Qualities of a Fair State Tax Administration Part 3 – Corporate Income Tax Return Due Dates and Prot

This is the third in a series of posts about the qualities of a fair state tax administration.  These measurements were used by the Council on State Taxation (COST) to analyze each state’s fairness in administering its taxes. 

The two qualities discussed in this article deal with deadlines:
1)    Due dates for corporate income tax returns and filing of extensions  
2)    Protest periods for any type of tax

States who do not allow adequate time to prepare a state income tax return, which starts with having a correct federal taxable income number, are only inviting issues.  Likewise, when they limit the time period to protest assessments to less than 60 days, they are not allowing adequate time to fully respond and defend a position taken.

State Income Tax Due Dates
The due date for the federal income tax return for calendar-year taxpayers is March 15 with a 6-month extension to September 15.  State income tax returns generally take the federal taxable income as line #1 and add or subtract certain state modifications to arrive at state taxable income.   Often corporations are struggling to meet the federal September 15 deadline because of complicated tax issues.  If a company doesn’t know what line #1 is for their state return, it is difficult to submit an accurate return by the same due date, not to mention multiple state returns with that due date.  Allowing an additional 30 or 60 days past the federal due date greatly increases the amount of time a firm is able to properly prepare a state income tax return.

In addition to tight deadlines, some states do not accept the federal extension filed, thus requiring businesses to file separate state extensions to request additional time to file returns.  Those states that take a fair approach to administering their tax system allow an automatic state extension if the federal extension form has been timely filed and a copy provided with the state return.

Reasonable Protest Periods
In today’s economy, tax departments are dealing with more jurisdictions than ever and handle not only the compliance but also the audits and correspondence as well.  States who allow 60 to 90 days or more to protest an assessment are fairly providing sufficient time to research and defend a position.  The American Bar Association’s Model State Administrative Tax Tribunal Act recommends a 90-day protest for the reason that any protest period shorter could jeopardize a taxpayer’s ability to fully respond.  While more states are increasing the protest period allotted, there are still several that offer less than 60-day windows.

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