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  • CFO Magazine

Taxing Their Patience

The Affordable Care Act's medical-device tax and a proposed Internet sales tax could rile CFOs in 2014.

David Seiden, a partner at Citrin Cooperman, an accounting advisory to middle-market companies, says states are so competitive for business that they try “to push the envelope of nexus as far as possible.” They will continue to do so until Congress passes a law like the Marketplace Fairness Act or the Supreme Court defines what nexus is, says Seiden.

As it stands now, nexus, according to Supreme Court definitions, is too vague, and hybrid versions of the term that states use in practice, such as “economic nexus,” leave the door open for interpretation by states. The tax, Seiden says, could take away a state’s ability to differentiate itself from others.

The nuances that exist in state tax laws, after all, can be the deciding factor for a business to operate in one jurisdiction or another.

The same can be said for state tax incentives, which are equally important bargaining chips to win over business. The September CFO survey of finance executives showed that 28% of respondents, the second-highest tally behind business depreciation credits at 31%, said state and local tax incentives were the most important tax credit or incentive that will benefit their firm in 2014.

13Dec_Outlook_p33aDaniel Effron, tax partner and national leader of the state and local tax practice group at Marcum, a New York–based accounting and consulting firm, sees this first-hand. CFOs and corporate executives, he says, are not only seeking out new incentives, they are using them more to plan their businesses.

“We’ve done engagements where clients have actually relocated their businesses just to take advantage of certain state or local tax incentives,” says Effron.

States are realizing the lure incentives carry. California, for example, will grant a 50% reduction on sales taxes for qualifying manufacturing equipment beginning in July 2014 until 2022. New Jersey, meanwhile, launched its Angel Investor Credit in January, which provides for a tax credit of up to 10% of an angel investors’ qualified investment in New Jersey emerging-technology companies.

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