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State and Local Tax (SALT) Compliance

Navigating State and Local Income Tax (SALT)

State and local income taxes can represent a significant tax burden for businesses and their owners. These taxes can impact your organization’s cash flow, effective tax rate, and risk profile.

Savvy business owners should evaluate their businesses to understand their potential exposure. There are many issues to navigate that can dramatically impact a company’s state and local income tax burden. Companies not in compliance with the jurisdictions where they do business could have their business licenses revoked and be assessed back taxes, fines, and penalties.

Consequently, it is critical for business owners to understand how state and local income tax issues affect their businesses. It can be challenging keeping up with current SALT laws, which change often. Windes will help business owners stay up-to-date and compliant with new legislation. We have access to a multitude of resources, along with various channels, to share the latest information with our clients.

Our dedicated SALT Team has the breadth of experience and technical expertise you’re looking for. Let the Windes team help.

Windes SALT Expertise

Companies face increased income tax scrutiny from state and local agencies in the wake of the Supreme Court’s 2018 Wayfair v South Dakota decision. Moreover, tax-saving opportunities are available that could be missed without proper planning and resources. Windes understands that your in-house accounting team may not have the expertise or experience to handle such a complex tax situation. Our tax professionals have expert state and local technical knowledge across various industries and will work diligently to minimize your tax burden.

Areas of Specialization

Income Tax Nexus Studies

Nexus is the minimum contact between a taxpayer and a state, giving the state authority to collect tax. Every state has different guidelines for defining that minimum contact. Nexus studies are an in-depth analysis that identifies which states have jurisdiction over your business.

Apportionment/Allocation Calculations

Apportionment is the process of dividing business income, payroll, rent, and property between taxing jurisdictions. Every state has different methods of calculating apportionment, and these methods can change year over year. Allocation is a similar process, but for non-business income. Non-business income is typically allocated to the business’s state of domicile but can be allocated elsewhere, depending on the circumstances.

Sourcing Rules

Sourcing is the process of determining which sales are incorporated in the numerator of the sales factor for each state in the apportionment calculation. There are two methods states use: 1) market-based sourcing and 2) cost-of-performance sourcing. Market-based sales are taxable where the benefit of the product or service is received (where the customer is located), and cost-of-performance sales are taxable where the work related to the product or service is performed (where the employees/manufacturing are located). Different sourcing methods across state lines can cause a sale to be taxable in multiple states or not taxable at all (nowhere sales).

State and Local Income Tax Exposure Calculations

Windes can help you project your state and local income tax exposure across the United States. This analysis gives business owners the tools to determine whether they are filing in the appropriate jurisdictions and whether or not to file in new states. 

Income Tax Voluntary Disclosure Agreements (VDA)

Voluntary Disclosure Agreement (VDA) programs allow businesses that owe back taxes and have not filed related income tax returns to come forward, file, and avoid penalties. If you discover that you or your business has exposure in a state you have never filed in, Windes can help you file a VDA and the related tax returns. Depending on the state, you may only need to file income tax returns for the previous two to six years with your VDA. When a state accepts a VDA, a statute of limitations is created, preventing them from going further back.

Pass-Through Entity Taxes

A pass-through entity election (PTE) is a tax option for pass-through entities to pay state income taxes at the entity level instead of at the individual owner level. PTE taxes paid are deductible for federal tax purposes, acting as a workaround for the $10,000 maximum SALT itemized deduction. This is an excellent option for pass-through entity owners living in high-tax states like California. However, PTE elections are not available in all states, and rules may differ from state to state. Windes can help determine if your business is eligible for PTE participation and assist with the related filings.

Composite Filings and Nonresident Withholding

Many states allow businesses with nonresident owners to file composite tax returns on behalf of eligible owners. A composite tax filing satisfies the personal income tax filing requirements of the eligible owners with that state and simplifies income tax compliance. Windes can assist in nonresident withholding calculations and withholding waivers for owners ineligible for a composite return.

Public Law 86-272 Studies

Public Law 86-272 is a federal law that shields certain out-of-state businesses from income tax if their in-state activities are limited to soliciting orders for sales of tangible personal property and the orders are approved and filled outside the state. However, it does not protect businesses from other state taxes, and its application can be complex. Windes can help determine whether your business is eligible for P.L. 86-272 protections.

The Windes SALT Team

Meet the dedicated and experienced Windes SALT team members.

State and local income tax compliance can be difficult to navigate, even for professionals. Let our team of experts help you through this complex area.

SALT Assistance

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