State and Local Tax (SALT) is one of the most complex and rapidly evolving areas of tax practice. With 50 states, thousands of local jurisdictions, and constantly changing laws, SALT compliance and planning require specialized expertise.
Types of SALT
Income and Franchise Taxes
- State corporate income taxes
- Personal income taxes (relevant for pass-through entities)
- Franchise taxes and capital stock taxes
- Gross receipts taxes (e.g., Ohio CAT, Washington B&O)
Sales and Use Taxes
- State and local sales taxes
- Use tax on out-of-state purchases
- Sales tax nexus determination
- Exemption certificate management
- Economic nexus compliance (post-Wayfair)
Property Taxes
- Real property taxes
- Personal property taxes (equipment, inventory)
- Valuation appeals and assessments
- Tax abatement and incentive programs
Other SALT Areas
- Payroll and employment taxes
- Excise and severance taxes
- Transfer taxes
- Unclaimed property (escheat)
- Tax credits and incentives
Why SALT Matters
Complexity
- 50 states with different rules
- Thousands of local jurisdictions
- Constant legislative changes
- Apportionment and allocation rules vary by state
- Combined vs. separate reporting requirements
Financial Impact
- SALT can represent 30-40% of a company's total tax burden
- Nexus exposure can create unexpected liabilities
- Credits and incentives can provide significant savings
- Audit exposure spans multiple years and jurisdictions
Key SALT Concepts
Nexus
The connection between a taxpayer and a taxing jurisdiction that gives the jurisdiction the right to impose tax:
- Physical nexus: Office, employees, property in the state
- Economic nexus: Revenue or transaction thresholds (post-Wayfair for sales tax)
- Factor nexus: Exceeding thresholds for income tax apportionment factors
Apportionment
How multi-state businesses divide income among states:
- Single sales factor: Most common modern approach
- Three-factor formula: Property, payroll, sales (declining use)
- Market-based sourcing: Revenue attributed to customer location
- Cost of performance: Revenue attributed to where services performed
Wayfair Impact
The 2018 Supreme Court decision in South Dakota v. Wayfair:
- Eliminated physical presence requirement for sales tax nexus
- States can now require sales tax collection based on economic activity
- Thresholds typically $100,000 in sales or 200 transactions
- Massive compliance burden for businesses selling across state lines
CPA Firm SALT Practice
Services
- Multi-state tax compliance and filing
- Nexus studies and exposure analysis
- Voluntary disclosure agreements
- Audit defense and dispute resolution
- Credits and incentives identification
- Restructuring and planning
- Sales tax automation implementation
Technology
- Automated tax calculation engines (Avalara, Vertex, Sovos)
- Multi-state return preparation software
- Nexus tracking systems
- Exemption certificate management platforms
Best Practices
- Monitor nexus exposure: Track activities that create obligations
- Automate compliance: Use technology for filing and calculation
- Review apportionment annually: Factor changes can shift tax burden
- Pursue credits and incentives: Proactive planning reduces liability
- Stay current: SALT laws change frequently — continuous education is essential