Winter 2025

Navigating state and local tax notices is a crucial component to maintaining ongoing compliance with taxing authorities. Notices serve as the primary method of initiating communication between the taxing authority and taxpayer. They are the harbingers of vital information, covering everything from refund status and additional tax liabilities to account updates and more. Understanding how to respond to state tax notices is essential to a taxpayer’s business operations, as they carry significant implications for tax compliance and financial statement purposes.

Establishing a mutual understanding is crucial to identifying the authority’s perspective and objectives while articulating your business’s position. Collaboration on solutions is key to working with taxing authorities to unravel complex tax issues. Participation in industry forums, conferences, and seminars can facilitate engagement with state and local officials by staying informed and building a rapport, and can educate your team on tax matters that underscore the importance of nurturing a positive relationship with tax authorities.

Notice Management: Best Practices

Notice management and compliance outsourcing are critical components of a company’s tax operations. Routine compliance may involve handling a large volume of notices, many needing to be addressed in a timely manner to meet deadlines imposed by taxing authorities. Deadlines can be strict or arbitrary, often requiring judgment and prioritization. Managing deadlines is imperative, and missing any deadline could lead to harsh results. For example, notices may explicitly state there is a 10-, 15-, or 30-day window to make payments before collection or enforcement actions are initiated. There are also important, sometimes statutory, deadlines to dispute a notice should a taxpayer choose to pursue this option. Consistent communication with tax authorities is vital to ensure you understand the time frames to respond and request additional time as needed. This can help reduce enforcement actions as well as interest and penalty assessments.

The overall process, including categorization and review, is integral to receiving and responding to notices in a timely manner. Accountability is a key factor, and it must be clear who has the lead in the timely resolution of issues, whether it is the taxpayer or their service provider (if applicable). Disputed notices can occasionally escalate to audits and appeals, so having multiple designated points of contact could prove valuable.

Materiality plays a significant role in determining when to involve designated experts, specialists, or senior-level professionals. Recognizing the differences among tax notices and documentation is crucial. The need for professional judgment will vary by situation and business, and it may depend on the financial stakes involved. There is a big difference between a $100 issue and a $100,000 issue. It is also important to consider the history and rapport with the taxing authority to properly estimate the chances of success for any disputes. Applying good business judgment will assist with decisions such as communication methods (calling or writing), escalating matters (internally or using service providers), and whether to leverage experienced professionals with enhanced knowledge or relationships within a taxing jurisdiction.

To improve chances of a successful outcome, taxpayers should ensure requests are justifiable and that they make sense from the perspective of the taxing authority. This involves researching criteria for waivers and abatements, considering materiality, and leveraging relationships inside and outside the taxing authority. Finding examples of cases that were accepted versus denied could be beneficial. Additionally, knowing when to use certain written correspondence (email or online portal) versus a formal written letter can play a part in overall efficiency and outcome.

When drafting written correspondence, it is advisable to leave a minimum of two contact persons to provide options and reduce the need for taxing authorities to chase down the appropriate contact at the taxpayer. Likewise, listing multiple contact methods (such as phone and email) can further enhance communication efforts. It is important to leave a clear call to action at the end of written correspondence, clearly defining the next steps. Additionally, incorporating multiple levels of review for all written correspondence can ensure accuracy and completeness prior to submission. The individual who signs and sends a letter can convey implied trust and influence the ultimate outcome of a decision. Therefore, it is important to be mindful of these aspects to ensure effective communication and resolution of tax issues.

Minimizing Future Notices

By remaining vigilant with ongoing tax compliance, you can prevent future notice generation. For income tax returns, this includes being aware of the standard deadlines, such as March 15 and April 15, as well as extension deadlines such as Sept. 15, Oct. 15, and Nov. 15. For sales and use tax (SUT), taxpayers must adhere to filing deadlines falling on the 20th day of each month. Notice work is best carried out through established processes involving different teams. The compliance team is responsible for preparing and filing returns, and may also address notices if there is not a separate team already dedicated to this task. Larger companies may have a designated team to work through tax notices, but smaller companies may have only a single individual leading this effort. Having a process in place for incoming notices is essential to minimize risk and stay compliant with taxing jurisdictions.

