BeansTalk
BeansTalk: Where Expertise Meets Opportunity, Mauldin & Jenkins' podcast, where we are sharing and showcasing our areas of expertise through conversations with practice leaders on their knowledge and experience.
BeansTalk
Exploring the World of State and Local Tax: From Nexus to Credits
In this episode, we get a glimpse into the world of state and local taxes, breaking down the key concepts that every business owner and taxpayer should understand. From navigating nexus and determining tax obligations to leveraging tax credits and incentives, we cover it all.
About Our Guest
Jeff Dorris, CPA, is a Partner who leads our specialty tax practice and specializes in consulting and advisory services in all aspects of state taxation, including income, franchise, and sales and use tax.
About Our Host
Brandon Smith, CPA, is a Partner based in the Atlanta office and the Advisory Practice Leader.
Welcome to BeansTalk, M&J's podcast where we are sharing and showcasing our areas of expertise through conversations with practice leaders on their knowledge and experience. Tax is a challenging area, even when we're just navigating our annual obligations to the IRS through our federal tax filings. But it gets even more challenging when we take it a level deeper down to state and local taxes and also start to navigate things like tax credits. Well, if you have challenges in these areas, today's episode is for you. And I'm really excited to be joined by our specialty tax leader, Jeff Doris. Hey, Jeff.
Speaker 02:Hey, Brandon.
Speaker 01:So, Jeff, would you do me a favor and just kind of give some background to our listeners about your experience and your role at Mauldin & Jenkins?
Speaker 02:Yeah, so I lead, as you mentioned, the specialty tax practice, right? And that's somewhat of a wide umbrella, but it includes our SALT practice, so state and local taxes. It also includes our credits and incentives, among other things. But for today's session, you know, our state and local taxes and then our credits and incentives is where we focus a lot on.
Speaker 01:And when you look at like state and local taxes, we'll start there. The first thing I want to kind of navigate with you is I always hear this term called NEXUS. It seems like that's the first thing that we kind of analyze when determining whether or not state and local taxes applies to an entity and then from there kind of get going. So will you help me just kind of understand what NEXUS is and how that relates to this kind of world of state and local tax?
Speaker 02:Yeah, so it's a great question. And for business owners, they really need to understand and have a good concept of what NEXUS is. I mean, they will have their professional tax advisor, right, whoever that may be. But the concept of NEXUS is something that a business owner absolutely needs to have a good grasp of. And so the concept of NEXUS is, in a simple term, is the idea of having a connection with a jurisdiction, whether it is state, local, county, city, whatever, but having a sufficient connection with that jurisdiction where that jurisdiction can impose their taxes on your business. The concept of having NEXUS means you have a sufficient connection with that jurisdiction and they can impose you. And if you do not have NEXUS, then you do not have enough of a connection. You have to have what we call a sufficient connection. So not just a minimal connection, but a sufficient connection to where that jurisdiction can impose their tax on you. So NEXUS is the idea of whether or not you have that connection with that jurisdiction in order for them to tax you.
Speaker 01:So I imagine that's incredibly relevant for pretty much all businesses because these days we do business in so many different areas. And so kind of question one seems to be just where are we doing business? But the most important question with respect to state and local tax is are we doing enough business there to have enough of a connection to have NEXUS which is where a lot of these concepts will apply to us.
Speaker 02:Absolutely and you can, you know in today's world, which 2025 significantly different than 2000, 1990, 1980, you can have significant broader reach as a business owner today via the internet and websites and every other way we transact business than you could you know 20, 30, 40 years ago and NEXUS, just like with business, it's evolving. NEXUS is evolving as well.
Speaker 01:So are there different types of NEXUS? Is it just one thing where we figure out, okay, we have a connection here, there, and the next place, and then that makes it applicable to us? But can NEXUS mean different things in different places, or is it just a static term?
Speaker 02:Sure. Now, that's, you know, tax in general, the answer always is it depends, right? Because it's a facts and circumstances kind of answer, and NEXUS is the same way. Your two main... types of NEXUS are one physical presence NEXUS. So if you're physically present there, whether you have a physical store location, right? Or if you're sending crews into the state, so think property or payroll, right? So that's physical presence if you're physically there. And then the other type is economic NEXUS. So economic NEXUS is the idea that maybe you do not have your folks, right? You don't have crews or actual assets, physical assets in that jurisdiction, but you still are exploiting that jurisdiction's marketplace, right? So if you have enough customers or you're solicitating sales, things of that nature, online presence, things of that nature where you can still generate NEXUS even without physically being there. So examples of that and, you know, If you have a website and you have customers in the state of Washington, even though you're, say, at a Georgia or Alabama-based business, if you have enough of an online presence and enough customers in these other states, you absolutely, and it's not that hard to do so, you can create economic NEXUS by your online presence.
