The Basics of State Tax Planning

Property tax, Sales tax and Income tax.

Many business owners and real estate investors get into trouble by not even realizing they aren't complying with the state tax laws.

The First Step to turning your state tax exposure into opportunity is to identify the states you or your entities may be required to file state tax returns.

To do this, make a separate list for you and each of your entities. On each list include the states that you or your entities do business. This includes states where you or your entities:

1. Have employees

2. Have inventory

3. Own or lease real estate

4. Own or lease other property, such as vehicles or storage units

Next, add to your list any states not already listed where you and each of your entities:

5. Have independent contractors

6. Have sales representatives

7. Have sales

The Next Step

Just because you have a state on your list doesn't necessarily mean that you or your entities are responsible for taxes in those state. But, here are some guidelines you can follow to clarify your tax obligations.

Items #1-4 are good indicators that state tax obligations do exist. Any states you listed as a result of items #1-4 are states that you or your entities most likely have state tax obligations for property tax, sales tax and/or income tax.

If you are not already filing state tax forms for each of these taxes, then be sure to research your filing requirements immediately.

Items #5-7 are indicators that state tax obligations may exist. Research any states you listed as a result of #5-7 to determine if you or your entities are required to file property, sales or income tax forms in any of these states.

Check ALL the Types of Taxes

The state tax requirements not only vary by state but by the type of tax within the state. Don't make the assumption that just because you don't have to file one type of tax that you don't have to file any type of state taxes.

For example, a business may be required to file sales tax returns in a certain state but not be required to file property taxes in that same state.

Be sure to check each type of tax to make sure your state tax exposure is minimized!

Where to Start Your Research

Most states provide good basic information on their websites. This can be a great starting point to gather information and make some initial decisions about your filing requirements.

A state tax study is a great option for businesses that operate in several states because there is greater potential for exposure and opportunity - both of which can justify the cost of a tax study.

No matter which approach you use to do your research, I always recommend running your findings by a CPA who is well versed in this tax. Discovering that you have new state tax filing requirements is not necessarily a bad thing. In fact, many state tax savings opportunities only exist when multiple states are involved. This is why it is so important to discuss your specific findings with a CPA who knows this information well enough to know that what appears to be exposure is really an opportunity to minimize state taxes.