Multistate Income Tax

Appendix ABASIC IDEAS OF MULTISTATE INCOME TAX PLANNING

This chapter is not part of the required reading for self-study participants.

Introduction

State and local taxes have, for many companies, become a much larger expense than federal taxes. In addition, the state and local field has become a growth industry with no end to the growth in sight. As a consequence, increased attention has been focused in the past few years on reducing state tax liabilities.

We engage in this effort, keeping in mind the oft-quoted words of Judge Learned Hand that “any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” (Helvering v. Gregory, 69 F.2d 809, (1934)).

Finally, any tax planning strategy must be considered in light of overall company objectives, implementation costs, administrative complexity, practical realities, economic substance, and business purpose. In our enthusiasm to save taxes, we often forget that businesses do not exist to minimize taxes. Reducing a company’s tax burden is only one of many tools used by management to achieve a company’s larger objectives.

Identifying goals and methodologies

General planning goal

Our general planning goal is to shift income from states with high taxes to those with low tax rates by ...