Speaker 01:Gotcha. So now when it comes to, kind of, first off, we're understanding where do different state and local tax concepts apply to us? Now we get NEXUS and the different types of NEXUS as you just described them. But taking a step back to just thinking state and local taxes generally, what kind of tax are we talking about? I mean, I'm thinking like sales tax. Is that right?
Speaker 02:That's exactly right. So typically your main taxes when you talk about state and local taxes, you have just like you have your federal income tax, you also have state and local income taxes, right? And then because states always try to differentiate them from other states. A lot of states have moved away from an income-based tax to what they call non-income-based taxes, similar to franchise taxes, but some of them are more closely related to like a gross receipts tax. So I'll give you an example of Texas margins tax, the Ohio CAD, Washington B&O, those non-income-based taxes all have more economic NEXUS type standards. And then you get into the realm of sales and use tax, property tax, things of that nature.
Speaker 01:Gotcha. Okay. So the type of tax to kind of differentiate based off of where you're doing business at. Some states might be more of an income slash a sales tax. Other might be more sales and use tax types. Those might be even different. So when we're talking about NEXUS, it sounds like there's different things that can trigger NEXUS and maybe a little state specific. And then also when we're talking about the types of tax, those can kind of vary state by state. So kind of looking at some examples or just kind of thinking through how this might apply to our different companies and enterprises, what are different ways NEXUS can impact different types of tax?
Speaker 02:So the main... pain point you're going to have for state tax NEXUS is you do have income tax NEXUS, and income tax historically has had a physical presence NEXUS standard. So states where you were physically there, you typically would file your state income tax returns. But as we've moved away from the income-based taxes, you still have protection under Public Law 86-272 for income-based taxes, where you're doing your activity there, even if you're physically present, is limited to just solicitation of sales. So if you're not physically present there in that state, a lot of times you have protection on the income tax side for whether or not you owe a tax filing. When you get into, say, sales tax NEXUS, there is no protection from 86-272, right? So you could have a single location-based business, whether it's catalog sales, now website, online sales, Amazon sales, eBay's, those types of distribution channels, you could have a large enough presence where you have to collect sales tax in all 50 states. If you drill down into the localities, there's over 10,000 local jurisdictions in the U.S., right? So you could potentially and, you know, it doesn't go that far in a lot of cases, but you potentially have to collect sales and use tax in all those jurisdictions and then file sales tax returns in all local jurisdictions too. So you're having your finger on that pulse of where your sales tax NEXUS is and what's taxable and the rates you have to collect. That's when you start getting into opening up that can of worms that most businesses turn their head away from.
Speaker 01:Yeah. So congratulations on growing your online presence and your distribution channels. Your present and your reward is all these additional potential tax implications. So with that said, let's just kind of envision that we're a growing business, right? We are introducing those new sales channels, getting into new states, having more online sales, kind of shooting out all over the place. What are things we need to keep in mind as we're growing the different places, we're selling and having a presence and a connection to? What are things we need to keep in mind from this kind of SALT perspective and NEXUS perspective?
Speaker 02:Yeah, the main thing you need to keep in mind is staying on top of it. If you stay on top of it, although it is work as you go and as you grow, the worst thing you could do is turn away from it two, three, five years later, get down the road, and then somebody encourages you to look at what we call your NEXUS footprint, which is where do you have NEXUS, right? Where are all the jurisdictions that you have NEXUS? And you realize that you had NEXUS in all these different states and all these different jurisdictions, and you should have been, whether it's filing income tax returns, collecting sales and use tax, and filing those sales and use tax returns, because at the end of the day, I'll give you an example. Sales and use tax is a tax designed to be imposed on the end consumer of that material, whoever purchased it. So you typically as a business, it would be your customer. You would be a fiduciary, right? You have to collect the sales tax and admit it to the state. That's your obligation as a business. But that is not a tax typically that is owed by the business. It's owed by the end consumer. But if you failed to register and collect that tax, now that jurisdiction holds you as a business responsible. So now it becomes a tax that you ultimately are going to have to foot the bill for when that was never designed in the first place. So if you project that out, two, three, five, 10 years down the line, and then you say, oops, we never did this, tax liability, that tax bill becomes very large very quickly. And you look at how many states you're in and it becomes a tax bill and it's a very bad situation to ultimately be in when it was never designed to be your tax bill in the first place.
