Pepper CRI’s expertise

Entrust the complexity of your business’ state and local tax to advisors who have the recipe for success.

It’s said that variety is the spice of life, and there are certainly plenty of varieties of state and local taxes (SALT). Our clients are impacted by state and local tax in a myriad of ways from nexus concerns to income apportionment. And state and local taxes impact everyone from long-established manufacturers that address sales/use tax on purchases and property taxes on both property and equipment to an e-commerce software as a service (SaaS) venture that strives to properly collect sales tax. Most companies battle obstacles related simply to federal income tax; addressing state and local complexities adds to those challenges. You require an advisor that understands your industry, asks pointed questions, and provides crisp and accurate solutions to everyday problems within the framework of long-term strategies.

Most of our clients are willing to pay their fair share of taxes; however, determining that fair share becomes difficult with the current and ever-changing “too” laws and regulations – too many, too complicated, and too many differences amongst states. Our advisors study your company so that, when we sit down with you, we can cut to the chase regarding your issues, learn the facts that only you know, and formulate strategies that create opportunities and solutions. Your business is complicated enough, so entrust the complexity of state and local tax to our advisors.

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Client SNAPshot

CLIENT:Furniture rental company in the Southeast
SCOPE:Performed financial statement audit and employee benefit plan audit for multiple years and, as a result of a SALT project, now perform all tax work
SERVICE:State and local tax
PROJECTS:State and local tax diagnostic, specifically the review of state income/franchise tax returns
RETURNS:Identified several opportunities for potential refund claims of $400,000
$400,000 in potential refund claims

Straight Talk

Translating technical jargon into a plain English “text.”
We just received a nexus questionnaire from a state, and I am hoping that you can help. I don’t think we have much activity in the state. As you know, we’ve been expanding into new markets, mainly through local television ads and shipments of goods into the state.
MANUFACTURING OPERATIONS MANAGER
Normally, a company will use common carriers – and sometimes its own trucks – to ship goods. What are you using in this state?
CRI

 

We ship almost entirely by common carrier, but maybe we’ll help somebody out in a pinch by using one of our own trucks. Is that a problem?
MANUFACTURING OPERATIONS MANAGER

 

Shipment by common carrier is fine, but states have varying rules if you use your own vehicle. Do you send salespeople into the state?
CRI

 

To our major customers, we do. I didn’t consider that. They sometimes carry product samples and instruct the local sales team on the best way to sell the product. Plus, they have authority to sign small orders on the spot.
MANUFACTURING OPERATIONS MANAGER

 

Well, the product samples are okay, but training the sales team and having authority to execute sales agreements usually goes over the line since those activities go beyond selling.
CRI
So it looks like we’ve got another state to file. It seems like it never ends.
MANUFACTURING OPERATIONS MANAGER
You know, we can help you analyze which activities you would like to continue and discontinue. And there is possibly good news: the tax rate in this state is lower than your home state. Let me run a calculation – you may end up paying less in tax.
CRI
Now that would be a happy ending! Never thought I’d be glad to receive a nexus questionnaire.
MANUFACTURING OPERATIONS MANAGER
We’re getting ready to launch a web-based version of our service line and need to understand our sales tax collection responsibilities. Rather than visiting one of our stores, customers will establish an online account, and we will also offer them software as a service (SaaS).
DIGITAL SERVICES MANAGER
Canned software is subject to sales tax in most states, so the SaaS model could be a competitive advantage for you. Still, are you aware that several states tax SaaS offerings?
CRI

 

Yes, we heard some industry rumblings about it. Can they really do that?
DIGITAL SERVICES MANAGER
States are losing a lot of revenue as brick-and-mortar businesses change their models. Therefore, they try to prove your business has nexus—and then try to tax the SaaS offerings.
CRI
I thought “nexus” meant having a physical presence.
DIGITAL SERVICES MANAGER
Exactly. Let me ask you about some of the common things that generate nexus. Outside of your current state, do you plan to:
1. Have store locations?
2. Have any other physical presence?
3. Have any sales people?
4. Visit any trade shows?
5. Visit top customers?
CRI
Our answers are “no” to the first three questions. However, we will probably attend trade shows, and our executives will likely infrequently travel to top customers with multiple users.
DIGITAL SERVICES MANAGER
OK. Trade shows are generally not a problem since states usually carve out an exception for them, but we should check as shows come up. Regarding the executive trips, states frequently take the position that one business day in their state creates sufficient nexus to require collection of sales tax.
CRI
The visits won’t be very visible. Should we collect and remit?
DIGITAL SERVICES MANAGER
Unlike many other taxes, it really doesn’t pay to be aggressive with sales tax. You could just end up turning your customer’s tax into your own. At an average rate of 8%, it can really do a number on your margins.
CRI
Wow, I see your point.
DIGITAL SERVICES MANAGER
I’ll send you a listing of the states that tax SaaS so that you can map it into your POS system. It should save you a lot of grief down the road.
CRI

Solutions Simplified

Down-to-earth descriptions of our services.
Property Tax Review

Property tax reviews consist of both real estate appraisal challenges and personal property tax rendition reviews. Cash-strapped taxing authorities often over-appraise realty, resulting in you overpaying property tax. We recommend a challenge at least once every five years. Some companies do it every year. To challenge the local assessor’s valuation, we compare market equivalents and consider other valuation methodologies in more complex situations working with independent valuation firms. In the case of personal property, we can determine if inventory is receiving the appropriate exemptions, as well as identify “ghost assets” lurking on renditions long after their disposal.

Reverse Sales Tax Audit

Our extensive and collective experience indicates that sales/use tax paid through a company’s supply chain is the most overpaid tax for most businesses. Whether it is sales tax paid with a vendor’s invoice or use tax self-remitted by certain industries, this tax is very often untracked and administered by personnel with numerous responsibilities and little tax background. Our solution is to approach the situation as a state auditor would – only inversely. We take a statistical sample over the prior three to four years and pore over the invoices while applying our knowledge of the intricate sales/use tax laws. This effort allows us to determine the overpaid amount and whether a party is subject to a refund.

State Income Tax Planning

State income and franchise tax may be the most complex tax in the United States.  Laws and regulations vary by state/locality, industry, and entity structure. These variations yield thousands of different potential tax results. Finding the optimal result for our clients begins with an entity-specific nexus review to determine where tax returns should be filed. Next, we use a basic tax model to consider the mandatory and optional industry-specific rules that apply. Then, revenue streams are examined to identify previously unseen (yet optimally taxed) existing sources of revenue. Various apportionment formulas are analyzed. Finally, based on different entity structures, iterations of tax results are created to identify the optimal result.

Tax Credits & Incentives (C&Is) Diagnostic

C&I reviews include historical and future aspects. States often have dozens of distinct C&Is concerning investments, job growth, training, pollution control, enterprise zones, and more. Related to ongoing operations, we work with your staff to review your operations, identify potentially overlooked C&Is, and advise you on ways to secure credits. With regard to future C&Is, we have relationships with the Economic Development Councils in several states and, based on your future business plans, can advise you on how to strategically optimize both statutory and negotiated C&Is.

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