Not surprisingly, when asked about the SALT cap, almost half of survey respondents indicated they want it eliminated completely, with a quarter wanting at least a doubling or tripling of the deduction. An even higher number of respondents working in pass-through companies agreed that a loosening of the cap was desired, with nearly 80% supporting raising or eliminating the deduction cap compared to 67.3% working at C corporations. This likely reflects that state taxes on pass-through businesses are often taxed at the individual owner level and are subject to the cap, while taxes on C corporation income are not.
Similarly, there was a good deal of agreement from respondents on the most challenging state tax issue for business. Almost half of respondents saw treating conformity inconsistencies of recent tax provisions as the most challenging issue for them, with other concerns somewhat evenly split. As with the SALT cap question, the C corporation/pass-through split was notable, with C corporations responding about 20 percentage points higher than pass-throughs on the compliance issues.
Jamie Yesnowitz, SALT leader in the Washington National Tax office, thought that respondents from public companies might be more attuned to state conformity issues given that many of these enterprises have broad presence throughout the U.S., possibly resulting in significant state corporation income tax liabilities. As such, these respondents may be directly responsible in ensuring that their companies comply with the non-uniform approaches taken by states in addressing recent federal income tax provisions contained in the TCJA and the CARES Act for purposes of their state corporate income tax filings.
Finally, when asked about employing environmental, social and governance (ESG) strategies through tax governance and transparency, most said this is still in its theoretical stage at their companies. Among respondents, 53.1% said their companies had not considered ESG in a meaningful way while only 8.2% had a comprehensive ESG strategy. A breakdown of those working in public v. private companies is instructive here. Only 35.3% of those in public companies indicated their businesses haven’t considered ESG strategies while nearly 60% of those working in private companies said the same.
Promoting ESG strategies may not seem to be an immediate concern for tax compliance, but that assumption is mistaken. Many federal and state programs incentivize a business’s philanthropic activities, such as the New Markets Tax Credit Program that provides a tax credit for businesses that invest money, through Community Development Entities, for low-income community projects. In fact, there are many significant credits and incentives for social and environmental activities. Leaning into opportunities to maximize credits and incentives has long been a staple of business tax management -- so it’s only a small step to adjust an entity’s tax strategy to align more closely with the entity’s ESG strategy. If, on the other hand, tax is not involved early and often in ESG efforts, businesses may find that many of the opportunities cannot be maximized or may even be largely unavailable.
What we do know is when a company’s tax organization is not involved meaningfully in a business’s ESG plan, it likely will impede a company’s ability to maximize credits and incentives, while increasing governance and compliance risks. Our survey reveals a concerning lack of progress in ESG strategy implementation – one that a business’s tax organization can, and should, play a meaningful role to correct.