Speaker 01:Yeah, that's a really interesting concept you just talked about because a lot of times when we're first starting to grow our business and start to work with our tax professionals and guidance, it's about tax we owe, right? Our operations, our activities, how that's driving our income tax liabilities. But in this case, as you just described, the tax is technically on our customers. They're the ones who are responsible in whatever state or jurisdiction they reside in to be paying the tax. It's just on us as the business, as the seller, to collect that from them and then remit it to the authorities. They look to us to kind of have that, what you call the fiduciary responsibility. So you make sure we're keeping up with that. That's really interesting. Now, when it comes to, j ust I'm curious and interested in like misconceptions. You know, what are some misconceptions that you've seen working with different businesses and different owners of businesses who have been growing and getting into new jurisdictions? And when they kind of, first off, realize they need to start taking this seriously and that they do have that fiduciary responsibility and need to do what they need to do as a business owner to collect that from their customers and remit it to the jurisdictions. What are some misconceptions you occasionally encountered that we can warn some of our listeners about?
Speaker 02:Yeah, I think the business, the biggest misconception I would say is we talked about economic NEXUS, like the idea of generating that or creating that NEXUS, even if we're not physically there. Conceptually, physical presence makes sense. Okay, I'm there. That state can tax me. Well, when I've never set foot, none of my employees have set foot, I have no equipment in this jurisdiction, I don't have to worry about anything that jurisdiction says. So conceptually, that's probably the biggest misconception is "I don't have to worry about that state's taxes". The other probably close 1B type misconception I would say is that a state is not going to be aware that I'm doing it, I have activity in that state, they're not gonna be able to find me, quote unquote. And in today's world with technologies and softwares and historically, states and state departments didn't always do a great job of talking to each other, you know, payroll tax to sales tax to income tax. They have gotten significantly better over the last five or 10 years of inter-department discussions. And, you know, they will review their payroll tax compared to their sales tax and things like that. So the days of the state or the jurisdiction not knowing you're there are probably, you know, we're limited in those days. They're behind us at this point.
Speaker 01:Yeah, it's funny that you kind of talked through with that. We just had a conversation with our technology leaders where something we discussed was the concept of security by obscurity. Some people feeling safe just because they're the unknown. But in today's world, we're all connected. That's becoming less and less of a comfort blanket for us because it's easier to find us. And it sounds like that same concept sort of applies here to where, to a certain degree, we haven't really been doing enough in places for us to think they'd find us. But as technologies and other systems evolve, it's more and more likely they're going to come across us. And when we're talking about these misconceptions, you know, I also view them from a lens of just business risk. You know, I see these areas of potential concerns for us as business leaders and business owners to where this is a risk we need to keep in mind of where we're not doing what we need to be doing and putting our enterprise in a riskier position. So with respect to those misconceptions we just discussed and other things just around the complexities of this, do you have any just recommendations on how to sort of mitigate that risk?
Speaker 02:Yeah, I mean, mitigation is the key, obviously. I mentioned one of the things I would recommend is staying on top of your NEXUS. The way I look at it and the way I explain it to a lot of our clients is, you know, and we'll look at it from a sales tax standpoint, sales tax compliance can cost the business, y ou know, money because they have to come up with whether it's software or provider and they have to be able to manage that function. But the cost of doing business to be compliance with your sales and use tax is a drop in the bucket to what it's going to cost you if you don't do it. And then you're audited, you know, five, 10 years down the road. And keep in mind, too, if let's say I'm a business owner. And I have a thousand customers every year and you extrapolate that over 10 years. So I got 10,000 customers. Well, it takes those jurisdictions. They have to audit all 10,000 of those businesses in order to get the same amount of sales tax versus auditing one business, which is you selling to those businesses or to your customers, r ight? So the odds of them auditing them being the jurisdiction, the state or local auditing 10,000 of your customers versus auditing just you is significantly worse off in your favor as a business because they can get one, you know, more bang for their buck by auditing the one business.
