rs-multi-state-tax-compliance-representation Archives - Page 2 of 4

Why Do You Describe Multi State Sales Tax Compliance as the Ticking Time Bomb for Companies?

April 23, 2026July 16, 2020 by Brotman Law

Well the reason I do is because the issue has often been ignored. What happens in the course of a company, even in particularly large companies, is you get a group of executives together – you get a controller, you get a CFO, the whole financial team, etc. – and you’re chugging along but nobody actively realizes what the consequences are and what the nexus activities are in other states. A company can go along and organically create nexus for itself by just a few simple activities in other states. A company moves into a different state, you get some sales people that go there, you go visit a client a couple times a year and suddenly you have engaged nexus creating activities in that state depending on the individual laws and the jurisdiction of that state. Now the problem is is that once you’ve created nexus, it’s not like you can take it back. you’re either pregnant or you’re not pregnant. So when you have a nexus creating activity there, you’ve touched that state and so the big issue is

Key Takeaways

Well the reason I do is because the issue has often been ignored. What happens in the course of a company, even in particularly large companies, is you get a group of executives together – you get a controller, you get a CFO, the whole financial team, etc.
that because most companies don’t realize this, because they’ve triggered nexus in some way shape or form either through a customer relationship or through an employee relationship or any another channel partner, they have created a liability for themselves.

Business in Multiple States and Have Not Filed a Sales and Use Tax and/or a State Income Tax Return

April 23, 2026July 16, 2020 by Brotman Law

Key Takeaways

In those states, well this is the hole rule.
The rule when you’re in a hole is number one, stop digging and number two, measure the hole so that you can dig your way out of it.
So the easiest thing for companies to do is to look at their exposure in the multiple states that they’ve potentially created nexus in and try and peg the date that Nexus was created.

In those states, well this is the hole rule. The rule when you’re in a hole is number one, stop digging and number two, measure the hole so that you can dig your way out of it. So the easiest thing for companies to do is to look at their exposure in the multiple states that they’ve potentially created nexus in and try and peg the date that Nexus was created. This can be a little difficult but the good news is in California, for example, California is one of the more aggressive states when it comes to multi-state tax issues. The reason is California figured out it could tick off a lot of people who are out of state by trying to collect tax from them and those people don’t vote so there’s no harm but the reality of the situation is if California doesn’t have cameras on its borders, it’s not tracking your cell phone movements. For the most part, it’s not really going to have any record of your Nexus creating activity in most cases so the good news is this isn’t about what you’ve done. It’s partially about what California knows and how likely it is that you’re going to get caught. So number one is to measure your exposure. Number two is to measure the likelihood that you’re going to get caught and where companies really start having issues is when interacting with other companies. So for example, if you’re going out and doing a bunch of prospecting and none of those potential clients sign up with you,

What Are the Opportunities That Are Available for Multi State Tax Planning?

April 23, 2026July 16, 2020 by Brotman Law

Well the reality of the situation is there are tremendous opportunities and the opportunities exist because most people aren’t doing this correctly. What we’ve seen at our firm is we’ve seen a huge lapse in the number of CPAs that are catching these issues when they’re filing companies’ normal federal income tax returns. Everybody is focused on the federal and compliance in the state that they’re in and nobody is concerned about potential planning opportunities that exist outside of that state’s borders. So we deal with this a lot in California, because here we’ve got a nice high over 13 percent tax rate for state income and everybody is trying to get out of paying that level of income tax either on the corporate level or on the individual level. So the reality of the situation is for companies in California, they want to try and bifurcate as much of their sales outside the state of California as they can. California makes it really tough for a variety of reasons but the reality of the situation is that most entities have presence in different states in one way or the other so particularly for large organizations with either multiple offices that are spread out, manufacturers with maybe a manufacturing plant, people that are storing inventory in various locations or a variety of ways that people touch different states you might have an argument.

Key Takeaways

Well the reality of the situation is there are tremendous opportunities and the opportunities exist because most people aren’t doing this correctly.
The Nexus of your company goes beyond your state’s borders and there’s a variety of planning opportunities just based on an arbitrage of your state tax rate instead of paying 13 percent. What if we paid a blended tax rate of 7%.

