Intersection of growth strategy and tax planning
When your business is focused on growth, it needs to consider tax planning and the resulting tax impact of that expansion. In this brief video, E.J. Nedder and Tony Urban share some key tax areas you should consider as part of your business growth planning. Find more about these and other insights in our business growth resource center.
Intersection of tax planning and growth planning: What you need to know...in a nutshell
Every aspect of growth planning has tax implications that create a lot of risk and opportunity alike. It’s very important to incorporate tax planning in your growth planning if you want to achieve your business and economic goals. There are some big picture questions that can help identify those tax planning opportunities.
How are you adding products, services or facilities?
Investing in business activities [can] on one hand create some tax incentive opportunities, but you'll also have to be worried about potential tax filing obligations as well. When you're looking at reporting requirements; there are also potential tax deductions for things like research and development, training, hiring. If you're expanding or renovating for example, there are property tax issues that you need to look at as well as potential cost segregation opportunities. It's vitally important to consider tax planning when you're looking at potential investments or expansion opportunities.
Where are your operations and customers?
As you enter new markets, whether it's in the United States or abroad, you start expanding your footprint from a tax perspective. You need to be looking at issues around state nexus and filing obligations that are created as a result of activities. If you think about it from an international perspective, you may be creating a permanent establishment or be regulated under the BEPS regime. BEPS, which is the Base Erosion and Profit Shifting legislation, is really looking to ensure that every jurisdiction gets their share of the tax base.
You're also seeing, from a state perspective, that states are trying to increase their share of tax base. They are becoming more aggressive in pulling more income into their jurisdiction. As you're entering new markets, you have to be very conscious about the footprint you're creating and the activities that you're entering into in various jurisdictions, whether it's in the states or global.
Is an acquisition part of your growth strategy?
Acquisitions bring with them a whole host of tax related issues. Some are great opportunities. On the front end you might be able to create a very tax efficient structure or to accelerate certain deductions. You might also be walking into an opportunity where there are tax attributes related to an organization that give you benefits—perhaps net operating losses or various credits.
You also have the other side though. You might be acquiring an organization that wasn't so diligent in how they handled their filings or how they paid their taxes. There are many taxes that could be impacted beyond just income taxes, such as sales and use tax, property taxes or excise taxes. You really need to be working hard in the acquisition process to not only identify those opportunities that might exist but also know the potential risks that lie within an organization.
How might external factors impact your growth plan?
The only thing we know for certain is that there's really no certainty in the world today. The middle market is very fluid, especially amidst global economic change that's happening and tax reform that undoubtedly is going to happen here soon. It's very important to be comparing your growth planning and growth strategies to the overall economic environment. Tax planning needs to be part of your growth planning, because it's a big part of getting bigger.