According to a recent Grant Thornton survey, regulatory and compliance burdens top the list of concerns for finance chiefs. Nearly half (45 percent) of CFOs say that increasing costs of compliance present the biggest challenge to growth, and nearly a third (31 percent) say that keeping up with the volume and complexity of regulations is their number-one challenge.
The Grant Thornton survey reflects recent increases in regulatory changes, particularly at the state corporate income tax level. While Federal corporate income tax reform seems to be at a standstill, state income tax reform is alive and well. Based on a Bloomberg BNA study conducted earlier this year, state government appears to be shattering their stereotypical image, by swiftly enacting new laws to meet their budgetary or political goals.
The Grant Thornton survey results also supports sentiments from early users of the BNA State Tax Analyzer product, with nearly all respondents (94 percent) experiencing tax reform in the states they file in. In addition, the majority of respondents (88 percent) believe that state tax reform will make their job more challenging, while half (50 percent) believe state income tax reform will cause increased audits.
The root of their problems? The complexity of analyzing the plethora of tax regulations and then calculating the corresponding tax liabilities, which both ranked as top state income tax compliance challenges (50 percent).
Surprisingly, antiquated spreadsheets notorious for human-error and lack of scalability, are still being used by over 80 percent to manage state tax planning and provision. Plus over one-third (34 percent) percent spend four or more weeks on spreadsheet maintenance annually.
While tax reform typically equates to the need for additional operational resources to remain in compliance, many of the recent tax structure changes have been made to encourage business investment.
At the start of 2015, states including Arizona, Illinois, New Mexico, and Rhode Island reduced their corporate income tax rates. In many instances, these cuts are part of multi-year legislation to lower the rates even further. A handful of other states, such as Pennsylvania, recently introduced proposals to slash corporate taxes and loosen apportionment regulations. In other words, states are creating huge tax incentives to lure businesses into their respective region. The result is millions and even billions of dollars in potential tax savings. However, in order to uncover potential tax savings goals, companies need to have the right tools.
So what are finance executives doing about compliance burdens resulting from tax reform? Half are starting by putting state income tax on the their strategic agenda; and 44 percent plan on getting a leg-up on state income tax compliance through the use of new software such as BNA State Tax Analyzer.
To learn more on how companies can thrive in the wake of state income tax regulatory changes, be sure to read, “Finding Tax Savings Opportunities in the Midst of Vibrant State Income Tax Reform” in the November print issue of Financial Executive.
Diane Tinney, Senior Product Manager, Software at Bloomberg BNA•