Out of Compliance for a Multi State Sales and Use Tax or Multi State Income Tax Issue

April 23, 2026July 16, 2020 by Brotman Law

if I Discover I’m out of Compliance for a Multi-State sales and Use Tax or Multi State Income Tax Issue? Should I pursue a voluntary compliance program? The answer to this question is maybe and what drove me crazy your back when wayfarer was a huge issue and when companies were scrambling to try and deal with this his everybody was talking about let’s enter into a voluntary disclosure program as quickly as possible the reality of those programs is they were great deal from the states because they were raising revenue and collecting all sorts of taxes but they were bad news for most businesses just because you do business in multiple states doesn’t mean you have all this free cash flow to support paying a whole bunch of back tax liability but a bunch of people panicked a bunch of people registered for these voluntary compliance programs in these states in order to avoid penalties and maybe get a potato production of the interest rate but to what effect so the more practical and concern is is rather than whether.

Key Takeaways

if I Discover I’m out of Compliance for a Multi-State sales and Use Tax or Multi State Income Tax Issue?
Should I pursue a voluntary compliance program?

Doing Business in a State I Have Not Filed Returns and I Am Contacted for Audit

April 23, 2026July 16, 2020 by Brotman Law

Key Takeaways

Okay so the first thing that you do is not panic.
I know it’s a big issue, I know there’s potentially a lot of liability on the table but the important thing is let’s not go crazy.
So the most important thing that you can do is cut off communications with the company to the auditor meaning the company should not be communicating with the auditor directly.

Okay so the first thing that you do is not panic. I know it’s a big issue, I know there’s potentially a lot of liability on the table but the important thing is let’s not go crazy. So the most important thing that you can do is cut off communications with the company to the auditor meaning the company should not be communicating with the auditor directly. The more information that the company provides the auditor, the more likely that the auditor will issue an assessment not in the company’s favor. This is particularly true for companies that have historical Nexus in a state for multiple years and that have maintained some sort of presence there via the activities of their employees or holding inventory or whatever. So you need a third party representative because a third party representative, specifically an attorney, will be able to deflect the questions of the auditor and be able to mitigate any immediate danger. The first thing that I would tell an auditor in the situation where I have a client that’s not in compliance is going through an audit is hold off while we assess the situation. This gives the company enough time to breathe, gives enough us enough time to investigate the data and going back to the whole rule, how big is the hole, how do we measure it, and then it allows us to put a plan in place to strategize how we’re going to control

Recent Case History Impact in Multi States

April 23, 2026July 15, 2020 by Brotman Law

Key Takeaways

Topic: Recent Case History Impact in Multi States
Read the full article below for complete details on this topic.

So I Want to Talk About the Recent Case history that has impacted the multi-state landscape and how we got to the place that we’re at today so the first case I want to talk about is complete auto transit versus Brady so complete auto transit versus Brady basically set up a system where the states are free to make independent judgments about what goes on in their state borders absent any sort of federal preemption so what that means is if the federal government hasn’t ruled that something is a national activity and it falls under the Commerce Clause of the Constitution that essentially the states can control what’s in their own borders so that was the first major case because it gave the states the power to basically operate as they see fit within their borders the second case is a case called quill quill was a Supreme Court case in the nineties and quill is significant because well basically ruled that unless a company or an individual had sufficient minimum contacts with a state that the state couldn’t charge sales or use tax and so this was significant because for the first time it mandated that company at least had to have some basic physical presence or some substantial contact in order for a state to mandate that a charge sales and use tax so quell was an extremely unpopular decision it states.

Multi State Tax Issues

April 23, 2026July 15, 2020 by Brotman Law

Multi state tax issues don’t just impact businesses. In fact they impact people probably a lot more than they impact businesses. The reason for that is people move around a lot more than businesses do. So think of it this way. You have a situation where you have a client who’s in one state and they travel back and forth frequently between let’s say California and Texas, California has a 13.3% individual income tax rate, Texas has a 0% individual income tax rate. So the amount of tax that the taxpayer pays based on their movements between different states is going to depend on the residency of the particular taxpayer. Now residency is closely tied with domicile, which is a legal term. The domicile is essentially somebody’s home base so once you move into a home and take steps to establish your domicile in one state, that state becomes your tax home however until you establish a domicile in that state or until you more specifically move your domicile outside of a state, that’s where you run into problems. So take for example California that’s been super aggressive in dealing with some of these issues.

