Reitz says tax concerns used to play less of a role at Titan, as the rate was something he and his fellow executives “just accepted” and didn’t spend much time thinking about. Now, however, “as we go forward on a global basis, the effective tax rates where we source our product and where we produce our product will impact all of our decisions,” he says.
At Consolidated Graphics, finance chief Jon Biro says the company is fortunate in its relative insulation from foreign competitors in lower-tax regimes, given that commercial printing is a fairly local business. Still, like Reitz, Biro says tax issues play a major role in decisions about where the $1.1 billion company will expand overseas. “We definitely think about the tax rate we could have to deal with if we expanded in certain jurisdictions,” he says.
Bonus depreciation — the ability to deduct 100% of the firm’s capital investments in the United States before 2012 and 50% thereafter — has also been a big issue for Consolidated Graphics, and one that will affect the timing of its capital expenditures. “We may pull forward some investments to take advantage of that [program] as it nears expiration,” Biro says.
Don’t Forget the States
Finance chiefs struggle with federal and state tax requirements nearly equally — 50% say they find federal tax compliance the most challenging, while 49% say state tax regimes are worse. Kocol, whose employee-owned company is exempt from federal taxes, says franchise tax concerns and nexus issues pose the biggest problems for Mapes & Sprowl at the state level.
With many jurisdictions trying to expand the definition of what constitutes nexus, or a taxable presence in their state, finance chiefs are finding that they need to file in many more places. “The annual return package my accountants prepared used to be a quarter of an inch thick,” says Kocol. “Today, because of all the states that are claiming nexus, it’s more than two inches thick.”
Biro is spearheading an effort to ensure tax compliance in the 27 states where Consolidated Graphics does business, working with outside auditors to carefully document all of the company’s tax positions. “Our belief is that the states, as well as local governments, are going to be a lot more aggressive in finding new sources of revenue,” he says. “So we are focused on making sure we are doing everything on the straight and narrow” (see “State Insecurity,” April).
Biro’s fellow finance chiefs are also leaning heavily on outside advisers for help managing their tax obligations; 85% of them rely on external tax assistance. Half of all survey respondents spend more money today on tax help than they did five years ago, while only 6% spend less. And 48% expect to spend more over the next five years.
For now, finance chiefs are waiting to learn whether any of the hotly debated changes to the tax code will materialize. Until then, they need the help. Indeed, says Kocol, “I don’t see how anyone can manage tax themselves in today’s environment, with the need for current knowledge, the complexity, and the fact that you have to focus on running the business as opposed to filing tax returns.”
Kate O’Sullivan is a deputy editor at CFO.