Tax issues encountered within one state or taxing authority could potentially foreshadow similar issues arising in other states or local taxing authorities. Therefore, focusing on root causes and patterns for notice prevention is crucial. Trending issues that arise in numerous states can be addressed by resolving the source issue, which will reduce the overall volume of future notices. This proactive approach ensures that taxpayers remain compliant and minimize financial risk. Additionally, taxpayers should keep in mind receiving notices could imply issues for other tax types in the same (or additional) filing period as the notice. This should incentivize companies to take a wholistic view of tax implications, such as conducting nexus studies.

Formal processes, typically including appeals, differ from standard waiver or abatement procedures. Approaching these situations from an offensive versus a defensive position can demonstrate being proactive rather than reactive. Being proactive involves researching options and making choices specific to a particular situation, rather than responding to an enforcement notice. Alternatively, taking leadership to prevent reaching a point where such measures are necessary may include continuously reviewing accounts to ensure they are compliant with state tax laws.

Complexities of state and local tax notices require a vigilant and informed approach. Taxpayers must adopt a proactive stance, staying ahead of potential issues through regular account reviews and compliance checks. Processes must be set in place for businesses to manage and address notices received from taxing jurisdictions. Prompt and precise responses are essential to mitigate any further enforcement action. Ultimately, understanding the nuances of state tax laws and regulations and maintaining open communication with tax authorities can significantly reduce the stress and uncertainty associated with tax notices. By taking these steps, businesses can ensure a smoother and more predictable financial operation, safeguarding against the pitfalls of tax-related challenges.

Matthew Melinson, CPA, is a principal with Grant Thornton Advisors LLC in Philadelphia, PICPA’s 2024-2025 president, and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at matthew.melinson@us.gt.com.

Dylan Diodato, CPA, is a manager, tax services, at Grant Thornton Advisors LLC in Philadelphia. He can be reached at dylan.diodato@us.gt.com.

Navigating state and local tax notices is a crucial component to maintaining ongoing compliance with taxing authorities. Notices serve as the primary method of initiating communication between the taxing authority and taxpayer. They are the harbingers of vital information, covering everything from refund status and additional tax liabilities to account updates and more. Understanding how to respond to state tax notices is essential to a taxpayer’s business operations, as they carry significant implications for tax compliance and financial statement purposes.

Establishing a mutual understanding is crucial to identifying the authority’s perspective and objectives while articulating your business’s position. Collaboration on solutions is key to working with taxing authorities to unravel complex tax issues. Participation in industry forums, conferences, and seminars can facilitate engagement with state and local officials by staying informed and building a rapport, and can educate your team on tax matters that underscore the importance of nurturing a positive relationship with tax authorities.

Notice Management: Best Practices

Notice management and compliance outsourcing are critical components of a company’s tax operations. Routine compliance may involve handling a large volume of notices, many needing to be addressed in a timely manner to meet deadlines imposed by taxing authorities. Deadlines can be strict or arbitrary, often requiring judgment and prioritization. Managing deadlines is imperative, and missing any deadline could lead to harsh results. For example, notices may explicitly state there is a 10-, 15-, or 30-day window to make payments before collection or enforcement actions are initiated. There are also important, sometimes statutory, deadlines to dispute a notice should a taxpayer choose to pursue this option. Consistent communication with tax authorities is vital to ensure you understand the time frames to respond and request additional time as needed. This can help reduce enforcement actions as well as interest and penalty assessments.

The overall process, including categorization and review, is integral to receiving and responding to notices in a timely manner. Accountability is a key factor, and it must be clear who has the lead in the timely resolution of issues, whether it is the taxpayer or their service provider (if applicable). Disputed notices can occasionally escalate to audits and appeals, so having multiple designated points of contact could prove valuable.

