Missing out can cause major disappointment — like when you fail to score tickets to see your favorite performer in concert or a reservation at the hottest new restaurant. If you’re an owner or CFO of a fast-growing company, what’s even worse than this emotional pain? It’s the financial pain of realizing that you missed major opportunities to save on taxes or sidestep a big tax liability.
Maybe you’ve already experienced this when you were blindsided by an unexpectedly high tax bill. Or (cringe) you learned that a colleague (or a competitor) found a way to take advantage of massive tax credits, which they reinvested to launch their business to the next level.
When it comes to taxes, you don’t have to fear missing out if you’re in the know. So let’s dig into three common scenarios where you might be overlooking strategic tax moves.
The “Oh, no!” moment: You landed a site for a new warehouse in a neighboring state. But once the ink dried on the lease, you discovered that you lack the leverage to negotiate state, county or local-level tax credits.
State and local jurisdictions (e.g., cities, towns, counties) want to attract companies that will create the kinds of jobs and capital investments that build strong economies. If you’re planning to relocate or expand your business, tax credits and other negotiated incentives can go a long way toward offsetting the cost of your new facility
You might even be able to layer those incentives — like a delicious tax parfait. That sweet combo might include negotiated incentives, statutory state tax credits, city or county-level property tax abatements and even refunds on sales and use taxes. For example, a company that would create jobs and incur state investment by expanding into Georgia may qualify for the following state and local benefits:
Just be aware that you’re in the best position to negotiate these incentives while still weighing your options. In other words, lock in those incentives before you lock in the lease.
The takeaway: The moment you start considering building in a new jurisdiction, ask: Are there any incentives or credits to help us fund some of this? If you don’t know, reach out to a state and local tax incentives expert.
That “Oh, no!” moment: Internet sales of your newest product exploded last year. Now, you’ve received failure-to-file sales and income tax notices from multiple states.
When sales are up, it’s easy to ride high on the euphoria of success. But navigating the complexities of state and local tax (SALT) laws can put a damper on the party.
Since the Wayfair decision came down in 2018, every state that imposes a sales tax has enacted an economic nexus provision — in other words, they can (and will) tax out-of-state sellers with no physical presence in the state. These days, even small retail companies sell to customers in other jurisdictions, so just about any business can get caught off guard by these nexus laws.
In some cases, you might be able to reduce your tax bill in your home state while achieving compliance in other states. For example, a California-based eSports team saved $1.65 million in taxes after conducting a sales sourcing study. The analysis revealed that the company had been dramatically overpaying California income tax while under-filing and underpaying in other states. As this company discovered, being proactive can mean the difference between claiming a sizeable refund — or owing way too much in back taxes, penalties and interest.
The takeaway: As your sales grow, it’s practical to engage a state and local tax expert to run a SALT health check on your operations. If that analysis uncovers tax responsibilities in other jurisdictions, you may be able to negotiate amnesty through a voluntary disclosure agreement.
The “Oh, no!” moment: You discovered your business is subject to sales and income tax in a new state — solely because a newly hired remote employee lives there.
The pandemic loosened the physical ties of employment. It also created new headaches for businesses grappling with the state and local tax implications of remote employees.
If an existing employee moves out of state, or you hire an employee in a state where you don’t already have a tax-filing responsibility, you could open your business up to an entirely new entity-level state tax. Many cities also have entity-level taxes that can be triggered by an employee’s physical presence there.
For example, if the employee is customer-facing and generates significant revenue for the company, you might incur new state and local income taxes — and that’s on top of any sales tax if they’re selling taxable goods or services.
Depending on your company’s tax profile, the added tax bill might be just a drop in the bucket. Still, it’s worth asking, “What’s the tax impact of this new hire or move?
The takeaway: Before you enter into an employment contract, make sure you understand the total cost of hiring that employee, including state and local tax implications. And consider a policy that says employees who move must inform HR within a certain amount of time.
If you’ve been blindsided by the tax consequences of business investments, it’s likely because you’re missing a critical perspective at the decision-making table — tax strategy.
It’s understandable. Running your business involves many complex, time-sensitive decisions that must be made quickly. It can seem counterintuitive to slow things down by adding another voice to the conversation. But, understanding the short- and long-term tax implications of business decisions could save you much more than just the angst you feel when you discover you missed out on ways to reduce your tax bills.
Proactive tax planning needs to be part of your long-term business planning. Taking a more thoughtful approach to tax strategy might just deliver tax savings that can unlock explosive growth for your business.
These are just a few of the common areas where you may be overlooking tax savings. By taking a deeper dive into the tax implications of your specific business situation and goals, you can uncover other missed opportunities. Find out how our business tax experts can help you incorporate a proactive tax strategy to accelerate your business forward.
Armanino has the industry expertise, tax credit experience and track record of customer satisfaction to best advise your tax credit incentive strategy and compliance needs.
Contact us today for a free assessment.
