The state tax arena is filled with variation, complexity, confusion and ambiguity, which has major implications for U.S. corporations, according to findings from Bloomberg BNA’s 2016 Survey of State Tax Departments, conducted for the 16th consecutive year.
The survey clarifies each state’s position on the gray areas of corporate income tax and sales and use tax, with an emphasis on nexus policies. For example, this year’s survey found that business travel via airplane from another state will create income tax nexus in two out of five states.
“Given the growing need for revenue, states are increasingly looking for new and unique ways to tax businesses,” said Bloomberg BNA Tax & Accounting editorial director George Farrah. “This survey provides the information needed to navigate an ever-changing state tax landscape.”
This year, all 50 states and the District of Columbia participated in the survey.
New portions of the survey this year address treatment of pass-through entities, reporting federal changes, and sales tax refunds and qui tam cases. The survey also features new sections for special industry sourcing rules, including airlines, radio and television broadcasting companies, and oil and gas.
“We come up with new questions by looking at hot topics in the world of state tax, as well as areas of particular complexity,” said Melissa Fernley, managing editor in State Tax. ”We will add in a question or a series of questions so that we can get a straight answer from the departments, sometimes even before states release official guidance.”
“One growing area of complexity is nexus,” she said. “This year we asked the states whether employees flying into the state on a commercial airline for business purposes one to four times per year would create nexus in the state. Twenty states (2 out of 5) said that it would create income tax nexus. This at first seems surprising, but it indicates how states are looking to increase their revenue in any way possible, and are becoming more and more aggressive with their nexus policies.”
Survey findings include:
• Use of a contract carrier such as FedEx or UPS to deliver goods in a state will create sales tax nexus for remote sellers in one out of four states.
• States are still unable to reach a consensus on how to source income, potentially leading to double taxation for companies. Complicating the issue are the myriad industry-specific rules imposed by the states.
• States are split on whether they require pass-throughs such as partnerships, S corporations and real estate investment trusts to apportion their income using the same rules as corporations. Only six states have rules that are specific to pass-throughs, so many taxpayers lack guidance in this area.
• Adjustments to tax returns by other states, municipalities or foreign governments do not trigger a reporting requirement in most states.
• Only one in 10 states has consumer protection laws that allow purchasers to bring class actions against vendors for over-collection of sales tax.
“Navigating through the states’ different tax policy positions has not gotten any easier,” said Fred Nicely, senior counsel at the Council on State Taxation. “What is nice about this survey is that businesses and practitioners have all the state tax administrators’ responses to an issue, and state-by-state comparisons can be made.”
A complimentary copy of the survey is available for download at BloombergBNA.com.
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