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From sales tax nexus and apportionment rules to property tax assessments and franchise tax filings, navigating the SALT landscape demands both diligence and strategy. As states become increasingly aggressive in their enforcement and audit practices, businesses must adopt a proactive, tech-enabled, and jurisdiction-aware approach to compliance.
Understanding the Scope of SALT Obligations
SALT includes a wide range of taxes imposed by state, county, and municipal governments. These can vary not only from state to state, but often from city to city or district to district. The most common categories include:
Sales and Use Tax:
Taxes imposed on the sale or use of goods and certain services, with rates and rules varying by state and locality. Use tax applies when goods are purchased out-of-state but used within the taxing jurisdiction.
State Corporate Income and Franchise Taxes:
Corporate income tax is charged on business profits, while franchise tax is a fee for the privilege of operating in a state, often based on net worth or capital. Both vary widely in rates and calculation methods.
Property Tax:
A tax on real estate and business personal property assessed by local governments, based on the value of owned assets. Rates and assessment methods differ significantly by locality.
Payroll Tax:
Taxes employers withhold and pay on employee wages, including unemployment and disability insurance taxes, which vary across states and localities. Some jurisdictions impose additional payroll or occupational taxes.
Gross Receipts Tax:
A tax on total business revenue without deductions for expenses, commonly used as an alternative or supplement to income tax. Rates and exemptions differ by state or locality.
Excise Tax:
Levied on specific goods and activities like alcohol, tobacco, fuel, and luxury items, with rates and taxable items varying by jurisdiction. These taxes often aim to influence consumption as well as raise revenue.
Local Business License Taxes:
Fees charged by cities or municipalities for the privilege of conducting business locally, often based on gross receipts or employee count. Requirements and rates vary widely and typically require annual renewal.
One of the most significant developments in the SALT world occurred in 2018, when the U.S. Supreme Court ruled in South Dakota v. Wayfair, Inc. that states can impose sales tax collection obligations on out-of-state sellers based on economic nexus, not just physical presence.
What This Means:
Businesses may be required to register, collect, and remit sales tax in states where they have no employees or facilities.
Economic nexus thresholds vary by state, but typically include sales of $100,000 or more or 200+ separate transactions annually.
As of now, all states with a sales tax have enacted some form of economic nexus legislation.
Key Challenge:
Businesses must track sales activity across all states to determine where nexus has been established, and act quickly to stay compliant.
Navigating Sales and Use Tax Complexity
Sales and use tax remains one of the most burdensome SALT areas due to:
- Jurisdictional variation in tax rates
- Frequent changes in taxability rules for products and services
- Resale exemptions, marketplace facilitator rules, and digital goods regulations
For multistate sellers, especially e-commerce and service-based businesses, automation has become essential. Manual tracking of rate changes, tax holiday rules, and exempt item categories is no longer feasible at scale.
Example:
A SaaS company may find that its software is taxable in one state but exempt in another, or taxed only if delivered electronically. These distinctions can drastically affect compliance requirements and audit risk.
State Corporate Income and Franchise Tax: Apportionment Challenges
Unlike federal income tax, which applies uniformly, state corporate income tax is administered by each individual state, and the way income is taxed varies significantly. States use apportionment formulas to determine what portion of a company’s income is subject to tax.
Common Methods:
- Three-factor formula (sales, property, payroll)
- Single sales factor (more common today)
- Market-based sourcing vs. cost-of-performance
Problem Area:
Companies operating in multiple states may be subject to double taxation if states don’t align on sourcing methods or definitions of taxable income.
Recent Trend:
More states are shifting to market-based sourcing, which assigns income based on where the customer receives the benefit, not where the service is performed, placing more companies within their tax reach.
Local Tax Complexity: City and County-Level Compliance
It’s not just states that impose taxes. Cities, counties, and even special taxing districts can have their own tax codes. For example:
- San Francisco levies a gross receipts tax and a homelessness tax on large employers.
- New York City imposes its own corporate and unincorporated business taxes.
- Colorado has over 70 home-rule cities that administer their own sales tax collection.
This hyper-local approach means companies need localized compliance strategies, especially if they operate brick-and-mortar locations, remote teams, or conduct business in densely populated regions.
Property and Tangible Personal Property Taxes
Real and personal property taxes are a key revenue source for local jurisdictions. Businesses must be aware of:
- Asset reporting requirements
- Annual assessment deadlines
- Appeal processes for over-assessment
Personal property tax applies to business assets such as computers, machinery, and furniture. Each jurisdiction has different rules on depreciation schedules, exemptions, and filing frequency.
Tip:
Maintaining accurate fixed asset inventories and working with valuation specialists can reduce exposure and avoid unnecessary penalties.
Remote Work and Payroll Tax Complications
The rise of hybrid and remote work has complicated SALT compliance further. Many states are re-evaluating nexus and withholding rules to reflect the mobile workforce.
Payroll-related SALT considerations include:
- Withholding obligations for remote employees working in other states
- Unemployment insurance registration and remittance
- State disability and paid family leave programs
Remote work nexus potentially triggering income or sales tax filing requirements
Example:
An employee working remotely from New Jersey for a company headquartered in Texas could create nexus for New Jersey corporate tax, sales tax, and employer payroll obligations, even if the company has no other physical footprint in the state.
SALT Audits Are on the Rise
As state budgets face pressure, many departments of revenue have increased their audit activity.
SALT audits are often triggered by:
- Inconsistencies in sales tax reporting
- Rapid expansion into new states
- Nexus-triggering activities (e.g., trade shows, remote employees)
- Missing or incomplete exemption certificates
Best Practices:
- Proactively track nexus triggers
- Maintain robust documentation and audit trails
- Ensure exemption certificate management is current and accurate
- Conduct internal SALT reviews annually
Technology as a Compliance Enabler
Manual SALT compliance is becoming increasingly unmanageable, particularly for companies with multistate footprints. Fortunately, tax technology has evolved to address these needs:
- Sales tax automation platforms like Avalara, TaxJar, and Vertex
- Geospatial tools to determine precise tax jurisdictions
- ERP integrations to streamline transaction-level tax determination
- Cloud-based filing solutions that automatically calculate and file in all required states
By implementing these tools, businesses can reduce risk, improve accuracy, and scale their tax operations efficiently.
Final Thoughts
State and local tax is no longer just a compliance concern, it’s a critical area of financial management that impacts everything from profitability to expansion strategy. As rules evolve, jurisdictions become more assertive, and remote work changes the tax map, businesses must take a proactive and technology-driven approach to SALT compliance.
By understanding nexus rules, leveraging automation, and staying informed about regulatory changes, companies can navigate SALT challenges more effectively and position themselves for sustainable, compliant growth across jurisdictions.
Need help tackling SALT complexity?
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