February in the SALT Practice: Client Meetings

It’s February and you’re in the heart of busy season. Starting a new process for organizing and monitoring state and local tax chores and obligations is really not feasible at this point in time, but there are some best practices you can employ that will help you make sure you’re approaching this complicated area of taxation in the most effective way possible.

Confirm with your clients all of the states where they are doing business. Be prepared to explain how the term “doing business” relates to each client and the type of work that they do. This requires some knowledge of how each state defines “doing business.” You don’t have to have this information at your fingertips. Obviously you should know the rules for the state(s) where you have your own office(s), and your neighboring states as well, but beyond that, it’s okay to tell your client that you have to do some research if the client announces that some type of business is being conducted in a state you haven’t worked with in the past.

Know the nexus rules for each state where your client is doing business. Nexus determines whether your client has enough of a connection to the state to have to pay taxes there. Nexus rules have changed in recent years, so if your knowledge is dated, make sure you get up-to-date with the rules for each state.

Inquire as to the frequency of your client’s business within different states. Sometimes occasional and one-time sales constitute doing business in a state, and other times they do not. Once again, it’s in your interest to learn the specific laws of the states where your clients are conducting business transactions.

Determine the income subject to tax in each state where your client is doing business. Each state is entitled to create its own laws regarding taxability of various items, so knowing the rules in your own state doesn’t mean you automatically understand how items are taxed elsewhere. Not only do you need to know the laws for what types of items are subject to tax, but also you need to know what constitutes a sales within the state. For some states, the state from which you make the sale has the taxing authority, for other states, it’s the state to which you are shipping. Sales tax rules and income tax rules don’t always go hand-in-hand, so make sure you check for both.

Determine tax deadlines and create a year-long schedule to make sure all deadlines are met. Whether it’s income tax, payroll tax, sales tax, or property tax, make sure you know all the deadline requirements. Setting up a schedule for the year will help you and your client be proactive about preparing for and meeting deadlines.

Consider credits and incentives in each state where your client is doing or might do business. Many states offer a variety of incentives to attract and retain business. If your client is already doing business in a state or is considering launching new operations, make sure you are aware of available incentives.

Designate a registered agent in each state where your client is doing business. Taxing authorities require every company with nexus in a state to have a registered agent in that state. This is the person or entity that has been designated to receive legal notifications on behalf of the business.