Speaker 01:Yeah, we're the obvious target for that. Just come to us. We're the lower hanging fruit to get more bang for their buck. And I like the way you frame that, too, in terms of, you know, It can be scary looking at the infrastructure we'll have to build, per se. Maybe the more expertise we'll have to engage or the systems we'll have to create in order to stay compliant in this area, but it's worth it. It needs to be done. And at the end of the day, if we were to get audited or kind of be detected by these organizations, because we are the lower hanging fruit to come after us, it just goes to show it would have been worthwhile to make those initial investments in the infrastructure. And not just mitigating risks. I also like to think of opportunities, right? When it comes to just opportunities of sort of improving our posture in this space and maybe even finding opportunities to reduce our tax footprint, our tax liability, our obligations we have to pay, you know, are there opportunities in the space of state and local taxes? Being mindful that obviously we're covering a lot of different jurisdictions, but are there just kind of generalized opportunities, even encountered working with clients in this space that we can give some recommendations to our listeners about?
Speaker 02:Yeah. I mean, you mentioned the state tax side, but, you know, as the credits and incentives group, we manage a lot of other different credits and incentives as well. So the state tax credit side, there's a lot of opportunities depending on what state you're in. Most of those opportunities are specific to where your physical presence are, where your headquarters are, where do you have manufacturing plants or things of that nature. But there's always job tax related credits, there's manufacturing credits and things like that. And don't forget the federal R&D, s o the research and development credit, r ight? You have other federal job related credits like the wage opportunity tax credits, the what we call those the WOTC credits and things of that nature, where as a business, you know, we talk about keeping your finger on the pulse of your NEXUS footprint and things like that. It goes very similar to your credit opportunities, right? Because in a lot of cases, a lot of these businesses are already doing these activities, right? Whether it's the research and development activities or they're hiring employees and things of that nature, but they still fail to monetize those credits. So they've already generated the credits or- work through the activity that they could use to generate the credits, but they don't take the credits, right? So just having a grasp on those and understanding what those are, what your opportunities are, depending on the states or if it's the federal R&D credits, because a lot of your states also have correlating R&D credits or correlating job opportunity credits and things like that.
Speaker 01:And so that's a great thing. I know you just went through a couple of different credits, but I'd like you to take a step back and revisit some of those. So, you know, credits... offer a lot of opportunities for tax savings. And then I would say that this is one of the biggest areas that's overlooked by business leaders and business owners. And then I know you just mentioned a handful there, how this kind of relates to federal taxes, state taxes. Two, you mentioned that I want to circle back to a research and development and the jobs tax credits. So I think that's just two great examples of things that could be applicable to a lot of different companies that maybe they're not even thinking about. So we take another minute to just kind of talk through each of those. So what is a research and development credit? What is a jobs tax credit? Just as two examples.
Speaker 02:Sure. So at the federal level, so this is your federal income tax liability, right? There is a credit designed to incentivize that. That's the intent of the credit is we want to incentivize businesses to continue to innovate and come up with new products, processes, you know, things of that nature. So if you're doing what we call qualified research and development expenditure activities, then you can monetize the credit, right? So there's, you know, with any credit, there are some things you have to qualify, right? Certain types of expenditures. And with like the R&D credit, there's a four-prong test that you have to meet and things like that. But if you meet that four-prong test, you can get, and it's anywhere depending on the activity and the specifics for the R&D credit. But the R&D credit is designed to continue to increase your research and development activity year over year, right? So that's kind of the intent is the year over year growth in the research activity, but your credit can be up to almost nine and a half, 10%, not counting your state and local portion of that, depending on the state you're in. So you think a 10% credit, you throw out, okay, we have a million dollars worth of R&D expenditures. Well, that's $100,000 credit, right? Give or take. So just making sure you monetize that because I can promise you as a business, if you're doing R&D, you're not doing R&D work for the credit. You're doing that because that makes business sense. That fits into your business model. So having an extra $100,000 or whatever that credit comes out to be to plug right back into your business, that makes a lot of sense, right? So I would say there on the R&D side, make sure you stay ahead of the game, m ake sure you're documenting, have these conversations up front. What do we need to do when we're going through these R&D projects so that we can make the back-end credit documentation process that much simpler?
