Is Your Company Tax Lean?
by Steven Everson
Universal Advisor, 2007 Issue No. 1

Please also read the companion piece, "One Client's Perspective: How Metal Flow Has Become Tax Lean"

In today’s business environment, successful manufacturing companies have implemented “lean” manufacturing principles. These companies have not merely embraced lean; they’ve made it part of their daily efforts in running their businesses.

Lean is concerned with identifying wasted or underutilized resources and developing improved processes to minimize waste and maximize resource use. Plante & Moran’s tax team believes these same principles of lean manufacturing can be applied to a company’s tax situation. Consider that when you combine federal income taxes, payroll taxes, state and local income and franchise taxes, property taxes, and sales and use taxes, as well as account for any net foreign tax, your company’s tax burden can easily be more than 50 percent of net income! How does your company ensure that it’s not paying more than its fair share…while following the rules of the game?

Getting Lean

We believe that the only way to ensure that a company doesn’t pay more than its fair share of federal, state, and local taxes is through a systematic approach — a lean approach, if you will. This process is specifically designed to identify and minimize wasted tax dollars as well as identify and utilize available tax credits and incentives.

Our process includes the following steps:

1. Develop an in-depth understanding of your history, current practices, and the future direction of your company. This essential first step can only happen by spending time at your place of business so we can learn about the company’s history, current issues, and vision for the future.
2. Complete a review of selected federal, state, and local tax filings and supporting data.
3. Conduct plant/facility tours. This is done to both deepen our understanding of the business and begin identifying opportunities to help you become more lean.
4. Perform brainstorming sessions to generate ideas. This is a formal process designed to identify potential ideas to help you become lean. We’ll develop an inventory of ideas and potential savings. Our ideas generally fall into four categories:
   • Credits and incentives
   • Efficient application of tax accounting methods
   • Structuring and entity selection
   • Annual proactive tax planning
5. Implement our findings. This involves establishing a timeline and method for implementation, which can range from simply amending tax returns or filing accounting method changes to more complex entity structuring changes to gain tax efficiency.

Continuous Improvement

Becoming lean would not be complete without — you guessed it — “continuous improvement.” After all, what good is becoming lean in the near term without a long-term strategy? Since the business climate is never static, and since the tax laws are constantly changing, it’s crucial to adopt continuous improvement principles as part of the tax-planning and reporting process to make sure that your company stays lean.