can you rely on informal guidance?

Each year, Bloomberg BNA compiles a "Survey of State Tax Departments." The survey is obtained by asking specific questions from state revenue departments regarding what may be viewed as 'grey areas' of multistate taxation.

The Bloomberg BNA State Tax Blog posted about how much weight should be given to informal guidance (like the survey) from state tax departments. The post and those that were a part of the discussion referenced in the post, raised great questions and points, such as:

1. How much weight should be given to informal guidance? 
2. The states know their responses will be published, so does that add 'weight' to their response?
3. The states' responses are NOT binding law and are NOT creating law.
4. What accountability do the states have for their responses if taxpayers rely on them?
5. Are the states' responses simply the equivalent of a taxpayer calling the state to obtain guidance? (meaning, it is informal guidance that is not binding and if relied upon, could come back to haunt the taxpayer at a later time)
6. If no other guidance exists (no statute, no regulation, no case, no ruling, etc.), then the survey provides some guidance as to what the state MAY do. Thus, this is probably where the survey is the most useful. 
7. If taxpayers are looking for formal guidance, they should request a letter ruling if the state allows it.

At the end of the day, taxpayers are always trying to obtain certainty regarding their tax issues. Unfortunately, it is not possible to achieve 100% certainty when the facts are complex and the state's rules are grey. Consequently, the taxpayer and adviser generally review all binding authority (statutes, regulations, cases, etc.) and unbinding authority (informal guidance, etc.) to develop support for a tax position. This is why we have the lovely 'levels of assurance' such as the 'realistic possibility of success' (33%), 'substantial authority' (40%), or 'more likely than not' (> 50%).

Depending on the situation, taxpayers are commonly balancing risk and the amount of dollars to spend to chase down this elusive certainty.  Accordingly, taxpayers are trying to attain the most cost-effective and practical solution that reduces risk to an acceptable level. Thus, other factors (business, legal, financial) may determine how much effort is taken to support a specific tax position, resulting in some taxpayers choosing to default to paying more tax to avoid risk.

Is your business struggling to find certainty?

What process do you follow to provide your clients with certainty?

How much weight do you place on informal guidance?

How do you balance risk and the cost of obtaining certainty?

how state taxes impact businesses of ALL sizes

Are you a start-up business?  A mid-sized business? Or a Fortune 500 company?  No matter the size of company, it doesn't really matter when it comes to state and local taxes.  If your company is doing business across state lines, your business is impacted by multistate taxes.

Common questions and issues:

1. Is my company required to register to file returns and pay income taxes?
2. Is my company required to register to collect and remit sales and use taxes?
3. Property taxes?
4. What credits and incentives is my company eligible to obtain?
5. My business operates as an affiliated group of multiple entities.  Does the state require us to file separate returns or one combined return?
6. How are intercompany transactions treated?  Do we have to addback intercompany expense deductions?
7. Is my affiliated group of entities unitary?
8. Does my affiliated group of entities need a transfer pricing study?
9. Are sales of services sourced differently than sales of tangible personal property?
10. What types of sales are included in the apportionment factor?
11. How are sales determined?  Gross sales or net sales?
12. Our company sales a service and a product.  Are we required to collect sales tax?  If so, on the whole charge or part of it? 
13. Our company has foreign (non-U.S.) operations.  How does that impact our state returns?
14. Our company is a foreign based company (non-U.S.) with operations in the U.S. If we don't have a permanent establishment in the U.S., are we still required to file state income tax returns?
15. How will changing the ownership and/or organization structure of our affiliated group of companies impact our state tax filing requirements? 
16. Do we owe sales tax on the purchase of a company's business assets?  Is there a bulk sale notification requirement?
17. If our company buys the assets of another company, are there any real estate transfer taxes due?
18. When can our company remove our FIN 48 reserve for uncertain state tax positions?
19. If our company owns an interest in a partnership, does that ownership interest give our company a taxable presence in the states in which the partnership operates?
20. If our company sells assets or liquidates a division of our company, is that treated as business or nonbusiness income?