Tax Strategies for a New Economy

During economic downturns, states are often searching for ways to supplement their declining tax revenues while businesses are formulating strategies to improve their profitability by reducing tax liabilities. Businesses look to sales and property taxes to reduce their overall tax payments but in an economic environment that has been declining, companies must prepare themselves to deal with states’ more aggressive pursuit of sales and property tax revenues.

Options to Minimize Corporate Sales Tax 

• Restructuring Individual Transactions or Business.
  Vendor contracts often offer good opportunities to restructure transactions to be more tax advantageous. For instance, a vendor that bills one lump sum for both telephone support and software updates could be restructured to bill them separately so that the support is not subject to state sales tax.
  In addition, a company may look at restructuring its business. For instance, a company may operate an internal fleet of trucks and delivery vehicles. By restructuring, the company could isolate the delivery of its own products to possibly take advantage of a exemption on the trucks, tires and fuel used for delivery of business’ goods. 
• Request Formal Rulings on State Tax Interpretations.
  Companies can also request formal rulings on state tax interpretations which could provide further insight into what is taxable. 
• Adjust Business to Market Products that are Exempt from Sales Tax.
  Companies may be able to tweak their offerings in order to remain exempt from sales tax. As an example, an electronic information service company may change its model so that consumers are unable to print anything tangible. 

External Obsolescence and Property Taxes
External obsolescence can be used to reduce the assessed value of property and, in turn, property taxes. While sales taxes may increase, there is potential to offset that cost with reductions in property taxes during a down economy. External obsolescence occurs when external forces beyond a company’s control – such as the economy – negatively influence property value. In today’s market, it’s not a question of whether a company or industry is experiencing external obsolescence but rather to what extent is it experiencing external obsolescence?

In a tight economy, companies must be aware of the effects that sales and property taxes can have on their profitability. As always, it’s important to work with a trusted advisor who can help you navigate tough times so that you can weather the storm and come out the other side better than before!