Dealing with a Changing State Tax Landscape

Taxes may be an inevitable cost, but, at the very least, businesses need to be able to anticipate the amount taxes they will owe, when they will be owed and to whom they will be owed. A recent trend in state corporate income taxation, the adoption of the economic nexus theory, threatens this stability on which the franchise industry has relied. A recent case specific to the franchise industry provides an overview of the costs franchisors can anticipate as a result of this change. Franchisors should anticipate increased taxes as a result of the proliferation of the economic nexus theory. Beyond increased taxes, they may encounter the double tax phenomenon if two different states tax the same income. As states continue to search for revenue outside of their own borders, increasing numbers of businesses can expect retroactive taxes from any number of states in which they are not physically present.