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Navigating state taxation in a global business environment
In the first issue of “Inside Deloitte,” authors Michael Paxton and J. Snowden Rives use a recent Deloitte tax symposium as a platform to discuss how state tax policy mirrors international tax reform and how it is implicated by federal income tax proposals, state tax developments directed at multinational companies, and some developing areas of state nonconformity.
Government focus on global companies
Thanks to technological change, commerce is virtually borderless. A modern business’s income may now result from coordinated activities taking place in hundreds or thousands of national or subnational taxing jurisdictions. With that in mind, the theme of the National Multistate Tax Symposium on February 5 and 6 in Orlando, Florida—navigating state taxation in a global business environment—was chosen in light of governments’ focus on global companies at the international, federal, and state levels.
As they struggle to keep pace with the change, governments are exploring ways to allocate multijurisdictional entities’ income. At the international level, there is a great deal of activity around the base erosion and profit-shifting project of the G-20 countries and the OECD, which addresses both income tax and value added tax concerns arising from a global economy. At the federal income tax level, there are a number of US House, Senate, and White House proposals directed at multinational companies, both inbound and outbound.
These initiatives have not been lost on the states, which are not waiting for the results. As Bob Carleo of Deloitte Tax put it, states are ‘‘more attuned to international planning’’ and ‘‘not waiting for the IRS to right a wrong that they perceive.’’ Many states have been aggressively searching for ways to increase revenue and shift the tax burden to out-of-state businesses through enforcement and legislative efforts such as single sales factor, market sourcing, bright-line nexus standards, and click-through/agency nexus.
As a result, taxpayers find themselves in an increasingly complex web of national and subnational tax considerations. And as Carrie Falkenhayn of Deloitte Tax added, ‘‘the stakes are higher’’ for taxpayers now that tax reform has a higher profile in the media.