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More than 90,000 jurisdictions make state and local tax compliance one huge challenge
Is your company effectively addressing all of your filing requirements?
With 50 states and the District of Columbia, state tax compliance is complex enough. Throw in a total of more than 5,000 jurisdictions collecting income taxes, more than 8,000 collecting sales and use taxes and more than 80,000 collecting property taxes, and the real complexity of state and local tax compliance starts to come into focus.
For companies operating in multiple jurisdictions, the challenge of compliance boils down to this—how do you translate the tax impact of your business activity on the right form to the right jurisdiction on a timely basis? Here are some issues to consider:
- Make sure you understand all of your filing obligations. With so many jurisdictions collecting taxes of every kind, it can be easy to miss one, especially at the local level. But local taxes have some of the highest audit rates.
- Once you’ve identified all the appropriate taxing jurisdictions, start gathering the forms and rules. Not all forms are available on line, and the filing rules sometimes are confusing or even seem to conflict with the law. Budget time to deal with these uncertainties.
- Do you have a high degree of uncertainty on any of your state and local tax positions? Should you be booking a reserve? If so, for how long?
- If you uncover any compliance failures, what’s the best approach for getting back into compliance? Does the jurisdiction offer a voluntary disclosure program?
- Given the substantial workload that state and local tax compliance can put on your resources, be sure to take a close look at your back-office functions and software. The right tools can make a huge difference. Be sure to update them as needed—changes in the tax laws are frequent given the number of jurisdictions.
- Does outsourcing make sense? If dealing with state and local tax compliance is straining your resources and diverting focus from key needs, outsourcing may be a good option.
- Compliance can also be an opportunity. If you face underpayment issues in one jurisdiction, make sure there isn’t a corresponding overpayment in another. Reverse income and sales and use tax audits also frequently uncover refund opportunities due to overpayments or errors and oversights on returns
- Be sure to check property tax valuations and personal property tax records. Real property is frequently overvalued by local assessors, and many companies keep obsolete or ghost assets on their books, driving up tax bills.
State and local tax compliance is very complicated, but ignoring it can be extremely expensive. Taxing jurisdictions at all levels are strapped for revenue and many are ramping up their enforcement efforts. Effective compliance is vital.