Speaker 01:And like you're just describing, it might not just be you're a research company. It's just you're doing research development because it's good for your business. You're working on innovations. You're working on improving your products. And that could qualify for research and development that would enable this credit for you. How about the job tax credit? What's the story there?
Speaker 02:Yeah, so the job tax credit, and there's different job tax credits, whether you're talking about state job tax credits versus the federal wage opportunity tax credits. But essentially, If you're going to hire employees, right? Most of us, as we grow, we need more employees and that sort of thing. If all things are created equal, there's job tax credits specific for the federal tax credits for hiring certain identified categories of potential employees, whether it be like ex-felons, things of that nature, veterans, you know, the different classes where they're trying to promote or help certain classes, right? And so they offer a credit for that, similar to the state credits. And the state credits aren't always related. Some of them are kind of piggyback off the WOTC credits, but other states provide new job tax credits where if you're a business, and you're growing, i f you meet certain growth thresholds, new job headcount thresholds, you have a state tax credit for those. So, again, your business, as a business, you're hiring. You're going to do that anyway. Keep a pulse on what opportunities are available to you so that you can monetize those credits.
Speaker 01:And that's federal and state potentially benefiting for us. Now, are you finding when it comes to those two as examples that there are kind of common industries or different types of businesses that oftentimes encounter them? Or is it just something everybody should be mindful of?
Speaker 02:I would say everybody should be mindful of it. There absolutely are certain industries, again, on the state level. Every state will make up their own rules, right? So some states may try to incentivize their job tax credits based on certain opportunity zones or enterprise zones where they want to focus on that growth in certain areas, right? Or it could be a classification of employees. So I would say all industries probably need to have a pulse on it, right? And that can be as easy as a short conversation with your tax practitioner, right? I'm in this state and this location. What opportunities are out there that I need to make sure I'm aware of?
Speaker 01:So other credits are out there. I know we talked about two big ones as examples, but something that interests me, you know, more and more and more of my clients are asking me about sustainability related initiatives. There's different kind of pressures growing in their environments that are curious about their sustainability initiatives and what they're working on from the framework of sustainability. And I've heard about sustainability type credits too when it comes to taxes. So can you tell me a little bit about what is a sustainability credit? What exists out there and how do sustainability initiatives relate to potential tax savings opportunities?
Speaker 02:Yeah, that's another great question. And, you know, there's been a lot over the last couple of years in the world of, we call them energy credits. Same, you know, you talk about sustainability credits, we call them energy credits just because that, at least in my head, that's how I can compartmentalize it. But when you talk about energy credits, really what you're talking about is an incentive to move away from and into more sustainability-type forms of energy and that sort of thing. So think electric cars and vehicles. For a while, you could get electric car vehicle credits if you went and purchased a Tesla or whatever the qualified cars were, hybrid cars and that sort of thing. Same idea, but now you're talking more in the space of solar panels and geothermal facilities and things of that nature, battery storage facilities to create and store these alternative means of energy, the different types of energy. And then there are very lucrative credits. So at the federal level, you have both what we call a manufacturing credit related to energy storage facilities and that sort of thing. And you also have a production. So if you're going to build a alternative energy facility, you can't take both the manufacturing credit, which is a credit against the cost you spent to build the facility, but you can take one or the other. The other one is the production. So you get a credit based on the amount of energy, the alternative energy that you create. So depending on what it is, you can take one or the other. The other thing that has happened more recently is A lot of your industries and business owners may not be for-profits. So think non-profits. Well, these were typically income tax related credits. Well, now we have direct pay mechanisms to where non-profits and even certain governmental entities and that sort of thing. So think a local city or county may build a parking deck and on the top level of the parking deck, they may throw a bunch of solar panels, right? Or they may build alternative battery storage facilities to have energy backups and things of that nature. Now you have mechanisms where these non-for-profit entities, right, so don't typically in general file income tax returns, they have mechanisms where they can now monetize those energy-related credits. So there's a lot of moving pieces and different opportunities for different industries and depending on what you're looking at for these energy tax credits.
