Stingers: The 2004 State Tax Survey

Tough times can make for tense relations between corporate tax executives and state tax authorities. Our survey suggests that even if economic conditions improve, the stage is set for more contentiousness than ever.

  1. Pennsylvania
  2. Massachusetts
  3. California
  4. Louisiana
  5. Alabama

Black and White

When it comes to settling “gray issues” at the auditor level, which states’ auditors are the most unfair or least able to avoid escalation of these issues?

Worst Auditors

  1. New Jersey
  2. California
  3. Massachusetts
  4. Illinois
  5. North Carolina

Friends of Geoffrey

New Jersey again had the dubious distinction of leapfrogging into the lead among most-aggressive states, despite losing the Lanco case. Also notable is Maryland’s appearance among the most aggressive states on this map after its courtroom win arguing that certain Delaware holding companies were tax-sheltering shams. Not surprisingly, this map corresponds closely to the map of states that have passed or are considering legislation disallowing company deductions between affilliated companies.

Which states are most aggressive about asserting nexus positions for corporate income tax over corporations with only an economic presence in the state?

5 Most Aggressive

  1. New Jersey
  2. Massachusetts
  3. New York
  4. California
  5. Connecticut

Legislative Disallowance

A growing number of states have passed legislation disallowing deductions for transactions between affiliated companies. In 2003, such legislation was considered, but not enacted, in Maryland, Missouri, Pennsylvania, Rhode Island, Tennessee, Texas, and Wisconsin.

Legislative Repo

Which states’ legislatures are likely to eliminate or reduce existing business tax incentives this year?

Most Likely

  1. California
  2. New Jersey
  3. Massachusetts
  4. Illinois
  5. Connecticut

Grabbing for More

Which states are most aggressive about assessing additional tax based on forced combinations and decombinations, IRC ss.482 issues, or business/nonbusiness classifications?

Most Aggressive

  1. California
  2. New York
  3. Massachusetts
  4. New Jersey
  5. Illinois

Clawbacks

Which states are likely to pursue clawbacks of individual company incentives this year?

  1. California
  2. New Jersey
  3. New York
  4. Massachusetts
  5. Illinois

You Are Here

When it comes to aggressively asserting sales-tax nexus, California has held the number-one slot since CFO conducted its first state-tax survey in 1996. Asked if new governor Arnold Schwarzenegger’s business-friendly attitude would extend to addressing California’s aggressive audits of out-of-state companies, spokesman H.D. Palmer said, “I can’t speak to that specific issue,” emphasizing instead Schwarzenegger’s efforts to aggressively audit the state’s own government, and his hopes to improve the climate for California-based businesses.

While no state comes near California’s dismal ranking, New Jersey placed a close second, once again making its first appearance among the top-five aggressive states. Its poor ranking in this category could simply reflect general corporate displeasure with the Garden State’s recent tax-law changes—which did not include sales-tax changes—but its prodigious leap to the number-two slot suggests its nexus unit has in fact been busier than in the past.

Although long considered an aggressive sales-tax collector, Texas is also a newcomer to the top five. The Lone Star State has recently toyed with such heretical ideas as a state income tax, but it hasn’t made significant changes to sales tax. Nonetheless, our survey results—and write-in comments—suggest that the state has significantly increased its nexus efforts. Brian Murphy, Grant Thornton’s partner in charge of state and local taxation, says Texas is among the many states that have recently beefed up their nexus units, an impression shared by one respondent who groused, “Texas must have an unlimited audit staff.” —T.R.

How would you rate this state’s stance on asserting sales/use tax nexus?

5 Most Aggressive

  1. California
  2. New Jersey
  3. New York
  4. Massachusetts
  5. Texas

Discuss

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