Reed Smith’s State Tax team prides itself on its ability to offer tax services such as multistate refund reviews, in addition to traditional legal controversy services. We are recognized as a leading state tax practice in the United States with more than two dozen dedicated state tax attorneys throughout the country. Our attorneys come from private practice, state government departments of revenue and attorneys general offices, in-house, and Big 4 public accounting firms. Some of our attorneys are also CPAs or have accounting degrees and related experience. This deep and varied experience allows us to be more than just litigators; we are tax advisors, focused on reducing our clients’ tax expense to increase their bottom line.
We approach each client’s state tax issues with the resources of a global firm but the focus of a boutique state tax firm. Our attorneys typically develop a particular skill set in just a few states and build local relationships, while leveraging our national platform to truly be multistate tax advisors. We have built a Tax Intelligence system that allows us to identify specific state tax positions before they become commonly known to the public. Coupled with our team’s controversy and litigation experience, these characteristics make us the best-suited tax advisors to perform refund reviews because we have the unique knowledge of when and how a state will pursue a particular tax issue, and we advise our clients accordingly.
We have a record of success in obtaining significant cash refunds and future tax savings using a contingent fee structure, so that we take on the risk of failure and our clients incur no fees unless we succeed. Our multistate refund review services are performed for all state income/franchise tax returns, sales/use tax returns, and gross receipts taxes, such as the Ohio Commercial Activity Tax (CAT) and Washington Business & Occupation (B&O) tax. Notwithstanding the ever-vigilant work of taxpayers to correctly report taxes and maximize savings for the company, opportunities always remain for tax savings. Our lawyers can identify positions based on case law, formal and informal administrative policy, or legislative changes that may support a refund of taxes paid.
Scope of Services
Our multistate refund reviews are designed to significantly reduce a client’s overall state tax expense, whether by reduction of cash tax liabilities or maximization of usable deferred tax assets, such as net operating losses. In either case, we perform our reviews with the goal of minimizing any additional burden on the client’s internal resources. These reviews can be done as either a stand-alone engagement or as part of our strategy in audit defense and tax litigation engagements.
Depending on the states for which our clients request such review, we assign attorneys who have the appropriate state, industry, and tax-type experience to maximize identification of savings. After our initial review, we summarize the potential refund opportunities available, and in a focused meeting with the client, discuss the opportunities identified during the review, the projected benefits and risks of each opportunity, and our strategy to turn these opportunities into the type of relief most beneficial to the client, whether as a cash refund, offset, or credit.
If engaged to proceed with the identified opportunities, our team can:
- Prepare multistate as-filed/as-amended tax calculations to ensure that the projected benefit identified during the review phase is accurate, and further ensure that if the position affects multiple states, the overall benefit is significant and worth pursuing;
- Prepare legal memoranda to support positions being asserted on the amended returns (or in refund claims), including ASC 740 and Valuation Allowance analyses as appropriate;
- Prepare amended returns or refund claims to monetize the tax benefits, including developing significant supporting evidence using third-party resources that reduce the need for client assistance;
- Discuss the amended returns or refund claims with the departments of revenue, when strategically appropriate;
- Monitor the amended returns or refund claims to timely address problems that may arise and to protect a refund or to make timeliness of the refund more likely;
- Develop maintenance plans in cases where the legal position producing the tax benefit requires annual monitoring and additional documentation to be filed with the tax returns in each subsequent year; and
- Assist clients with internal education for non-tax procurement personnel on the recordkeeping best practices that will maximize their operational budget while also minimizing the documentary burden on tax personnel to defend future audits and substantiate future refunds.
Fee Flexibility and Cost Savings
Our practice offers a flexible approach to billing and fees. We have the ability to structure matters using contingency-based billing, risk-sharing agreements, and other arrangements tailored to meet client needs and internal corporate policies.
