Those of you who had the privilege of reading the February 5, 2016 edition of Long Island Business News may have noticed a very familiar image with bright rosy cheeks staring at you when you turned to Page 8. That image would be me. LIBN was interested in updating its readers on the very latest trend in state and local taxes and, more particularly, how the changes in New York in the past few budgets are going to help attract new businesses and keep those already here.
Many business owners and operators who have been in the game for a while would posit that jurisdictions like New York once, viewed as the centers of commerce, just didn’t have to be as competitive in the tax arena as growth hungry states and localities. Unbeknownst to these so-called centers of commerce, a war was being waged on their tax base.
The war began with jurisdictions offering aggressive tax incentives of all kinds to attract businesses to move and start up in their borders. The commerce center states caught up and now business owners and their advisors are deluged with a constant stream of incentives, wherever they look. Some of these incentives provide real value, while others are very limited and narrow in their application. Meaningful and valuable incentives are still out there, but they are becoming somewhat less popular with the voters and accountability on both the giver and the receiver has never been higher.
The not-so -recent trend to attract business to a state has been through the reformation of the business apportionment formulas. In the past, most jurisdictions used a system based on some derivation of a formula based on the property, payroll and sales of the taxpayer within a jurisdiction as compared to the total. A fraction would be computed and your tax base would be computed.
In comes the single factor formula based strictly on sales. Businesses can now locate property, plant, equipment, and employees in your state without incurring a penalty. For example, a business can now locate its entire operations in New York State and if, for some reason not $1 of sales happened to be in New York (an unlikely scenario), that business would end up paying little or no New York State tax.
How does one determine where sales are located? You will have to wait till next week to find out.
Should you have questions about tax incentives or state and local sales tax obligations for your business, contact me at email@example.com.
Wayne Berkowitz, a tax partner and head of the State and Local Tax Group at Berdon LLP, advises on the unique requirements of governments and municipalities across the nation.