In 2018, in a case called Wayfair vs. South Dakota, the Supreme Court held that state laws permitting taxes against businesses without a physical presence in that state are constitutional. Wayfair was a sea change in the area of multi-state taxation (the last major decision on the issue from the Supreme Court had been in the early 1990s), but this area of law has not been dormant before that.
The proliferation of technology, advances in supply chain, and the explosion of the internet has made it easier than ever before to transact business in multiple states. All of these developments have caused the state governments, especially in California, to rethink the concept of doing business here. Unfortunately, many state ideas surrounding doing business here in California were for the benefit of the state collecting revenue (both from companies in and outside of California) rather than for the business community.
Today's multi-state tax system is a patchwork of a myriad of state laws and differing rules on what is taxable and not taxable in a particular jurisdiction. The problem is that many companies (and multi-state individuals) are just now waking up to the concept that their actions may have inadvertently subjected them to tax in different jurisdictions.
However, even before Wayfair, states were passing laws that expanded the concept of doing business. For example, in 2012, California passed Revenue and Taxation Code 6203 which broadly expanded the concept of doing business in California – and they are not the only state to do this.
Translation: your business could have exposure for activities performed in a state several years in the past and you have now exposed yourself to sometimes 5-6 years of past due tax liability for all your sales or income earned in a particular state. For many of our clients, up to 9.25% of all of their sales volume in California and in other states where they have not been collecting tax is not exactly small potatoes.
A quick word about residency. Many individuals that live in California or do business here are shocked to learn about the tax consequences of major life transition events (moving to a different state but maintaining some connection with CA, sales of companies or other exits, certain investments in companies within state lines, etc.). The capabilities of our multi-state planning and defense are not just limited to businesses, as we can utilize our skill set to assist individuals as well.
Our firm has been on the forefront of this issue as it has gained prominence and been thrust into the spotlight. We have saved our clients many millions of dollars of past liability (and many more millions in future liability) by utilizing sound tax strategies.
As a result, multi-state taxation, which deals with the laws of all 50 states, is one of the most difficult, challenging areas of law for individuals and businesses today. However, smart planning and business minded solutions is the cure for even the most difficult multi-state issues.
Sam, or one of our senior attorneys, will sit down with you or your company's executive team and discuss your individual situation. For individuals, we look at your residency and the history of your domiciles in and outside the state of California. For businesses, the analysis focuses on your operations and the infrastructure that you have in various locations as well as your sales activity.
Some clients are understandably a little freaked out by the potential for liability in California and in other states. Others feel upset by they are potentially subject to state sales/use and state income tax in a jurisdiction that they seemingly have little connection to you. While empathetic toward the situation though, our strategy sessions are about straight talk and in figuring out how to get you out of trouble and keep you out of trouble. Frequently, however, by arbitraging state tax liabilities over multiple states, there is potentially a substantial avenue for savings.
By the end of the meeting, you will have a strategy and a step-by-step game plan for moving through this process as quickly and cleanly as possible. These sessions, and the plan that comes out of them, are delivered to you without any further obligation to our firm, regardless of whether you retain us going forward.
There is alot that gets done in an hour, but usually our analysis does not just stop there. In order to resolve many multi-state issues, we need to take a deeper dive into the facts or into the numbers that matter the most.
We refer to this process as an analysis, but it is our senior team taking a closer look to see exactly how we can mitigate exposure and hopefully maximize your efficiency. In our experience, what we often find during our analysis is that the government’s proposed methods for bringing our clients into compliance are too costly to safely execute them.
There is more than one way to solve a problem though or to turn that problem from a problem into an opportunity. At the end of the process, our senior team will have outlined possible solutions and be prepared for a recommendation of what we think is best.
We then meet with you to weigh the different options we propose with a higher level of detail than we are able to provide in the initial strategy session. We will look at hard data, numbers, and the projected impact of certain actions. The goal of this conversation is to arrive at an agreement on the best option for moving forward.
Simply put: we execute the strategy that we have diligently researched in order to help you or your organization meet its objectives. Obviously the outcome of this execution varies from client to client, but the approach is the same. We work efficiently to manage resources and tackle the solution no matter how small or how complex.
For more complicated issues, we have developed a great network of outside resources who can help implement solutions that require service providers in multiple states or we can leverage your existing resources and team in order to train them how to carry the torch going forward (with us always available in a support role if needed).
Since 2012, multi-state tax law has been one of the biggest areas of taxation. States have come to the realization that they can earn large amounts of revenue by expanding their jurisdiction to include individuals and businesses in different states. State laws are draconian, they are difficult, and frankly, they are a bear in the way they affect small businesses.
Because this area of law is so highly specialized, there are very few people who practice it and fewer people that give good quality advice on the subject.
We designed our practice for all levels of business, so even if you are not a billion dollar company, you can look forward to receiving a comparable level of legal service from our firm in this specific area.
We essentially serve all the people that the largest law and accounting firms do not serve, from the $100 million company down to the small startup, providing guidance where there is currently not a lot of clarity in this area. If you are not a Fortune 50 company, but need help doing business in other states, we are more than happy to help you.
While these issues are very complex, in a lot of cases we can solve these issues with very limited involvement. So whether it is a consultation or a consultation with a little follow up work, oftentimes we can provide a lot of value for a very low cost.
With that said, for companies that have more moving pieces, where there is significant exposure, there’s usually a good amount of effort that needs to take place in the planning process.
For most cases, the cost to diagnose and build the plan is $3,500 to $5,000 with the implementation of that plan ranging from $5,000 to $15,000. However, some plans require very little or no effort on the part of our firm to implement once we have discovered a solution.