National Platform
Reed Smith has the largest number of dedicated state tax attorneys of any law firm, with our attorneys located in offices across the United States. The geographic breadth and experience of our team allow us to coordinate state tax issues and advise on a national level to help clients avoid decisions made in one jurisdiction from having unintended tax consequences in other jurisdictions. Likewise, as our team identifies refund opportunities in “new” jurisdictions for our clients, our institutional knowledge about those clients’ business operations, data availability, and internal policy priorities allow us to tailor our recommendations accordingly.
Tax Intelligence
The size of our team allows us to track local developments across the country, even though several states do not publish their tax practices and policies. Through our Tax Intelligence system, we track key issues state-by-state. Our team has collected thousands of records, including case filings, unreported decisions, and other key documents, that are not readily available through commercial sources. Knowing these developments in advance allows us to bring opportunities to our clients earlier than other service providers.
Seamless Information-Sharing & Efficiency through Technology
Our client-specific extranet site, ouRSite™, is a free service that we offer to any client, for any matter. With ouRSite, clients have the ability to upload and download documents to and from the site, and can securely access documents related to their matters at any time. An oursite portal does not eliminate the personal communication between our lawyers and clients; it simply enhances the agility of the client/lawyer team by creating visibility of our work at the convenience of the client.
Public Relations
With every matter we take on, our team is keenly aware of the importance of preserving clients’ hard-earned goodwill with the public. We are experienced in achieving favorable and confidential settlements, including in nationwide matters involving hot-button disputes or other public tax issues, such as tax credits and incentives. Our attorneys are conscientious about media coverage and can create public relations strategies to minimize negative exposure and highlight success. We have advised the in-house media representatives of Fortune 50 companies as they interact with reporters from The Wall Street Journal, The New York Times, and other media outlets.
Income and Franchise Tax Success Stories
- Recovered millions of Pennsylvania tax dollars by re-sourcing sales of services and intangibles
- Recovered significant New Jersey income tax refunds based on argument that a state regulation is invalid
- Recovered more than $5 million in refunds from Illinois using legal positions based on destination sourcing and alternative factor representation, and by mitigating the state’s “50% rule” for intellectual property
- Recovered significant refunds of Financial Institution Tax from Ohio based on argument about applicability of certain credits for banks not chartered in the state
- Recovered millions in Minnesota corporate tax by developing unique apportionment approach for an out-of-state technology company
- Recovered more than $10 million of Michigan Business Tax by advocating for a unique combined-reporting approach for a multistate technology company and its subsidiary
Sales and Use Tax Success Stories
- Won the McNeil-PPC v. Commonwealth sales and use tax case in Pennsylvania, establishing the right to offset underpayments with overpayments
- Recovered more than $8 million in use tax refunds for a data outsourcing company’s software purchases despite the taxability of software under Pennsylvania Supreme Court precedent
- Recovered significant New Jersey sales and use tax refunds on software purchases using creative methods to secure evidence
- Recovered significant California refunds based on argument related to value of software embedded in tangible personal property
- Recovered significant Maryland sales tax refunds based on argument that bank ATMs and signage are fixtures to real property
- Recovered significant New York refunds for utility company based on interpretive arguments related to state’s manufacturing exemption
- Recovered nearly $2 million of sales and use tax from Texas on the construction of new corporate headquarters and manufacturing facility
Gross Receipts Tax Success Stories
- Recovered eight-digit refund of Hawaii general excise tax on novel legal theory that taxpayer’s sales qualified for wholesale tax rate rather than retail tax rate
- Recovered significant refunds of Delaware gross receipts tax by arguing that the exemptions and exclusions in the tax benefited wholly in-state taxpayers over multistate taxpayers
- Recovered significant refunds of Ohio CAT for food product companies and other wholesalers by successfully arguing that certain discounts and rebates offered to retailers qualified for exclusions
- Recovered significant refunds of Washington B&O tax by re-characterizing telecommunications service provider’s receipts, thereby subjecting them to a lower tax rate
- Recovered significant refunds of Washington B&O tax by arguing that the taxpayer was subject to public utility tax and qualified for a deduction equal to 100 percent of its revenue
