SALT and Structure: Keep It Simple Sxxxxx????
I was talking to a CFO the other day, and it made me think of the following:
Does your company or client operate its business within a simple organizational or entity structure? Does it operate all of its business activities through one entity or several entities?
Whether or not your company or client should operate its business through one entity or several entities depends on several factors, such as:
- Does the company have more than one business line, product or service?
- Does the company manufacture products and provide services as well?
- Is the company profitable in general? Are certain business lines profitable and others are losing money?
- Does the company sell wholesale and retail?
- Does the company sell its products and/or services over the Internet?
- Does the company have operations in foreign countries?
- Does the company have valuable trademarks, patents, copyrights, or other intangibles?
- Does the company want to decentralize or centralize certain functions such as, accounting, legal, tax, purchasing, etc.?
- Should the company have separate entities for legal reasons? Liability reasons?
- Does the company want to streamline its supply-chain, obtain economies of scale?
The list could go on and on. Each case is different, but the goal should be the same - create and utilize a legal and organizational structure that helps the company achieve its business, legal and financial objectives.Tax purposes or ramifications, whether it is federal tax, international tax, and of course, state and local tax, should attempt to be in alignment with the company's business, legal and financial objectives.
Therefore, when it comes for a company to decide as to if they should keep a relatively simple structure or create multiple entities, the "keep it simple stupid" mantra may or may not come into play. The key is to complete the cost/benefit analysis of doing so. This means weighing the business, legal and financial objectives. It also means evaluating the tax ramifications.
Therefore, it may not always be in your company's or client's best interest to, "keep it simple." What do you think?
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
You can reach Brian at firstname.lastname@example.org.
Because state and local taxes are deceptively simple and endlessly complicated.