Chief financial officers say tax code certainty is now even more important than a reduction in corporate tax rates, given today's political, economic and regulatory changes, according to a new survey conducted by Alvarez & Marsal Taxand LLC, a founding member of the first global network of independent tax firms.
"For companies to plan, to invest, to create jobs and to grow, they must have certainty," says Robert N. Lowe, CEO of A&M Taxand. "In fact, confidence in knowing precisely what the tax code will require has become more important than how much it will cost them. As our research reveals, as long as proposed changes remain up in the air, companies will be forced to continue to burn fuel operating in holding patterns rather than charting productive courses forward."
The survey finds that respondents' worries regarding the lack of certainty in the current tax system are apparent in how they respond to proposed tax legislation. In fact, only 29 percent of respondents from large businesses model the impact of tax proposals; however, just 15 percent of respondents from small businesses do the same, which stresses the value executives place on certainty.
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"The impact of these reforms is judged to be too speculative, especially in the face of other more immediate pressures, emphasizing the hesitancy by companies to take action," says Kent Wisner, managing director at A&M Taxand.
Respondents report that Texas, Florida and Nevada are the most competitive states from a tax perspective, but California, New York and New Jersey are the least competitive.
"With competition for corporate headquarters and the jobs that come with them increasing in the face of a challenging economy, it will be interesting to see if states modify their taxing systems in an aggressive attempt to retain contracts and attract new business," says Don Roveto, managing director at A&M Taxand.
According to respondents from both large and small businesses, an effective tax rate of 20-25 percent is considered necessary for the U.S. federal corporate rate to remain competitive with global tax rates. Although 34 percent of respondents from small companies typically choose the 20-25 percent range, 28 percent of respondents say the rate should be at 15-20 percent to make the U.S. competitive.
When businesses grow in complexity and become more global, taxes impact their decision making even more, respondents say. While 92 percent of respondents from large companies say they consider tax implications in global business decisions, this is only true for 77 percent of respondents from small businesses.
"Most CFOs believe that the U.S. has stood idle for 20 years while other countries have lowered their top corporate tax rates, negatively impacting our ability to compete effectively in a global economy," says Ernesto R. Perez, managing director at A&M Taxand. "Aligning our corporate tax system with the rest of the developed world should enable U.S.-based companies to compete effectively on a global scale and create more business opportunities in the U.S."
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