keep current on the laws and to stay compliant with them. So, what exactly is SALT and why should you and your business be concerned about it? Over the next several weeks, we will be taking a closer look at SALT through a series of articles in which we will look more in depth at the various taxes that typically come under the SALT umbrella. Our goal is to increase your understanding of SALT and why it should be important to your company.
In general, SALT can refer to any tax that is levied by a state or local municipality. It can come in many forms, with the most familiar being income tax, sales/use tax, property tax and business licenses. Often included in the SALT bucket is Unclaimed Property, which is not actually a tax at all, but is administered by the state. The numbers and types of taxes being levied on businesses is on the increase. Focus on the SALT area is due to multiple reasons, including the use of more sophisticated technology by the taxing jurisdictions, greater sharing of information between taxing authorities and budget shortfalls in many states and municipalities. To offset the shortages, rates are increased, the tax base (what is subject to tax) is broadened, or laws that have been in place for years are now being enforced.
So, why should a business owner be concerned about SALT now?
Cost: SALT is becoming a bigger expense of doing business, especially with the reduction of federal tax rates.
Compliance: Being and staying SALT compliant is complicated.
Nexus changes: Nexus is the amount of connection with a tax jurisdiction required to give that jurisdiction the right to assess and collect taxes from a business. The changes over the last few years regarding the type or amount of activity within a jurisdiction that creates nexus is staggering and continues to change.
Changes in the way business is done: More than ever, businesses have customers across the country, which means potential income and sales tax responsibilities in many states.
Increase in audits: Audit activity appears to be on the increase. Many jurisdictions are sharing information and using third party firms to audit taxpayers.
Succession planning: During the due diligence process, it has become common for buyers to engage specialty SALT teams to specifically look at the state and local tax area. Non-compliance can reduce the selling price.
We invite you to follow our SALT series and hope that you will deepen your understanding of state and local taxes. If you have any questions regarding state and local tax for your business, please contact Kim Tarnakow at email@example.com or at (205) 733-8265.