The Council on State Taxation released a new report grading every state based on the fairness and efficiency of their taxation policies. For multi-jurisdictional businesses that deal with sales and income tax in multiple places, this report gives some clues into future development strategies. If your business is looking to grow in 2014, the report can give you ideas of what to expect. The rankings take a close look at how cumbersome it is to take care of your business’s taxes and how fairly disputes are handled when businesses contest audits. The goal of COST is to urge states to enact legislation that makes it easier for taxpayers to comply and to get fair treatment during appeals processes through independent appeal boards.
The thinking behind this move is that when taxpayers feel that a system is fair to all, they’re more likely to comply. Since sales tax is largely about voluntary compliance, it’s important for revenue that businesses follow through on laws enacted by state legislatures and processes set forth by revenue departments. How do the rankings affect you? This report can give you a heads-up if you’re expanding into another state. If you’re in business in the top state of Maine, you might face a rude awakening about tax policy if you decide to expand to California or Louisiana, which are both at the bottom of COST’s rankings.
You might also use these ratings to determine how much of an investment you should make in the documentation for sales and use tax. If you’re in a state that is particularly low rated by COST, spending extra time and money on compliance may be worth the effort. If COST is right, these states have particular problems with the fairness of appeals processes, and the complexity of taxation is particularly high. The sales tax goal of every business should be to comply with taxation policies as much as possible to prevent audits and keep assets secure. No business wants to find out firsthand how accurate COST’s ratings are.