Stapleton, Everett F.

English

University of Miami School of Law

University of Miami Law Review Volume 11 Number 2 Miami Law Quarterly Article 7 1-1-1957 Corporate Tax Administration Everett F. Stapleton Follow this and additional works at: https://repository.law.miami.edu/umlr Recommended Citation Everett F. Stapleton, Corporate Tax Administration, 11 U. Miami L. Rev. 227 (1957) Available at: https://repository.law.miami.edu/umlr/vol11/iss2/7 This Article is brought to you for free and open access by the Journals at University of Miami School of Law Institutional Repository. It has been accepted for inclusion in University of Miami Law Review by an authorized editor of University of Miami School of Law Institutional Repository. For more information, please contact library@law.miami.edu. CORPORATE TAX ADMINISTRATIONEVERETT F. STAPLETON*Assistant Treasurer, The Coca-Cola CompanyUntil about 16 years ago, taxes were no real burden on corporations.Rates were low and the laws were relatively simple. As a result, corporatetaxes were handled in most instances in a haphazard manner. Responsi-bilities were generally divided among treasurer and controller; treasurer,secretary and controller; or some other combination of corporate officials.Various tax functions were carried on as a part of the regular work ofthe accounting, legal, payroll, production and sales departments, with onlynominal supervision and control by a corporate executive. In manyinstances, certified public accountants handled the major taxes, such asfederal and state income taxes, and one of the service organizations suchas Corporation Trust Company or P-Il Corporation System, Inc. handledthe state franchise taxes, annual reports, qualifications and withdrawals.Even some of those companies that had tax departments did not assignthe handling of all tax matters to that department.Over the years, however, a multitude of new and infinitely morecomplex laws have been adopted. Rates on existing taxes have been raised.New types of taxes have been introduced. Existing taxes have spread tonew levels of taxing jurisdictions, resulting in double or triple taxationon the same income, assets or operations. As a result, the tax burdenamounts at present to more than half of the net income of a largecorporation and constitutes one of its major expenditures. Thus it hasbecome increasingly important for companies to exercise more administra-tion and control over all tax functions in order to be assured that theywill not pay more than their share of the overall tax burden and thatcompliance costs will be minimized. Accordingly, practically all of thelarger corporations and many of the smaller corporations have organizedtax departments to administer and control all or a major portion of thecorporate tax functions. The head or administrator of this departmentmay be directly responsible to a member of the board, president, executivevice president, vice president in charge of finance, treasurer, or some otheradministrative executive. In many of the larger corporations, however, heis equivalent or superior in rank to the treasurer and controller. Generallythe tax department in a large corporation is assigned the responsibilityto administer and control all company tax matters in accordance withapproved company policy; that is, determine tax obligations and liabilities,*This article is not to be considered the official view of the company with whomthe author is associated.MIAMI LAXV QUARTERLYassure compliance, and furnish tax advice aud guidance to administrativeand operating personnel.There is no set pattern, however, in the operation of tax departmentsof large corporations. The manner in which they operate depends on theresponsibilities assigned and the size, scope and type of business. Somehave centralized authority with scattered administration. Others haveseparate tax departments for each division or subsidiary of the corporation.In still others, thc are fully centralized. Some companies whose facilitiesand activities are widespread and subject to a large number of taxingjurisdictions have geographical or functional divisions of responsibility ontax matters. The central or main office administers, controls and handlesall federal, foreign, state and municipal taxes which are based on theincome, assets, capital stock, etc. of the company as a whole. The regionalor functional unit handles all local taxes, such as property taxes, salestaxes and licenses, with or without policy controlled in the main office.Under this type of operation, the local unit can:1. maintain personal contacts with local taxing authorities inregard to assessments and negotiations;2. more readily provide regional management with tax guidanceand assistance;3. more readily obtain the data necessary for determination ofliability and filing of returns within the due dates, and;4. decrease the costs of compliance through reduction of traveland other operating expenses.The facilities and activities of The Coca-Cola Company and sub-sidiaries are widespread, with a substantial tax burden involving a greatnumber of domestic and foreign taxing jurisdictions in which the parentand subsidiaries are subject to a multitude of taxes. Our tax departmenthas, within approved company policy, the full responsibility for theadministration and control of all federal, state and municipal tax functionsof the parent and subsidiaries. The managers of our foreign branchesand subsidiaries have the responsibility for handling all foreign taxesapplicable to their respective operations. The foreign income, excessprofits, capital stock and similar taxes, however, are subject to the generalsupervision of the tax department in order to assure the most favorableoverall tax liability and currency position. The responsibility for thepreparation and filing of payroll taxes, state and municipal sales, useand ad valorem taxes, licenses and fees, and information reports for eachsubsidiary has been delegated to the office manager of that subsidiary,with supervision and control by the tax department. The office managersare advised of the essential data in regard to tax liabilities and are keptadvised of any changes as a result of revisions in existing laws, regulations,interpretative rulings and court cascs. The question of tax liability underCORPORATE TAX ADMINISTRATIONa state law or municipal ordinance must be determined by the tax depart-ment before any payment can be made. In the event of liability, appropriateinstructions containing the procedure to be followed in complying withthe particular law or ordinance are issued to the office managers. Thcinstructions include the name and nature of the tax, return and paymentdue dates, exemptions, bases and rates, statute of limitations and otherpertinent information. In addition, in order to maintain effective control,the instructions require the submission to the tax department of copiesof all tax returns, payment notices and requisitions, assessment noticesand pertinent correspondence from the tax authority.The general functions