Speaker 01:So that's really interesting talking about these energy credits, sustainability credits, kind of that realm that's not just commercial enterprises who have opportunities here, right? Even nonprofits and governments sometimes have opportunities. That's super interesting and something really important, I think, for everybody to keep in mind. So we've recapped a lot about what I would kind of think of as looking in the past in terms of what's already happened. You know, when it comes to the sales we're making across jurisdictions, where that might lead to NEXUS because we have enough of a connection, how that impacts the different types of state and local taxes that are introduced into our environments based off those jurisdictions we're in. We talked like sales and use taxes and the like. And also opportunities for taking credit for things we've already done by taking a credit for them to reduce our tax obligations. And it's something that might be most relevant to certain industries, but important for all of us to keep in mind. Let's pivot a little bit and look ahead. Let's look forward. What are some more proactive strategies you have in mind or advice you can give to some of our listeners about how to kind of look forward rather than just backward?
Speaker 02:I think, and this will be my response, might be a little more industry specific. And that's not because this o pportunity may be industry specific. There's a lot of opportunities out there depending on industry and the business. But for example, there are ways you can analyze your business, right? And there are things you can do to help reduce your overall tax bill, whether it be an income tax, federal income tax, state income tax, sales and use tax. You also pay property tax. So there's, you know, in the U.S. we're taxed and then we're taxed again, right? So what are some proactive ways you can reduce that? You can always look at your sales and use tax, right? We do a lot of sales and use tax refund reviews. Sales and use tax is a very complicated tax. You've got tax on your purchases that you pay, right? You got tax on your sales to your customers that you collect. And a lot of times those, the sales tax on your purchases, you don't really have visibility a lot of times. You know, we get sent an invoice as a business owner. We look at it. Does that match what we agreed in our contract or over the phone or whatever the case may be? And we pay it. There may be sales tax. Well, I don't know if that sales tax rate is right, r ight? I don't know if there's an exemption out there. Let's say a lot of states have manufacturing exemptions. Well, if that equipment or whatever the case may be was going into my manufacturing process, there might be a high likelihood that that purchase was not subject to sales and use tax. So where I'm going with this is a lot of times you can review your sales and use tax process, right? For you on the consumption side. And if you've overpaid on the sales and use tax for those purchases, then you can go back to those jurisdictions and file sales and use tax refund and get that money back. And that can be a very lucrative way to one, clean up your process, right? So it's a one-time cash inflow of whatever the amount of the refund is, but it's also annuity savings because now not only did you not... You got your refund back from the sales tax you paid that you shouldn't have. But next time when you purchase from that supplier on the manufacturing side, right, they're not going to charge you sales tax. So it's now reducing your costs going forward as well. That's one, you know, we do a lot and we see a lot and we get a lot of questions, especially on our both construction, construction world with contractors being consumer materials. I see a lot of that on the construction side and a lot on the manufacturing side related to sales and use tax. I would also say maybe some property tax analysis as well. We always have clients that come to us, whether it's on the personal property side. So personal property side, the biggest area we see issues on the personal property tax side is a lot of times businesses have assets still on their books. And we call this a ghost asset review, right? Where there's assets on your books because it's for income tax purposes. I t's a balance sheet item. You have the cost, but the asset's been fully depreciated. Well, it doesn't really impact a whole lot. So there's not a lot of incentive for businesses to go clean up these old disposed assets off of their books. But in many cases on the personal property tax side, you get taxed on that residual value. So think of a reporting standpoint. If I have a thousand dollar asset for personal property taxes, usually you have a 10% cap where I can never go below 90% value of that asset for as long as it's on my books. So if I have this laptop in front of you, call it a $3,000 laptop from 1980, well, it won't even turn on anymore. But if it's still on my books, I'm going to pay property tax on 10% of that, which would be $300. So I'm still paying property tax until the end of time on $300 for an asset that probably was disposed of 25 years ago.
Speaker 01:Wow. Yeah, that's really unfortunate because I do feel like even just on the financial accounting side, we see that a lot. Companies have their property listings, property equipment listing. And once it's kind of nearly or fully depreciated out, just kind of set it and forget it sort of thing. But the implications go beyond just financial reporting. There are tax implications when it comes to the property taxes built off of those listings to where you might still have some obligations associated with them just because we're keeping them on the records there. That's right. And I like the idea, too, of being proactive about going back and doing that review of how are our processes currently leading to our obligations. On the front end of our conversation, we were talking about.. We're going to probably come across a situation where we need to build up some new systems, build up some new processes. But even those of us who have had them in place for a while, it's worthwhile to go back and review them. Is this set up to put us in the best posture for having the appropriate level of obligation and no more than that? Now, something I'm curious about, too, I remember at one point you were talking at a session about valuations of property, you know, appraisals and how that can kind of impact the tax obligation associated with property taxes. Can you talk to me a little bit about that, about how appraisals and the like evaluating our properties can impact our tax obligations?
