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Choose Wisely, Grasshopper — Binding State Income Tax Elections


The world of state and local income tax is a complex place, a land fraught with hundreds of taxing authorities, each tirelessly clawing for its "fair share" of your company's cash. Navigating these numerous and complicated taxing regimes can be daunting, with different rules applicable in nearly every jurisdiction. Alvarez & Marsal Taxand LLC, our US member, investigate how best to approach this.

Simply maintaining compliance with all relevant filing obligations is a significant taxpayer burden; operating in the most tax-efficient manner possible is often viewed merely as an aspirational goal.

State tax elections add a further layer of complexity. Out of the kindness of their hearts, states sometimes grant taxpayers the option to choose their favorite among various elective filing positions. However, what often appears to be a simple, innocuous box on a state tax return may instead be a landmine, laden with far-reaching state tax consequences for your business. Moreover, in some cases an electing taxpayer may not even realize when it is making such an election. Below we explore several common state tax income tax elections, so that your company may be better aware of its options and able to exercise them to its best advantage.

Taxand's Take

Make no mistake about it: binding state income elections can cut both ways. At their best, elections represent legislative providence, allowing taxpayers to tailor their state tax profiles in a manner not otherwise possible. However, at their worst, elections can cause compliance nightmares and result in unfortunate, unnecessary and expensive tax liabilities.

However, with periodic planning and targeted analysis, your company can both avoid the exposure associated with unwise state income tax elections and benefit fully from the opportunities afforded by the available filing alternatives.

Your Taxand contact for further queries is:
Matthew Polli
T. +1 404 271 2259

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Taxand's Take Author