Putting SALT on the Table

By Derek B. Rawls, CPA, MST

My physician has advised me to avoid too much salt in my diet. Studies have shown that excess salt intake can raise blood pressure. The same can happen when a business finds too much SALT – State and Local Taxes – in its diet.

While there is much speculation about the expected changes a new Congress might make in the federal tax code, it is important to keep a close eye on the significant part of your company’s tax responsibilities that come from the states and municipalities in which you are doing business. Things can get particularly complicated if you are operating across state lines, or are selling on a national basis.

Need an example of how complex state and local taxes can be? Look at a business as seemingly simple as an office coffee service. Many coffee companies offer their customers the loan of a coffee brewing station to entice them to sign up for delivery services. But most cities and towns impose a personal property tax on equipment, including coffee makers. Therefore the coffee company must track each brewer, where it is located, the local tax rate, and when the tax is due. Add in managing depreciation of the equipment. Then multiply by the hundreds of offices the company services and you can how local taxes can become a nightmare!

Franchises in particular can face a myriad of complex tax issues, further complicated by multiple ownership interests, franchise agreements and cross-border activities.

For any business operation in multiple states or cities, there are a number of broader SALT issues that must be incorporated into your overall tax planning strategy.

  • Property taxes. Whether it is equipment, inventory or real estate, states and municipalities are going to get their share. The true challenge is identifying the requirements and deadlines of multiple tax jurisdictions to make sure your business remains in compliance – without paying more taxes than necessary. Steps that may be taken include everything from accelerating depreciation, to appealing real estate valuation, to taking advantage of available abatements.
  • State and local tax incentives. Many states and municipalities offer tax incentives in order to attract or retain employers. These can include enterprise zone benefits, favorable financing, tax relief or exemption, and training grants.
  • Payroll and benefits. Very few states have no income tax, therefore most companies will have to include state income tax and benefit requirements in their payroll costs.
  • Sales and use tax collection. Companies doing business in multiple states are generally required to collect sales tax for purchases made in each jurisdiction. This has become a much more high profile process given the growth of online sales.

As you can see SALT is not just a seasoning that must be carefully managed in a nutritious diet. Proper management of state and local taxes can also help to keep your company’s bottom line healthy.

Derek B. Rawls, CPA, MST is a partner with Gray, Gray & Gray, LLP, and leads the firm’s state and local tax (SALT) practice.

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