Why it’s Important to understand your future Tax expense and what this has to with Click Thru Nexus?

May 10, 2016 · Posted in Accounting, Profitability Tips, Tax Planning · Comment 

Work Local Awards - FBFreshBooksCertified (1)This may sound like an unusual title for a Blog Post. And yet, I believe when you see the logic and how the evidence is laid out, you will see that State and Local Sales and Income tax revenues in the near future will look very different than they do now. First some basic facts about the current state of business, Company formation, the broader economy, governmental budget pressures, and how this all fits together:

• Businesses are less inclined to station their own employees and property in any given location. People work virtually, which means they have the potential to establish nexus in multiple jurisdictions. Thereby, incurring tax liabilities in multiple States and jurisdictions.

• E-commerce companies are increasing in numbers and in capabilities, meaning a greater number of buyers are using vendors without physical presence in the state of delivery. This is putting pressure on the States to change they way they govern and tax online transactions.

• Actions and inaction by the federal government and courts cause confusion regarding acceptable standards for nexus. It’s cloudy out there, like the wild wild west when it comes to defining taxing jurisdictions.

• States want to increase revenue, and the perception that E-commerce is evading tax assessment and impatience/aggravation with guidance from the federal government is leading to greater disparity in standards between states.

• Businesses are operating under the new normal circumstances of doing more with less. This is a growing wave, and we are in the early stages.

• More and more State legislatures are defining the sale of Digital Goods as a taxable event in their state.

•  Impact of digital currency – The larger states are now defining Digital Currency as Cryptocurrency – A digital currency in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. This allows the states and the Federal Government to treat Digital Currency as property, like Inventory, or an Investment, e.g. taxable.

• Businesses will now look at Accruing Loss Contingencies, for sales/use tax liabilities, when it is probable that a State will assess a tax.

All this points out that Tax Expense, which used to be directly connected to the business transactions done within your own State, are increasingly shifting to Indirect Tax, which can come about from many places at the same time, based on differing interpretations of Commerce, Click thru Nexus, and a State’s desire to claw back at online sellers. You need a tax expert who thinks about and applies logic to every business situation, so that proper business structuring, using tax planning as a key ingredient, will become paramount. If it has not done so already. Please contact us to discuss your business situation, and how we can help you mitigate the very real risk that these imminent pressures will impact your business operations.

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