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Taxes below the state line.

Our company is registered for taxes in Alabama and Colorado. Looks like there are multiple municipalities that have their own rates. Don't mind collecting and remitting but it looks like these states don't centrally administer the taxes! What are the risks associated with just registering and paying at the state level? I am currently concerned with the excess admin time and costs.

Answers

Ross Anderson, CPA, MBA
Title: Controller
Company: TFS Capital
(Controller, TFS Capital) |

You have to get your local tax compliance set up; there is no best practice way around it. Basically, you can be fined and penalized and you can even lose the right to do business in the area. But compliance might not be terribly difficult to get set up. It is important to get your tax compliance set up in each state. It will take some time at first but after that the work is significantly less. Local income taxes typically are much simpler than state taxes. You can also hire a local CPA or other tax professional to help.

Anonymous
(Finance Director / Controller) |

We have decided to make this an ongoing monitoring activity. There are literally >100 local jurisdictions below the state level in AL, CO, and LA. This would be amount to > $10k in registration costs and blown up recurring filing costs (I estimate > $45k).

The problem with US taxation is that many of these places don't make it easy for business to give them their pound of flesh. Small companies do not have the resources.

Steve Banks
Title: Director of Operations
Company: O'More College of Design
LinkedIn Profile
(Director of Operations, O'More College of Design) |

In Colorado it is pretty easy to obtain the sales tax rates for each county and city through the state website under sales tax. I have found most states now offer that same type of information. The registration fees are usually less than $50 each. Yes, Ross is correct, no simple way.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

There are companies that will do everything from assist in filing to actually creating an API that calculates the correct tax.

Anonymous
(Finance Director / Controller) |

Wayne - we are using one of those companies. We have API integration / automated tax calculations and pay for tax filing support.

The total liability of these 100+ sub-jurisdictions is ~$4k per month in liability whilst the cost to file in each of them is approx. $40. or $4k per month. Add that to the one time registration costs and we don't think it is worthwhile at this point in time; though it presents some small risk. Via monitoring, we can register as these localities cross a threshold where the amounts become meaningful.

Definitely appreciate the cautionary advice everyone. Anyone have experience where one of these local jurisdictions have initiated enforcement action? I think we understand the textbook way to go; I want to vet our view on the "real" risks here.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I know NYS, CA and Michigan are extremely proactive.

Anonymous
(Agent) |

Is your business "retail" so you may have many locations and this is causing the problem? For entities with many locations, the business registration costs annually do add up and it is important to file on time annually so that you don't fall into the situation of operating without a valid entity. Without a valid entity, your contracts can be considered void, which could be a significant problem.

Your question is somewhat confusing because these kinds of registration requirements and SALT taxes are part of business in the US, and not generally an area of quandary. Is your company originally from outside the US and this is why you are seemingly unfamiliar?

You seem worried about every jurisdiction that might want to collect tax, rather than focusing on the jurisdictions you are registered to do business in. Most businesses operate in a few main taxable cities, even though state-wide there may be 2500 taxing jurisdictions. Generally businesses have an in house SALT group to handle the taxation requirements, an internal tax department or a designated tax accountant to handle the monthly filings, this is normal.

It could be time for your to reconsider your entity choice. If you have set up LLC's for each business location, this would cause a very heavy burden in tax filing.

Also, in these states, normally, there is a state general sales tax and then a local sales tax. The local taxes get apportioned to the smaller jurisdictions but only one return is filed monthly. If you are operating in Cities that require separate city sales taxes or business taxes based on headcount, then you will also file those monthly or quarterly.

In any event, I'm not sure I sense you have a complete understanding of the details you are asking about, so I suggest you put together an inventory of the business locations you have, and align them under the legal entities involved, so that you can visually see the number of returns you are dealing with. Then consider some legal or accounting sessions about how to best administer the requirements.

If you ignore the requirements, some liabilities are assessed personally rather than at the business level, and if you are a decision maker, the concern for you is to administer the requirements fully or face potentially legal violations personally.

Anonymous
(Finance Director / Controller) |

Anon - thank you for the thoughtful response. I believe the main reason for the gray nature of my line of questioning is that we are an e-commerce company.

Under the advisement of our tax consultants, we registered in multiple states. The entire area of whether we have nexus or not is gray. We took a proactive position in light of countrywide state trends and said advisement.

If we had locations in these places, it would be a slam dunk mostly.

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