Beyond the IRS: What to Know about State and Local Notices
State and local tax notices are the other half of the much more uniform IRS notices U.S. citizens are more familiar with. Because businesses often contend with many more non-federal notices, having a system for relevant local tax notices is just as crucial as for IRS notice procedures. With automated tax notice management tools, though, the added complication of local and state tax procedures doesn't have to distract you from your daily business operations.
We'll provide a brief overview of how business owners can learn about the local taxing requirements in their area and use advanced tax automation software to stay on top of their state or local agency's notification procedures.
What are State and Local Notices
The tax notices you get at the local level usually pertain to the jurisdictions where you conduct business. Each has its own tax codes, regulations, and unique procedures for addressing local notices. With over 80,000 local taxing jurisdictions, companies crossing even a small handful of jurisdictional boundaries must keep track of a potentially massive number of processes throughout the year. Knowing the thresholds of those boundaries is essential because it will help businesses know if or when they'll reach minimum taxable limits, allowing them to prepare their documentation accordingly.
Of course, it's not enough to address the tax notices as they come because businesses must already be prepared for them. And that requires keeping records beforehand and ensuring those records can quickly be associated with any taxing area. The challenge is to reduce redundancy and ensure everyone can easily access the same documents for multiple purposes.
Incurs More Specific Taxes
While IRS taxes go towards social security and other federal programs set out in federal withholding guidelines, state and local tax withholdings can often be much more nuanced.
Depending on the locality, local and state taxes often encompass more specific taxes, including:
- Sales tax
- Income tax
- Property tax
- Excise tax
Local taxes, whether for state, county, city, school district, or some other municipality, fulfill a broad range of services. Municipalities commonly use local taxes to build roads, schools, and government buildings or pay government worker salaries. Exactly where each type of local tax goes depends on how that municipality determines funding allocations.
Formatting and Response Procedures May Differ
Another distinction to federal taxes is how unique formatting and compliance rules can be for local notices, which often have far more variations. That can create vast differences amongst tax jurisdictions in terms of notice response deadlines, form types, and even legal definitions, as well as how businesses form a nexus with a given taxing authority in the first place.
Thus, businesses must look for changes in notification patterns and associated notice rules, especially if they contend with high-volume notices each year. The more locations your company's tax notices originate from, the more deadlines and taxing procedures you must keep your eye on. With dozens, hundreds, or even thousands of potential rules, the question becomes, how will you manage it all?
What Procedures Remain the Same
Like IRS notices, state and local notices have precise timelines and documentation requirements. The burden of proof on any given filing may be higher, though, such as for certain deductions or more advantageous filing methods (e.g., making quarterly estimates instead of annual lump sum calculations). Essentially, companies should prepare to handle the total burden of proof on any filing, which means diligent, detailed records in the event of an audit.
Staying on Top of State & Local Notices With Tax Notice Automation Software
Staying on top of tax notices of any kind is the best way to ensure total accuracy and compliance. Yet with so many distinct local taxing agencies, it can quickly become overwhelming – but only if you let it. Now more than ever, businesses have incredibly sophisticated tax automation software available that's designed to help your business stay organized and prepared for important filing dates while managing notices that otherwise may slip under the radar.
NOTICENINJA is a comprehensive notice-management platform with communication and management integrations that allow business leaders to work quickly and directly with their regional and hyperlocal franchises. If you're still trying to manually keep track of increasingly complex tax notice procedures, ditch the spreadsheets, and schedule a free consultation today.