56 There are over 10,000 state and local taxing jurisdictions in the U.S with their own rules. This article addresses the “Top 10” SALT issues Israeli companies are likely to face when doing business in the U.S. 1. The Requisite Tax Connection or Nexus for SALT Where is my company required to file? Whether a company is required to file tax returns in a jurisdiction depends on whether the company has a sufficient jurisdictional connection (i.e., nexus) in the state. Historically, a physical presence (e.g., office or employee) was required. Nowadays, all that is needed is an economic presence for sales tax purposes and, in many states, for income tax purposes as well. Most people (including in Israel) have heard of the Wayfair case, which is a sales tax case that was decided by the U.S. Supreme Court. All states with a sales tax have now adopted “economic nexus,” looking to a fixed dollar amount of sales in the state to create nexus. While the thresholds differ in each state, most states will require a company to register with the state revenue collecting agency and collect sales tax on sales to customers in the state if the company has over $100K of sales to the state and/or 200 transactions in the state. For income taxes, some states will also look at the level of sales to determine if a company has a filing responsibility. 2. Optimizing Tax Structure to Reduce State Taxes A good defense will always beat a good offense. Companies should investigate different structuring options for establishing a U.S. parent, U.S. subsidiary or increasing its operations in the U.S. and, in particular, in which states to operate to minimize its income tax liability in a state or local tax jurisdiction. This can be extremely important for the Flip structure involving Israeli companies, whereby a U.S. domestic corporation now owns the former Israeli parent entity, which can lead to increased funding opportunities in theU.S. forthe start-up founders and provide other benefits. Any such SALT planning should consider whether the state requires combined reporting of all tax items of a parent-subsidiary or with its affiliates (which is similar, but not identical, with the federal consolidated return rules), or requires each entity to file a separate income tax return to report its own items of income, deductions and net operating losses. The location of the company’s operations in the U.S. could also be beneficial from its and its employees’ perspectives since several states do not impose a personal income tax, while some states do not impose a corporate income tax.
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