of this department are to:1. prepare and file or supervise the preparation and filing of allfederal, state and municipal tax returns;2. supervise the handling of all foreign income, excess profits,capital stock and similar tax returns;3. handle or supervise the payment of taxes due with domesticreturns and also those payments subsequent to or independentof the filing of returns;4. prepare and file necessary amended returns, claims, briefs,protests, etc. in connection with all domestic taxes;5. prepare and file requests for rulings where such procedure isdeemed necessary for protection;6. guide, control and coordinate the intermingling of tax operationswith other company activities;7. formulate policies and procedures on tax matters designed tofacilitate the efficient preparation of returns, reduce costs, andminimize tax liabilities;8. advise management on the tax aspects of proposed companyactions, policies and problems;9. advise management on the tax implications of new tax statutes,revisions in present tax statutes, court decisions, regulations andinterpretative rulings;10. confer and advise with division and department heads onprocedures and methods to be followed in accounting, pur-chasing, etc. to assure full benefit of available tax savings;11. conduct negotiations and settlements of tax liabilities with taxauthorities;12. prepare and furnish tax accruals and cstimates to operatingunits;13. maintain tax files, records and receipts relative to all taxmatters;14. cooperate with tax and legislative authorities and businessMIAMI LAW QUARTERLYrepresentatives in an effort to eliminate inequities and improvetax systems.rIlie work is divided basically into four divisions:1. Federal income and excess profits taxes;2. State and municipal income, franchise, property and privilegetaxes;3. Payroll, excise, sales and use taxes, and;4. Foreign income, excess profits, capital stock, etc. taxes.This general allocation of work into divisions permits the developmentof technical specialists in each field of taxes. IThe entire staff, however,is kept abreast and familiar with the taxes of other divisions by depart-mental conferences and the circulation of all correspondence, tax returns,tax service releases, etc. This lends to proper correlation of decisions andhandling on interrelated tax matters.A tax calendar is used to maintain overall control for all taxes forwhich the department is responsible. The calendar contains the nameand nature of tax, return and payment due dates, exemptions, bases andrates, statute of limitations and any other pertinent information.An extensive tax library is maintained which provides each divisionwith a continuous review of tax laws, regulations, rulings and courtdecisions pertinent to the respective taxes handled by that division.It has been our experience that the administration of tax functionsin this manner has resulted in:1. more effective control of tax policy;2. more uniform handling through consistent accounting andreporting;3. more efficient use of technically trained staff;4. better tax planning;5. consistent interpretation of tax laws and regulations, and;6. minimization of costs through planning and less duplication ofwork. rUndoubtedly other corporations have obtained equally good resultsthrough other types of tax administration. The form and type ofadministration will, of course, depend to a great degree on the varioustaxes for which the corporation is liable and the number of jurisdictionsin which it is subject to tax.The tax executive should maintain a cooperative business relationshipwith officials of all taxing jurisdictions in which his company operats. Inthis way, he is cognizant of any proposed changes of a serious nature.Differences can be discussed as they arise and generally settled at thatCORPORATE TAX ADMINISTRATIONtime. Thus, settlement of audits and claims is facilitated. In the eventof any unsettled issues, he should not hesitate to resist the position of thetaxing jurisdiction if he believes that he is right. Such resistance shouldbe predicated, however, on the recurring nature of the issue involvedand the related costs of litigation.Any proposed change or new development in foreign operationsrequires intensive investigation and study in the field of taxes in order todetermine the most favorable form of operation from a tax standpoint.Where should the operation be located? Should it operate as a foreignbranch or should a foreign subsidiary be formed? Can it qualify as a\Vestern Hemisphere or Possession Corporation? What capital structurewould the corporation take? Local taxes, foreign exchange rates andrestrictions on transmission of funds abroad are all matters for consideration.After the location and method of operation have been determined, properprocedures must be established to provide the necessary data to handleall taxes properly and expeditiously.Somewhat similar problems arise in the case of domestic expansionor changes in methods of operation. Studies must be made to determinethe tax consequences of any proposed change. Will the change constitute"doing business" in a state in which the company has not heretoforequalified? If there a choice of location or methods of operation? If so,which is the most advantageous from a tax standpoint? In the case ofincome or franchise taxes the method of operation can sometimes bealtered to affect the allocation factors. Sales, use and property taxesmust be considered as well as local licensing and regulatory ordinances.Here, too, once a location and method of operation have been decidedupon, proper data must be forthcoming for the handling of all taxes. Itis the duty of the tax department to pay no more taxes than thoselegally due and to maintain proper records and procedures to supportthe minimum tax position.You can readily see that the operation of a tax department in a largecorporation, or for that matter a small corporation, is not limited to merecompliance and payment of taxes on time. It cuts across every operationof business. Tax functions must be guided, controlled and coordinated.Proper accounting methods must be established which are responsive totax needs. Operating and planning executives must be advised of thetax implications of any proposed course of action. Operating proceduresmust be reviewed continually to be sure that, commensurate with companyoverall interests, tax liabilities and related costs are kept to a minimum.Each change of any consequence by management should be analyzed fortax aspects before final decisions are made. Contracts, whether marketing,232 MIAMI LAW QUARTERLYproduction, or any other kind of any import should be reviewed for taximplications. No entries of any consequence should be made on thebooks unless tax tested. Finally, but not least, all of the functions, aswell as the actual handling of the returns, must be correlated with otherdepartments.

Corporate Tax Administration

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Corporate Tax Administration

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