Trending Topics in SALT for Tax Leaders

A Q&A with Matthew Dyment

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The results of the 2024 BDO Tax Strategist Survey highlight a growing trend that has been developing over the past few years: As their roles become more strategic across the business, tax leaders are facing more demands than ever. We can see this dynamic play out in state and local tax (SALT). SALT is becoming more complex in every jurisdiction, and for companies operating nationally or across multiple states, the burden of compliance grows as business expands. For some tax leaders, keeping up with these compliance demands can make it difficult to provide strategic guidance.

I recently sat down with Matthew Dyment , the Managing Principal of BDO’s State & Local Tax Practice , to unpack some ideas tax leaders can explore to successfully enhance the strategic value of SALT practices. ?

Matt Becker:

Thanks for joining me today, Matthew. ?SALT continues to grow in complexity. Managing compliance obligations in all the jurisdictions where your business operates is a demanding job that can occupy all your resources, limiting your ability to effectively pursue potential opportunities like SALT credits and incentives. Yet at the same time, those credits are critical to improving total tax posture. How can tax leaders manage these dynamics?

Matthew Dyment:

My pleasure, Matt. When it comes to SALT credits, the biggest barrier is that too many businesses are either not aware of the credits they may be eligible for or they lack the in-house knowledge, experience, or bandwidth to pursue them. As you noted, securing these credits is crucial to reducing total tax liability. Engaging with third-party providers through co-sourcing or outsourcing is a way to support tax leaders as they identify, negotiate, obtain, and fully implement SALT credits.

For example, if a microchip manufacturer needs to expand its production capabilities, it may consider building a new facility in its current location or in another state, among other options. Engaging third-party advisors at the planning stage can help identify or negotiate potential SALT credits to find a strategic and cost-effective solution. Tax leaders may also assist in negotiating with local economic development officials incentives that align with a company’s long-term goals.

This is why tax leaders need to have a seat at the table when key business decisions are being discussed. Involving the tax team in planning business development goals from the outset — whether it’s geographic expansion, M&A, or other initiatives— allows them to provide valuable insights that lead to tax savings.

Matt Becker:

You’re right, there are so many ways tax leaders can proactively get involved in the broader business, and this is a key characteristic of Tax Strategists .

And what about advanced technologies? Generative artificial intelligence and machine learning are changing the way tax teams perform many everyday tasks. How are these technologies being integrated into SALT compliance practices?

Matthew Dyment:

Investing in new technology is essential to effective SALT compliance practices. The 2024 BDO Tax Strategist Survey revealed that 51% of CFOs surveyed planned to upgrade their tax technology for SALT processes as the landscape becomes ever more complex.

For example, income tax differs across jurisdictions, with 43 states imposing taxes on income and others imposing taxes on gross receipts. This is in addition to numerous cities, counties, and other localities. Each jurisdiction has its own apportionment formula. At BDO we’ve developed the State Apportionment Navigator, a tool that helps automate state apportionment calculations, improving the accuracy and transparency of tax data while freeing up time for tax leaders to spend on more strategic work. ?

There are numerous ways technology can allow businesses to use data they collate and provide as part of their tax compliance obligations. For example, tax data can be used for benchmarking against the performance of industry peers, forecasting future tax liabilities based on expected revenue, providing predictive modeling to explore the impact of changes in tax laws to a company’s tax liabilities, and much more.

Many companies already collect huge volumes of tax data but may not be making strategic use of that information. With a strong data foundation and robust data governance, tax teams can extract insights by analyzing customer purchasing trends and patterns to optimize future tax planning and even marketing focus and spend. By bringing this strategic information to the C-suite, tax leaders can enhance the strategic value of their teams.

Matt Becker:

It’s interesting to see how the investment in tax technology is expanding beyond the automation and streamlining of compliance processes. Let’s discuss dealmaking, which has certainly been slower in 2024. Many C-suite leaders are talking about preparing their businesses for an eventual upturn. What role do tax leaders have to play in that?

Matthew Dyment:

There are significant opportunities for tax leaders at companies considering a liquidity event — both the buying and selling of businesses or assets — to ensure that they are either maximizing the return on exit or are not succeeding to historical tax liabilities the target may have created through improper compliance.

On the sell side, businesses have the opportunity to perform sell-side due diligence before any proposed transaction . When the deal market improves, businesses that review their tax positions will be better positioned for prospective buyers. Investing in sell-side due diligence now can expedite potential transactions and help tax leaders be proactive in communicating tax positions around nexus and sales tax rather than reacting to the narrative written by buy-side diligence advisors. Tax leaders can then act on the results of due diligence and implement necessary changes now rather than on a compressed timeline when a deal needs to be completed, which can lead to multi-year escrows — and worse, purchase price reductions.

This is yet another example of tax leaders expanding their roles — and that of the tax function — from a cost center to a team that adds strategic value.

A slowdown is also an ideal time to ensure that prior acquisitions have been properly integrated into the overall business structure and operations. Evaluating tax filings, ensuring companies are billing out of the right entities, apportioning gains correctly, and examining overall entity rationalization (whether to merge or rebrand their acquisitions) can have potential financial benefits.

Performing a thorough wellness check and improving operational efficiency in SALT compliance now, with the help of a third-party advisor, can help avoid costly issues later.

Matt Becker:

It’s been great to hear how tax leaders are rising to the challenge of the growing complexities of SALT compliance. Thanks for taking the time to join me, Matthew.

CTA: Want to know more about how outsourcing or co-sourcing can unlock opportunities in SALT? Ask me a question below or read our latest insight .