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Doing Business in
the United States (Part II)

 
     
 

Before opening a United States office or hiring any employees or representatives in the United States, Israeli businesses should negotiate with local jurisdictions for available tax benefits. The businesses also should be aware of the tax consequences to themselves and to their customers of being present in a tax jurisdiction. These issues are discussed below, in Part II of our four part series on doing business in the United States.

Setting Up Shop:
Obtaining Tax Benefits and Controlling
Tax Presence


Background:
States and cities are eager to attract new businesses, and many of both send business development delegations to Israel. A business looking to establish an office in the United States should investigate the potentially available tax and investment incentives and should schedule meetings with local business development offices. Tax incentives may include making equipment and other purchases nontaxable, providing a sharing of sales tax collections, allowing for vacations from property taxation and other benefits.

an office in the united states

Apart from the location of headquarters facilities, businesses must carefully consider where they will have other offices, warehouses or property. Having an office, warehouse or property in a state might create a sales tax collection responsibility where there otherwise would not be such an obligation. Such an office can be created by something as simple as having a salesperson use his home to store goods, meet with clients or receive payments or correspondence from clients. Businesses need to set guidelines for what sales people can and cannot do. Failure to do so can cause the business to have a substantial annual tax liability that will not be discovered for years.

an office in the united states

Important tax considerations in deciding where a business should put its United States headquarters and its remote offices, warehouses and other places of business

 
A. Where will the business have its United States headquarters?
B. Will the business have offices in other states?
 
i. Enterprise zones.
ii. Other tax advantaged zones.
iii. Property tax waivers.
iv. Income and sales tax credits for manufacturers.
 
C. Additional incentives offered by a state or city’s office of business development.
 
D. Income tax rate.
 
E. Other income tax considerations in determining the amount of income taxable in the state.
 
F. Non-income taxes gross receipts taxes and other taxes that are due even if  the business does not have federal taxable income.
 
G. Remote offices can create tax presence in the states where they are located.
    i. Will the remote office make the business’s sales in that
    state taxable?
ii. Is the amount of the potential tax liability material?
iii. How does the tax effect compare to the tax effect of other
     possible locations?
iv. Avoiding inadvertent tax presence.
 
H. Storing goods in a warehouse can create tax presence in the state where the warehouse is located.
 
I. Leasing equipment or other assets can create tax presence in the state where the leased goods are located.
 
J. Consigning goods can create tax presence in the state where the consigned goods are located.
         
 

Previous issues of the State Tax Alert Newsletter are available at:
www.statetaxalert.us/archive

 
  *David A. Fruchtman is an attorney in the United States. He is not admitted to the Israeli Bar and does not practice Israeli law. He is Of Counsel to Horwood Marcus & Berk Chartered, located at 180 N. LaSalle Street, Suite 3700, Chicago, Illinois 60601. He is a Harvard Law School graduate and is chairman of the American Bar Association’s Income and Franchise Taxes subcommittee. He has been named by his peers as one of Chicago’s Leading Tax Lawyers. Horwood Marcus & Berk Chartered has one of the largest state and local tax law practices in the United States. The firm provides tax planning advice to clients of all sizes and has successfully represented clients before courts and administrative tribunals throughout the country, including at the United States Supreme Court.  
         
  This Alert is for discussion purposes only and does not constitute tax advice; consequently, it is not subject to the attorney-client privilege and does not constitute attorney work product. This Alert may be disclosed to any and all persons, without limitation of any kind, including any potential tax treatment or tax structure of any transaction described hereon. This Alert does not provide federal tax advice and was not prepared in a form to comply with the requirements of an opinion upon which a taxpayer can rely to avoid certain penalties under the Internal Revenue Code of 1986, as amended. No fee was received in connection with producing this Alert.© 2007 David A. Fruchtman