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10 Signs Your Company Is At Risk Of A State Or Local Withholding Audit

Is your company at risk of a payroll withholding audit?

Budget deficits have lead to a steady rise in state and local corporate audits over the past five years. Regulatory authorities are increasingly turning their attention to nonresident workers and the companies that employ them. In the words of Brian Gordon, a thirty-year veteran of the New York State Department of Finance and Taxation, “Politically, who better to go after than those who do not even claim to be residents of the state?”

Unsurprisingly, a KPMG survey found that nonresident state withholding is either a major or growing issue for the majority of companies surveyed. Tax departments face the challenge of trying to understand whether their company has exposures, with limited visibility and a lack of data. Below are 10 potential indicators that your company may have multi-jurisdiction tax exposures.

10 Signs Your Company Is At Risk Of A Withholding Audit:

  1. Your travel and expense records show that you have employees making frequent trips to other jurisdictions.
  2. Your company headquarters are located in a state or locality that regularly conducts withholding audits.
  3. Your company’s public presence (such as press releases, event announcements, or public filings) reveals that your senior executives are traveling on behalf of the business to a particular state.
  4. You are paying sales and use taxes, but not income tax withholding, to a state or locality.
  5. Your company has employees traveling to a state or locality that is actively conducting withholding tax audits.
  6. One of your company’s clients is undergoing a state or local audit.
  7. Your company’s vehicles are often seen in a state or locality (for example, New York City has been known to use parking tickets to identify audit targets).
  8. Your company owns property that employees use within a state or locality.
  9. A parent company operates a subsidiary in one or more states (other than the state of the parent company).
  10. Your AP records show travel and other costs paid on behalf of employees to states where they do not reside.