Materiality plays a significant role in determining when to involve designated experts, specialists, or senior-level professionals. Recognizing the differences among tax notices and documentation is crucial. The need for professional judgment will vary by situation and business, and it may depend on the financial stakes involved. There is a big difference between a $100 issue and a $100,000 issue. It is also important to consider the history and rapport with the taxing authority to properly estimate the chances of success for any disputes. Applying good business judgment will assist with decisions such as communication methods (calling or writing), escalating matters (internally or using service providers), and whether to leverage experienced professionals with enhanced knowledge or relationships within a taxing jurisdiction.

To improve chances of a successful outcome, taxpayers should ensure requests are justifiable and that they make sense from the perspective of the taxing authority. This involves researching criteria for waivers and abatements, considering materiality, and leveraging relationships inside and outside the taxing authority. Finding examples of cases that were accepted versus denied could be beneficial. Additionally, knowing when to use certain written correspondence (email or online portal) versus a formal written letter can play a part in overall efficiency and outcome.

When drafting written correspondence, it is advisable to leave a minimum of two contact persons to provide options and reduce the need for taxing authorities to chase down the appropriate contact at the taxpayer. Likewise, listing multiple contact methods (such as phone and email) can further enhance communication efforts. It is important to leave a clear call to action at the end of written correspondence, clearly defining the next steps. Additionally, incorporating multiple levels of review for all written correspondence can ensure accuracy and completeness prior to submission. The individual who signs and sends a letter can convey implied trust and influence the ultimate outcome of a decision. Therefore, it is important to be mindful of these aspects to ensure effective communication and resolution of tax issues.

Minimizing Future Notices

By remaining vigilant with ongoing tax compliance, you can prevent future notice generation. For income tax returns, this includes being aware of the standard deadlines, such as March 15 and April 15, as well as extension deadlines such as Sept. 15, Oct. 15, and Nov. 15. For sales and use tax (SUT), taxpayers must adhere to filing deadlines falling on the 20th day of each month. Notice work is best carried out through established processes involving different teams. The compliance team is responsible for preparing and filing returns, and may also address notices if there is not a separate team already dedicated to this task. Larger companies may have a designated team to work through tax notices, but smaller companies may have only a single individual leading this effort. Having a process in place for incoming notices is essential to minimize risk and stay compliant with taxing jurisdictions.

Tax issues encountered within one state or taxing authority could potentially foreshadow similar issues arising in other states or local taxing authorities. Therefore, focusing on root causes and patterns for notice prevention is crucial. Trending issues that arise in numerous states can be addressed by resolving the source issue, which will reduce the overall volume of future notices. This proactive approach ensures that taxpayers remain compliant and minimize financial risk. Additionally, taxpayers should keep in mind receiving notices could imply issues for other tax types in the same (or additional) filing period as the notice. This should incentivize companies to take a wholistic view of tax implications, such as conducting nexus studies.

Formal processes, typically including appeals, differ from standard waiver or abatement procedures. Approaching these situations from an offensive versus a defensive position can demonstrate being proactive rather than reactive. Being proactive involves researching options and making choices specific to a particular situation, rather than responding to an enforcement notice. Alternatively, taking leadership to prevent reaching a point where such measures are necessary may include continuously reviewing accounts to ensure they are compliant with state tax laws.

Complexities of state and local tax notices require a vigilant and informed approach. Taxpayers must adopt a proactive stance, staying ahead of potential issues through regular account reviews and compliance checks. Processes must be set in place for businesses to manage and address notices received from taxing jurisdictions. Prompt and precise responses are essential to mitigate any further enforcement action. Ultimately, understanding the nuances of state tax laws and regulations and maintaining open communication with tax authorities can significantly reduce the stress and uncertainty associated with tax notices. By taking these steps, businesses can ensure a smoother and more predictable financial operation, safeguarding against the pitfalls of tax-related challenges.

Matthew Melinson, CPA, is a principal with Grant Thornton Advisors LLC in Philadelphia, PICPA’s 2024-2025 president, and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at matthew.melinson@us.gt.com.

Dylan Diodato, CPA, is a manager, tax services, at Grant Thornton Advisors LLC in Philadelphia. He can be reached at dylan.diodato@us.gt.com.