By Jonathan Liss

I’ve had an interest in state and local taxes (SALT) from the earliest stages of my career – when tax forms were completed by hand, we used calculators to compute the tax liability, and fax machines were in vogue. But when I started in the field, state and local taxes were generally considered an afterthought for corporations. The priority of corporate tax departments was federal and international taxes. SALT was a nuisance, not worthy of the time or resources needed to comply. Well, times have certainly changed. State and local taxes are now regarded much more materially in terms of importance in the corporate tax world.

How Did This Happen?

Some say, “money is the root of all evil.” I don’t know about that, but enough money certainly draws attention. The amount of state and local taxes paid by multistate corporations has become significant. In some cases, the total state and local business tax burden can exceed a company’s federal income tax liability. Businesses paid more than $951 billion in state and local taxes in fiscal year 2021, an increase of 13.6% from fiscal year 2020. In fiscal year 2021, business tax revenue accounted for 43.6% of all state and local tax revenue and local property taxes represent the largest portion of state and local business taxes. The financial impact of these “above the line” taxes cannot be ignored.¹

According to recent statistics, 71% of businesses had a website in 2023, and 28% of all business activity is conducted online.² Companies are now conducting business in a global economy, where sales of goods and services are transacted with the click of a button. When manufacturing was king, “physical presence” was the constitutional nexus standard. With the shift to e-commerce, there has been a tremendous impact on state and local business tax compliance, particularly concerning the sales tax. The U.S. Supreme Court Wayfair decision³ has taken sales tax compliance to a new level.

This brings us to another reason for the growing stature of state and local taxation: complexity. Multistate businesses are obligated to pay a myriad of tax types, and it has become increasingly difficult for state tax practitioners to keep up with constant legislative changes and new tax guidance. Rapid developments in technology, a lack of uniformity in state tax laws, and the recent passage of numerous federal tax changes all add to the complexity surrounding state and local tax compliance.

The taxability of cloud computing and digital products is one area where multistate businesses struggle to comply with many different interpretations and rules. This aspect of state and local taxation is likely to become even more complicated as the world becomes more connected and digital. Practitioners, too, have been challenged with understanding the state tax implications of recently enacted federal tax legislation, including the Tax Cuts and Jobs Act; Coronavirus Aid, Relief, and Economic Security Act, and the Inflation Reduction Act. When analyzing the state impact of federal tax legislation, taxpayers must be mindful of each particular state’s level of conformity (e.g., static v. rolling) with the Internal Revenue Code (IRC) because the manner and timing for a state’s reference to an IRC-derived starting point may result in differences between the federal and state income tax treatment of new or amended federal income tax provisions.⁴ This is not an easy task for those who conduct business in many states.

The Influence of COST

I would be remiss if I didn’t comment on the importance of the Council on State Taxation (COST) in promoting and advancing the practice of state and local taxation. Formed in 1969, COST is the premier state tax organization representing multistate taxpayers. The formation of COST was precipitated by a need of corporate taxpayers to be represented by a united voice on state tax issues and to counterbalance a number of organizations of state tax authorities.⁵ COST fills the role of a technical organization, explaining very difficult tax issues to policymakers and testifying before legislative committees. COST also undertakes frequently cited studies of multistate tax policies.

Where Is the SALT Profession Headed?

All of the above developments, and more, have contributed to improving the appreciation of SALT in the field of corporate taxation. SALT professionals are considered essential in corporate tax departments and professional services firms.

Transformation of the global economy and rapid advances in technology will make life even more challenging for state and local tax professionals in the years to come. In response to the pandemic, “Companies shifted rapidly to online channels, automated production tasks, increased operational efficiency, and sped up decision making and innovation of operating models.”⁶ These dramatic changes in businesses operations require the expertise of individuals with a specialized knowledge of state and local taxation. For sure, tax professionals will be grappling with the impact of digital transactions, remote work, economic nexus, and numerous other issues for many years.

¹ Total State and Local Business Taxes: State-by-State Estimates for Fiscal Year 2021, Ernst & Young LLP.
² Forbes Advisor, Top Website Statistics for 2023 (Feb. 14, 2023).
³ South Dakota v. Wayfair Inc., 138 S. Ct. 2080 (2018).
⁴ AICPA Backgrounder on State Tax Conformity and Conformity Variances (May 17, 2023).
⁵ www.cost.org/about-cost
⁶ McKinsey Global Institute, 2021 Turning Point: Reinvention and Opportunity in the Economy of the Future (Dec. 10, 2021).

Jonathan Liss is senior revenue policy analyst for the Philadelphia Department of Revenue. He is also an adjunct professor at Drexel University and Villanova University School of Law. He can be reached at jonathan.liss@phila.gov.

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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.