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$2 Million Mississippi Income Tax Refund and ASC 740-10 Mitigation

2M-mississippi-tax-refundWhile many states have eliminated the throwback rule, Mississippi still has one. This refund opportunity arose while we studied the client’s ASC 740-10 reserve. We noted that the client’s effective state tax rate was quite high as compared to benchmark. The reason? To some extent the high rate was attributed to the fact that the client had essentially doubled booked its state tax liabilities. The client had a large distribution facility in Mississippi out of which e-commerce goods were shipped directly to consumers in most states. Because the e-commerce entity, a subsidiary in a complex corporate group, had no nexus in destination states (states to which goods were shipped to consumers) the client correctly “threw back” sales to Mississippi as required under Mississippi law.

However, we noted a rather obscure inconsistency. One of the large accounting firms, assisting the client, established a reserve for nexus for the e-commerce entity under ASC 740-10 (at that time FIN 48). The accounting firm correctly noted that the e-commerce entity likely had nexus in “destination” or “shipped to” states due to two key operating facts: 1) the e-commerce entity conducted in-state deliveries and installations and 2) a related “bricks and mortar” entity with retail locations accepted returns of merchandise made by the related e-commerce entity.

The net effect of these two factors, i.e. throwback sales to Mississippi but a reserve for nexus in destination states created a double booking of state tax liabilities. Noting this, Barnwell recognized that Mississippi’s throwback rule, while perhaps archaic and outdated was at least internally consistent. Stated differently, if the nexus creating activities noted above – sales returns and in-state deliveries and installation – would create nexus in a reverse fact pattern where such activity occurred in Mississippi as a would-be destination state, such activity meant that the e-commerce entity would not be required to throwback sales for Mississippi purposes. Barnwell filed and secured $2 million in refunds for the open statutory period, and the client continues to file returns in Mississippi without having to throwback sales.

Learn how we can find tax refunds like this for your company. Contact us today for a complimentary consultation.

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Filed Under: Client Results

In Summary, Barnwell Consulting, LLC can:

  • Find state income/franchise tax refunds and have collected millions of dollars in cash refunds
  • Assist with altering corporate structure when good business purpose exists, to help lower state income tax liabilities
  • Assist with FIN 48 accruals, but more importantly with strategies to resolve FIN 48 uncertainty projects that help companies lower the state effective tax rate.
  • Handle complex income and sales/use tax audits and have been successful in eliminating or reducing material assessments
  • Assist clients with SALT issues in acquisitions and divestitures
  • Identify credits and incentives, which fall into two broad categories, statutory and negotiated. With respect to the former, we see our job less as identifying statutory credits – and more focused on whether our client has fully recognized the credit, and obtained the maximum possible benefit.
  • Client Results

    Retention Credit – “It’s not SALY”

    Georgia Tax Credit for Training Employees

    $40 Million City Incentive Contract

    $2 Million Refund of California Franchise Taxes

    Florida $4.5 Million Corporate Income Tax Refund

    $2.8 Million Settlement Award of California Franchise Tax from Settlement Board

    $270,000 in “Quick Hit” Georgia Sales Tax Savings

    See More Client Results

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    In most of these cases we turned these big wins into deeper relationships and were able to identify additional opportunities. We are grateful to the companies that share their facts with us; a core value of our firm is to invest in gaining contextual knowledge. These examples tell the story: there are hidden opportunities in the state and local tax area for large companies. The trick is to know how to find them, and then how to pull the trigger to lock in the value.

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      Published Articles

      • The Sales Factor – Top Five Issues Taxpayers Need to Consider
      • State Income Tax Uncertainty Under FIN 48
      • Addback: It’s Payback Time
      • State Tax Planning – What’s Left
      • Is State Tax Planning Still Viable
      • Sales & Use Taxes Corralling the Runaway Sales Tax Auditor
      • Captive Concepts in State Tax Planning

      Services

      • Strategic Reduction of State and Local Taxes
      • State and Federal Interest Review and Recovery Engagement (“SAFIRRE”)
      • Income and Franchise Tax Strategy and Planning
      • Recovery, Including Reverse Audits
      • ASC 740-10 Mitigation and Consulting
      • State and Local Credits and Incentives
      • Economic Development Negotiations For State and Local Incentives
      • Motor Fuels Tax
      • Sales and Use Tax Planning and Compliance
      • Property Tax Appeals, Abatements, and Compliance
      • Should My Company Collect Sales Tax? When? Where? How?
      • Business License Compliance
      • Employee Retention Credit

      Compounded Obscurity

      "We analyze specific fact patterns to bring targeted strategies to companies."

      Learn More About Barnwell Consulting

      Consulting Services

      • State and Local Tax Consulting
      • Income Tax / Franchise Tax
      • Recovery - Reverse Audits
      • State and Local Credits and Incentives
      • ASC 740-10
      • Economic Development
      • Sales and Use Tax Consulting
      • Property Tax Appeals and Abatements
      • SAFIRRE
      • Employee Retention Credit

      675 Seminole Avenue, Suite T04
      Atlanta, Georgia 30307

      404-637-0940

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