Speaker 02:Yeah. And I'm glad you brought that up because a lot of times we're moving now, that question is related to real estate. So appraisals on building valuation. So how much does a county value this building at, right? The building you own, your manufacturing plant, your headquarters, whatever the case may be, where that ghost asset review was more on the personal property side. So your business assets, right? Your machinery and equipment, things of that nature. This is now, how much is my building worth, right? So what he's asking is, is, every year you get an annual real estate property tax bill from whatever jurisdiction your building is in, right? Well, they base that tax bill based on what they consider the fair market value of that business. And they may be very spot on with what the fair market value of that building is. But in a lot of cases, things have happened, right? Where that building you have, maybe the location it's in has changed over the last 10 or 15 years, maybe it's not as valuable, right? Maybe there's been another similar building sold and it sold for a dramatically reduced rate because of various things that impact the valuation. Well, those jurisdictions, those counties don't do a very good job of reducing the value of your real estate, right? They may not go up on it if they understand that times have changed for the last five or 10 years and they stopped going up. I know over the last decade or so, real estate valuations have gone through the roof, both your personal primary residence, also office buildings and things of that nature. But they typically don't do a good job of going backwards, right? So it's up to you as a taxpayer if you believe that your real estate valuation is less and significantly less in a lot of cases for what your appraised value is on your tax bill. There's valuation processes where you can go dramatically reduce that. And again, not only is that a current year reduction in liability, but that's going to be your base year for next year, your base valuation for going forward. So there's a lot of annuity savings on that front as well.
Speaker 01:Right. The systems are just kind of structured to continue to increase it over time as valuation goes up, but not really taking that look to see, should we go back down? That's on us as a property owners and our businesses to have to do that. And then I like that too, to where we're restating the base because now over the next couple of years, as it goes up, it's going to go from that base rather than a previous starting point. Now, you've covered a lot, you know, sales taxes, property taxes, NEXUS, incentives and credits. So a lot of opportunities out there for us to both make sure we're looking in the past correctly to manage our tax obligations and also being proactive looking forward. Because this is just inherently a pretty challenging area, t here are some complications and technical things to navigate on this. And it's also a bit of a moving target. You know, the laws change, jurisdictions change, interpretations or the actual laws that are in place. What are your suggestions on how we can keep up with this? This has been a really helpful look over all these different areas with some helpful tips on how to move forward with it. But just what are your suggestions in terms of how to keep up with all of this?
Speaker 02:Yeah, I mean, the best thing you can do, obviously, if you're a business owner, you're probably great at running your business, right? Yeah. I would say partner with your tax practitioner, whoever your professional provider is, You don't always have to get all of these in the same year in one swoop, prioritize them based on your industry, prioritize them based on your, right, where you're at, where your focus is, your type of business, and then create a plan, right? So do it based on materiality, right? Where do we think our biggest risk is? Where do we think our biggest savings opportunity is? Let's focus on that. And then as we get that process in place or cleared up or whatever the case may be, then you start, you know, peeling back the layers and go on to the next step and the next step up. I would always say don't bite off more than you can chew, r ight? We all are limited with time and our resources. So, you know, be strategic about how you focus, right? You don't have to do a sales and use tax refund claim before you do the property tax, r ight? Or vice versa. I would say probably prioritize your NEXUS first, because if you get NEXUS wrong, that's typically money going out the door, right? It's going to cost you money in the long run. So let's make sure we understand our NEXUS and our filing obligations and our tax obligations. And then once we have a good handle on that, then we can start focusing on what are our reduction opportunities.
Speaker 01:Yeah, that's really, really good advice. And Jeff, you've managed to make really complicated topics very easy to digest. So I want to thank you so much for taking the time to join me today. And I also want to thank our listeners for tuning in. If you have any follow-up questions about the topics we discussed today or any other questions about different business challenges you're navigating, please don't hesitate to reach out to us and visit us at www.mjcpa.com and click that contact us. Thank you.