Corporate State Tax Trends for 2016March 01, 2016
Economic nexus and transfer pricing will affect state taxes in 2016—What other trends are driving business this year?
This blog discusses some trends in state taxation for 2016 of which you should be aware. As states continue to look to raise more tax revenue and also make it favorable for companies to locate or stay within their state, it is important to be aware of the following trends:
- Single factor sales apportionment- More states are moving to a single sales factor for apportionment of income. For companies doing business in multiple states, the single factor sales apportionment can lower a company's taxable income apportioned to their home state and the tax. It will probably increase the tax they pay to other states using single factor sales apportionment.
- Factor presence and economic nexus- A growing number of states are assessing taxes (other than income taxes) on business entities organized outside of the state, based upon their prescribed amounts of payroll, sales or property within the state.
- Market-based sourcing of receipts- This involves sourcing receipts from services to where the customer receives the benefit, where the service is delivered or where the service is received. A number of states have moved or are moving to sourcing receipts from services in this manner.
- Combined reporting- More states are requiring affiliated corporations to report income on a combined basis with other affiliated companies. Click through nexus- More states are requiring sales and use tax collection by out of state vendors that compensate residents for sales made via links on their website.
- Closer scrutiny for pass-through entities- Pass-through entities such as partnerships, S corporations and LLCs are coming under closer scrutiny due to their increasing popularity.
- Transfer pricing- States are becoming more concerned about intercompany transactions with affiliated companies which allow companies to shift income from high tax states to low or no tax states.
Tax laws have been constantly changing across the U.S. and it is important to be aware of how your business’ activities will be charged. Be sure to read up on your state’s requirements, as well as the requirements for states you do business in.
If you have any questions, contact a member of our Tax Services Team.