How to Minimize Multistate Tax Compliance Risks
If you conduct business in states other than California, you are responsible for sales tax in not only California, but other jurisdictions where transactions occur. And, you might be blissfully unaware of it.
California and other states have wised up to this and have begun aggressive collection efforts against multistate business. Amazon sellers have been hit particularly hard. This trend will continue to get worse as e-Commerce continues to grow at its current pace.
The best offense is a good defense and for business owners, that means being in sales tax compliance in the state you do business in. Where do you begin? You need to have a strong multistate compliance plan in place to avoid surprise tax bills, or worse, a sales tax audit.
My advice is to call me and we can discuss your situation and devise a tailored compliance plan. Your immediate reaction is probably, “Are you kidding me? No way can I afford a tax attorney.” I completely understand, but hear me out.
The investment you make in working with an experienced tax professional to implement a sound multistate tax compliance plan will be far less expensive than paying a huge back tax debt or defending yourself in an audit.
In this chapter, I am going to tell you about my firm, Brotman Law, what to expect from our services and an estimate of our fees.
Have a Tax Attorney in Your Corner
I, Sam Brotman, along with the senior attorney team and staff, are all highly skilled in helping clients navigate and overcome these difficult situations. We are successful at serving our clients not only because we understand the tax law.
Understanding the law is simply a prerequisite to advocate for clients. However, what makes us distinctive is that we have a deep and holistic understanding of the tax levying and collection procedure.
We understand not only the way the law is written, but also how that law is enforced across various jurisdictions. Having this knowledge makes us well equipped to counsel and defend businesses grappling with multistate tax compliance issues.
Another reason our firm excels at multistate tax issues is that we focus heavily on representing businesses.
In fact, most of our clients are businesses or business owners, and many of them are based outside of California. We work with other organizations that do business across various industries including professional services businesses, manufacturers, retail and hospitality, to name a few.
In addition to utilizing expertise to counsel our clients from a tax perspective, we also invest the time to understand our client’s business processes so that we may recommend tax planning and compliance strategies that are tailored to their specific needs.
We aim to minimize compliance risks when it comes to our clients’ potential tax liability. We also try to minimize cost, both in terms of tax liability and compliance efforts, while maximizing efficiency and value when it comes to the services we offer.
We recognize the importance of looking at tax planning and compliance from a business perspective. This is what distinguishes us from most other firms, as many lawyers are not trained or experienced in creating solutions that take clients’ business needs into account.
Many attorneys, for example, do not understand the value of taking a business’ cash flow into account when strategizing with clients on compliance or defense plans. They may provide cookie-cutter advice that does not take into account a business’ financial resources or other specific organizational needs.
When we approach a multistate tax issue, we are goal-focused and devise plans based on the individualized facts that the client brings forth. This philosophical difference sets us apart from many law firms and has played a pivotal role in making us successful in this arena.
If you are interested in our services, we can discuss where your company is at in its tax compliance efforts and the challenges you may be facing. Let us help you talk through your potential options.
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How Much Does It Cost to Defend Multistate Tax Issues?
Cost is evidently a major concern for potential clients and our firm prides itself on transparency in this regard. While the entire cost is variable depending on the nature of the service and the time it will take to complete the work, our hourly rates may help you get a better idea of what to expect.
My hourly billing rate is $525 an hour and our junior paralegal bills at $150 an hour. The rest of our attorney and staff bill at rates that are in between the aforementioned numbers.
For most multistate taxation issues, the essential part of our services is the strategy counseling. For many clients, a paid consultation suffices. At a consultation, we sit down with clients for 60 or 90 minutes and develop a strategy. In some cases, the client can proceed on their own and execute that strategy without any further assistance.
In other cases, some clients may opt for our assistance in executing the plan that we have devised for them. In those situations, the work is normally divided between our senior attorneys, who bill anywhere between $350-$525 an hour, and our paralegals’, whose rates are between $150-$225 an hour.
At our firm, maintaining a consistent level of efficiency is a top priority. We do not wish to bill anyone more than necessary. Instead, we want to ensure that billing is commensurate with the time spent and the quality put forth.
To manage the efficiency of our services, we work in phases. Our first step is always to develop a strategy together with our clients. After developing a strategy, we work towards its execution.
Not only does working in phases make the process more seamless for clients, but it also makes it more cost effective. Most importantly, however, working in phases ensures that you will get the most value out of the expertise that our firm has to offer.
While multistate tax planning may feel like nothing more than a burden or a chore, there are actually some benefits beyond simply staying out of trouble.
By taking control of your multistate tax planning, you will be able to capitalize on opportunities unique to you that many people may miss due to a lack of knowledge and preparation.
Time and again, we work with clients whose CPAs are laser-focused on compliance and planning at the federal tax level, so much so that they often overlook the potential planning opportunities at the state level for jurisdictions outside of their own. This issue is especially common amongst clients and CPAs in California, where there is currently a 13 percent state income tax rate, an already comparatively high percentage which could see another hike soon.
Both at the corporate and individual level, clients want to do all that is possible to lower their tax burden. As a result, most companies in California devote considerable effort to diverting as much sales outside of the State of California as possible.
There are a variety of planning opportunities just based on an arbitrage of your state tax rates. Instead of paying 13 percent, for example, perhaps you may opt to pay a blended tax rate of seven percent.
That would be a six percent savings on corporate income which, depending on the earnings of your business, can translate to a hefty savings in dollars.
As demonstrated by this example, you may derive some tangible benefits from multistate tax planning and savvy companies are honing in on these advantages.
For this reason, nexus laws are double-edged swords. On one hand, they are highly favorable for states because they enable states to collect additional revenue from more people who are transacting within their borders.
By extension, this creates more compliance headaches for individuals and businesses. On the other hand, you can use these multijurisdictional reaches to your advantage, especially if your home state already has a higher than average tax rate.
Say you are a California resident with a business based in the state and you extend your operations to a jurisdiction like Georgia. Georgia’s taxes are significantly lower than that of California and if possible, you would likely be delighted to figure out how to have your transactions taxed at Georgia’s rates.
Keeping various states’ tax rates in mind will be just one tool in your tax-saving arsenal.
Such knowledge about the varying tax rates and regulations across states will enable you to plan for the future when you scale and grow your business. Having a plan in place before you extend your operations out-of-state is all the more crucial given the states’ move towards making the laws more stringent and the compliance enforcement more aggressive.
Not only should you optimize the business from a tax-saving perspective but you should also optimize it from a risk-reduction perspective, which is equally as valuable. Doing so will allow you to more fully take advantage of the opportunities that multistate planning presents.
Could You Save Money on Multistate Tax Issues?
If you or your company has a presence in multiple states, investigate what such presence means for your organization from a tax standpoint. You may be surprised to learn that your business could save LOTS of money by making some changes in where or how you operate.
That is why it is prudent to consult with a tax attorney on multistate tax issues. We are training to interpret the laws and apply them to your unique situation. You were probably pleasantly surprised to read that it does not cost as much as you feared.
Brotman Law's personalized approach is to develop a compliance plan specific to your business. This is much better than cookie-cutter template approaches that other firms often use. In the long run, you will save time and money dealing with sales tax headaches. You can spend your time growing your business.