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Turning State Tax Complexities into a Plan for Success: The Role of Trusted Advisors

20 August 2025

State tax laws are evolving rapidly, with broadening nexus standards, shifting apportionment rules , aggressive enforcement tactics, and growing divergence from federal standards. As a result, companies operating across multiple U.S. states face an increasingly complex state tax compliance landscape. What was once a manageable state filing process has become a nuanced, high-stakes area of risks and opportunities that affect everything from where companies expand to how deals are structured – and whether those decisions ultimately support or erode the bottom line.

The challenge is that the rules keep changing, and not just in one state. With 50 states – and thousands of local jurisdictions – each interpreting the law in its own way, the state and local tax landscape has become one of the most fragmented, fast-moving, and misunderstood areas of taxation. And the consequences of getting the calculation wrong or missing valuable tax savings aren’t just financial – they can ripple across business operations, compliance, and investor confidence. That’s why companies of all sizes are turning to experienced state tax advisors. Staying compliant is no longer enough; you need to stay ahead.

State Tax Begins with a Proactive Filing Strategy

A skilled state tax advisor helps companies see what’s coming before it shows up as a state notice or assessment. That starts with understanding where a business has nexus – that is, where its operations, employees, inventory, sales, or even digital activity may create a filing obligation. With states applying broader interpretations of economic nexus rules, it’s easy for companies to create exposure without realizing it.

Advisors analyze a company’s entire footprint and help determine where state tax filings are required, sometimes uncovering years of past exposure that can be resolved through voluntary disclosure or amnesty programs. Those programs often provide significant benefits, such as limiting exposure to prior-year taxes, interest, and penalties, but they are time-sensitive and easy to miss without someone monitoring legislative developments.

Unlocking Tax Savings Opportunities

Even for fully compliant companies, the way they calculate their state income tax obligations can make a major difference. Apportionment rules, which dictate how revenue is divided among states, are complex, especially for companies with service-based income , intangible assets, multichannel sales, or significant mergers and acquisitions (M&A) and disposition transactions. An advisor evaluates whether the current apportionment method fairly reflects a company’s business activities across various states and, if not, whether an alternative method is available to reduce state tax liabilities.  

In many cases, a fresh set of eyes on a company’s state income tax returns can lead to real state tax savings. Advisors conduct diagnostic reviews to confirm that all available deductions, apportionment sourcing methods, and filing methodologies are applied correctly. Whether it’s state net operating losses, state-specific tax credits, or alternative apportionment methods, the right insights can materially improve a company’s effective tax rate.

Planning for Change Before It Happens

State tax advisors also bring value beyond the numbers. As companies restructure , expand into new markets, or prepare for acquisitions, state tax implications can make or break a deal. Advisors can structure M&A deals to help lower a transaction’s state tax cost, preserve valuable state attributes, and ensure new entities are integrated in a state-tax-efficient way.

For example, restructuring your business operations can create opportunities to lower state income tax liabilities, simplify state filings, or reduce state tax exposure, but only if it’s done with a full view of the states’ positions on issues such as combined reporting, intercompany transactions, and apportionment sourcing rules. Advisors guide companies through those changes so that planning decisions don’t create risks down the road.

Defending Your Position with Confidence

When state audits do arise, the stakes are high. States are ramping up enforcement efforts, and many are pursuing aggressive interpretations to generate revenue. Advisors help prepare documentation, engage directly with state tax authorities, and resolve disputes efficiently, often by drawing on deep technical knowledge of the auditing state’s statutes, regulations, and administrative processes. Working with advisors who have a well-prepared audit strategy and network of state contacts can mean the difference between years of back-and-forth with state tax agencies and a fast, favorable resolution.

Bringing Clarity to a Confusing Landscape

What makes state tax so challenging isn’t just the complexity – it’s the inconsistency. Rules vary not just across states but also within the same state based on the type of entity, income, or industry.  

Staying on top of those differences requires more than internal diligence: It requires an advisor who knows how to translate confusion into clarity and complexity into strategy. An experienced advisor will monitor state tax legislative, administrative, and judicial developments and make you aware of innovative and practical guidance that can help lower your company’s state and local tax liabilities.

The Bottom Line: State Tax Isn’t Just Compliance – It’s Strategy 

In today’s environment, state taxation cannot be treated as an afterthought because it can affect where you operate or how you structure your business. And without an informed, forward-looking approach, companies risk missing state tax savings opportunities, facing unexpected state tax liabilities, and losing control over a growing portion of their tax profiles. Working with a dedicated state tax advisor turns those risks into advantages by offering not just compliance but also strategy and foresight. It’s time to turn the complexities of state taxes into a plan for savings and growth.

For more information, contact us

 

Written  by Mariano Sori-Marin and Shirley Wei. Copyright © 2025 BDO USA, P.C. All rights reserved. www.bdo.com


 

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