Key Takeaways

Multi state tax issues don’t just impact businesses. In fact they impact people probably a lot more than they impact businesses. The reason for that is people move around a lot more than businesses do. So think of it this way.
In order to survive a residency audit for California you’re going to need to prove that you are a resident of that particular state that you took steps to establish the domicile. So there’s a variety of factors that go into this.

I Make Sales to Customers in Multiple States. Do I Owe Tax?

April 23, 2026July 15, 2020 by Brotman Law

Key Takeaways

Topic: I Make Sales to Customers in Multiple States. Do I Owe Tax?
Read the full article below for complete details on this topic.

I Make Sales to Customers in Multiple States. Do I Owe Tax? Well you might owe tax and the reason for it is a lot of us are used to the old way which was shipping products into another state and not charging tax because you’re not in that state why would you charge tax but the way that the legal framework has really shifted is in allowing States to collect tax against companies even if they don’t have physical presence within their borders there’s been a lot of lost revenue for states with the proliferation of business being done on the internet you know we’re talking about billions and billions of dollars in lost revenue so the states have responded by creating these very broad statutes that are designed to allow them to collect tax against out-of-state businesses if they have a certain level of activity in their state so it’s really important from a state perspective that you go through your business activities and figure out if you have sufficient minimum contacts with that state and whether those minimum contacts would obligate you to collect either state income tax or state sales tax.

Is Applying for a Tax Amnesty or Going Through a State’s Voluntary Compliance Program a Good Idea?

April 23, 2026July 15, 2020 by Brotman Law

Key Takeaways

So it’s difficult for me to answer that question for everybody because it’s a highly fact-specific question but generally the way that I view state amnesty plans or state voluntary disclosure plans…
The states have created this great deal for themselves.
They’re not going to waive any of the interest or they may waive the interest but basically they don’t have to do anything and they have all these people coming forward and saying we owe tax pay ov…

So it’s difficult for me to answer that question for everybody because it’s a highly fact-specific question but generally the way that I view state amnesty plans or state voluntary disclosure plans is kind of like a sucker’s bet. The states have created this great deal for themselves. They lack enforcement mechanisms to go after a lot of multi-state taxpayers and so what they’ve done is they’ve created a program that if you come forward and you pay all the tax that you owe for let’s call it three years, they’ll be kind enough to waive the penalty portion. They’re not going to waive any of the interest or they may waive the interest but basically they don’t have to do anything and they have all these people coming forward and saying we owe tax pay over the tax. In some cases it’s a great way of mitigating liability, particularly if you have Nexus or minimum contacts in a state that exceed or greatly exceed the disclosure period for the voluntary disclosure. So it’s not like a pocket no, but at the same point it’s not a pocket yes either. It’s all these companies that tend to think that by going through voluntary disclosure and just paying over all this tax it’s the best thing and the problem is from a financial perspective, that may not be the best course of action for the business. You might not want to go through voluntary disclosure. It may not make sense to go through voluntary disclosure, it may not make sense to participate in the amnesty, so before you make that decision, before you jump into “I’m gonna go through voluntary disclosure,” “I’m gonna go through amnesty,” “I’m gonna subject myself to jurisdiction in this particular state,” back up. Look at the landscape of the company, look at all of its sales activity, look at all the places that it potentially is exposed to and then make a plan based on what the best thing for the company is. It’s not a great thing for the company if the company has to pay all these past due sales taxes and state income taxes and go insolvent. You’re not helping anybody so the important thing is build a plan, create that plan and then strategically use voluntary disclosure programs and amnesty programs to accomplish your objectives. That’s the much better way to leverage those and it’s the better way to know if they make sense for your business.

What Is Nexus? Do I Have Nexus in California?

April 23, 2026July 15, 2020 by Brotman Law

Nexus is a legal term and what it means is essentially a code for the level of minimum contacts that you have in a state. Minimum contacts can include:

Key Takeaways

Nexus is a legal term and what it means is essentially a code for the level of minimum contacts that you have in a state.
Third party contacts can be independent contractors or vendors.
These contacts would tend to trigger Nexus in a particular state so if you have that level, you meet the Nexus threshold.