States Want Your Business (and are Working Hard to Prove It)
The federal government may be slow moving on corporate tax reform, but states are taking matters into their own hands. Businesses need to start rethinking their internal tax processes in order to take full advantage of these local changes.
U.S. businesses have gone to great lengths to minimize their tax burden. Up until government intervention last fall, corporations went so far as to merge with foreign brands in order to benefit from international tax havens. A recent push by individual states to lower corporate income tax rates may be the relief businesses have been craving.
In the years following the financial crisis and eventual recovery, states across the country have kicked off aggressive pursuits to create business-friendly tax environments. Some states (such as New Mexico) have bundled corporate tax reform into comprehensive economic stimulus packages, while others are pushing to amend not only their state corporate income tax rates, but tax structure as well. Arizona, for example, will soon join a number of states that enforce single sales factor apportionment, an advantageous move for businesses with extensive property and payroll burdens. Further, state and local economic development groups are doubling down on corporate incentives. According to Good Jobs First, 24 state and local governments awarded benefits packages (including tax credits) valued at more than $60 million in 2014 alone.
Though specifics vary state to state, the goals are common: to attract new business investment, jobs, and tax revenue into their local jurisdictions. With the top federal corporate income tax rate holding steady at 35%, states are taking it upon themselves to combat the country's widely perceived hostility to business growth.
For businesses, these changes can be equal parts blessing and curse. Lower income tax burdens are hard to argue with, but individual state reforms will likely force corporate tax and accounting departments to adjust their internal procedures to stay compliant. At the same time, businesses considering a major relocation will need to analyze a number of factors beyond a state’s corporate income tax rates, such as available credits (including property abatements, payroll tax breaks, and grants) and NOL carryforwards and carrybacks.
The spreadsheets that tax and accounting professionals have come to depend on are not at all conducive to tracking multiple states' specific, evolving tax codes. For organizations to yield long-term benefits from state tax reform, they'll need to modernize their tax systems first. Check out our infographic to see what's in store for 2015 and beyond.
This summer, Bloomberg Tax will release a new State Tax Analyzer program — software designed to help organizations automatically track state-level tax regulation updates and easily model the tax implications of their strategic decisions. Interested in learning more? See State Tax Analyzer™ product page.