Income & Franchise Tax Planning

Our experienced Income & Franchise Tax team provides business-centric tax planning and consultation to companies designed around current supply-chain functions, physical and economic nexus requirements, utilization of tax attributes and optimization of the legal entity structure.

Overcome State Income and Franchise Tax Challenges With Professional Guidance

Most companies are aware they must register and file tax returns in every state where they maintain a physical location. However, filing obligations can exist even when a business is not physically located in the state. State tax legislation constantly changes to capture more revenue and create new, inventive nexus provisions. As a result, physical presence is often not the only factor that establishes nexus, leaving some companies unsure of their nexus standing and tax obligations in states where they do business.

Cherry Bekaert’s State & Local Tax (SALT) team works with companies to determine where they have nexus and corresponding state filing obligations. Our tax professionals successfully negotiate and secure voluntary disclosure agreements to reduce and eliminate any outstanding liability while also offering legal assistance when needed.

Explore Our Corporate Income and Franchise Tax Services

Nexus Review

Cherry Bekaert’s nexus evaluation services determine where a company has nexus and the resulting state tax filing obligations. After identifying nexus concerns and protections available, our SALT team will quantify and resolve any potential state tax exposure to ensure compliance with applicable taxing jurisdictions.

Voluntary Disclosure Agreements (VDA)

States often utilize a Voluntary Disclosure Agreement (VDA) program to incentivize businesses that have not been contacted by the state to resolve unfiled or underreported tax liabilities from a prior period in exchange for limitation of the outstanding balance, reduced lookback period, reduction or elimination of penalties and possible reduction of interest in accordance with a binding agreement for settlement of the amounts. Cherry Bekaert’s SALT team is experienced in negotiating satisfactory terms for multistate businesses while resolving outstanding liability or compliance issues in each state.

State Amnesty Programs

State taxing jurisdictions often implement a formal amnesty program to encourage companies that may have unfiled or underreported tax filing obligations for past years and who have not been contacted by the respective Department of Revenue to voluntarily identify themselves, register and file tax returns in exchange for a limitation or waiver of unpaid penalty, possible reduction of interest on unpaid liabilities and limitation of look-back years. However, states can impose a longer or unlimited look-back period for companies that do not come forward during the formal amnesty program.

Despite the complexities and risks of multistate exposure and compliance, Cherry Bekaert’s SALT team is adept at assessing nexus and recommending the best approach to rectify any outstanding state liability.

Revenue Sourcing Analysis

If your business provides services to customers in multiple states, be wary of the opportunities and pitfalls that may result from different state income tax sourcing rules. Not all states source service revenue the same way; state laws vary and are highly fact-dependent. Apportioning income tax by the location of service revenue is a headache since you must consider the intricacies of your business, the location of your customers, where the product is utilized, and the complexities of state sourcing rules. How can you be sure your multistate business is accurately reporting service income and paying the right amount of tax to the correct states?

Cherry Bekaert Is Here To Help With Reporting Service Income

These complex and varying approaches adopted by the states to apportion service income demand a more detailed look. To minimize overall state tax liability, taxpayers must analyze each source of revenue to determine the apportionment to each state. Failing to consider these varied approaches to service income apportionment guarantees your business one of two outcomes: an inflated state tax liability or unanticipated exposure.

Our experienced state and local tax (SALT) professionals understand the complexities of the various state tax provisions and will perform a detailed analysis to determine the applicable sourcing rules for your multistate business. We will then determine the numerator of each state’s sales factor and ensure that you are not under or over-reporting revenue for state tax compliance purposes.

Benefits of Working With Cherry Bekaert

Experienced team to efficiently navigate the process
Limitation of the prior look-back period
Reduction of overall tax liability
Abatement of penalties
Clarification regarding future reporting methods
Friendlier audit for the VDA period
Closure of prior periods
Protection for potential buyers from prior ownership’s liability
Reduction of holdbacks or reserves for sell side
Anonymity by using a representative
Resolution of unrecorded liability issues
Reduction in risk of multi-jurisdiction information sharing
Increased prospective compliance in states with nexus
Comfort that state tax nexus issues have been addressed and favorably resolved

Nexus Review

Voluntary Disclosure Agreements (VDA)

State Amnesty Programs

Revenue Sourcing Analysis

Cherry Bekaert Is Here To Help With Reporting Service Income

Benefits of Working With Cherry Bekaert

Experienced team to efficiently navigate the process
Limitation of the prior look-back period
Reduction of overall tax liability
Abatement of penalties
Clarification regarding future reporting methods
Friendlier audit for the VDA period
Closure of prior periods
Protection for potential buyers from prior ownership’s liability
Reduction of holdbacks or reserves for sell side
Anonymity by using a representative
Resolution of unrecorded liability issues
Reduction in risk of multi-jurisdiction information sharing
Increased prospective compliance in states with nexus
Comfort that state tax nexus issues have been addressed and favorably resolved

Partner With Our Experienced Professionals To Take Control of Your State Income Franchise Tax Obligations

Take control of your state income franchise tax obligations today by partnering with our team of experienced professionals to ensure compliance and minimize your tax liabilities.

State Approaches to Sourcing Service Revenue

States generally use one of the following approaches to determine the amount of service revenue attributable to a given jurisdiction. Within each of these approaches, state laws vary widely in their application.

Pro Rata Method

This method aims to distribute revenue generated from services performed in multiple states based on costs incurred or time spent in each state. For example, a ratio of time physically spent in a state versus the total time spent on the contract is often used to divide revenue. There are many other complexities involved in applying these rules that need to be considered. Personal service income tends to follow a pro-rata method even in the cost of performance states. A personal service is generally when a significant amount of capital is not required to perform the service.
Market-based Method

The growing trend among states is to look where the benefit of the service is being received, or the customer’s location, in sourcing revenue. Complexities immediately arise with this approach when your contract includes services received in multiple locations. This may be addressed by state-issued guidance in some instances, but there are significant differences in how the rules are applied among states employing this method.
Cost of Performance Method

Using this method, revenue is often attributed entirely to a single state if:
- All the costs of performing either services or income-producing activities are incurred in the state; or
- Most of the cost of performing either services or other income-producing activities occurs in the state when more than one state is involved.
When a service is performed in multiple states, revenue is sourced to the state where the greatest proportion of direct costs were incurred or where most of the work was performed. This is often referred to as the all-or-nothing approach and is applied differently among states.
Legal Entity Optimization

Business and legislative changes have an impact on the effectiveness of the overall corporate structure, planning in place, and efficiency from a compliance perspective. In addition, acquisitions, joint ventures, and dispositions have an impact on the overall corporate structure. An out-of-date structure can create unexpected tax risks and reserves for the organization. A company must be deliberate and consistent in reviewing the impact of these strategic transactions. Modification of the planning in place or the corporate structure may be necessary to avoid unexpected tax increases and administrative inefficiency from a compliance perspective.

Cherry Bekaert has an experienced team of professionals with deep industry knowledge available to assist in assessing, designing and implementing strategies to achieve overall legal entity and tax optimization.