The 2026 BDO Tax Strategist Survey offers a broad look at the priorities, pressures, and planning considerations shaping today’s tax function. This insight draws from that survey but focuses specifically on its state and local tax findings, highlighting how shifting rules, evolving conformity considerations, audit activity, and multistate compliance obligations are influencing business decisions and tax department priorities.
Where State & Local Tax Enters the Equation
The survey report includes information on the increasingly complex state and local tax landscape, noting that “Federal tax policy changes may command the most attention, but state and local tax developments are also generating a wave of disruption — one that is harder to track, faster to shift, and increasingly difficult to manage at scale.” A major contributor to the complexity is state conformity to the One Big Beautiful Bill Act (OBBBA), with 80% of survey respondents saying that conformity would have a significant or moderate impact on their business.
A key OBBBA challenge is that states follow federal tax law differently. Some automatically conform to federal changes, while others decouple or pass legislation to take another approach. Even if a provision looks favorable from a federal income tax perspective, businesses might not see the same benefit at the state level. And as states continue to decouple from federal tax law, businesses with multistate footprints must manage compliance issues within already stretched tax departments.
State tax exposure and audit activity are also significant concerns. Respondents identified state tax audit activity as the second-highest policy challenge in the year ahead, just one percentage point behind new accounting rules. Eighty-seven percent of respondents identified audit activity as a challenge, with 32% describing it as significant. Also, of those who were involved in any type of tax dispute or audit in the last 12 months, 63% were involved in a state and local income tax dispute or audit.
Collectively, those findings illustrate how state and local tax risk can emerge throughout the tax life cycle, from interpreting conformity rules to managing multistate compliance and responding to audit activity. Because risk can enter at any stage, businesses might need a more hands-on approach to monitoring changes, modeling potential impacts, and identifying exposure before it becomes even more difficult to address.
As the survey notes, the lack of access to scenario modeling and forecasting for managing risk is a significant issue for tax departments. Further, excluding federal income tax, survey respondents identified state and local income and franchise taxes as the largest contributor to total tax liability. Those survey results reinforce the need for tax teams to maintain clear visibility into state-specific developments and model their potential impact before risks become more difficult to manage.
What’s Changing?
One of the most telling findings from the survey was how organizations are responding to state and local tax changes. Respondents were asked, “which, if any, of the following actions your organization has taken in the last 12 months, and which do you plan to take in the next 12 months?”
The chart reveals notable differences in the last two categories. While responses to the first four actions remained relatively stable, consideration of legal structure changes and expansion or relocation to other states increased substantially. Several factors could be contributing to this shift.
For some growing organizations, restructuring could create opportunities to help improve state tax efficiency and reduce state tax liabilities. Key reasons include:
- Growth and expansion might increase state tax liabilities;
- Different state filing rules create planning opportunities;
- Foreign operations can create state tax savings opportunities;
- Major transactions or liquidity events could require advance planning;
- Franchise tax exposure might be reduced through alternative structures; and
- Intercompany transactions might help reduce state tax costs.
Learn more in our insight, How Restructuring Can Help Support State Tax Efficiency.
Similarly, several factors could be driving businesses to consider expanding or relocating to other states, including:
- AI-driven demand and energy needs;
- Tax policy considerations;
- Access to skilled labor;
- Resource and infrastructure availability;
- Faster construction timelines; and
- State and local incentives such as job creation incentives, capital investment credits, and custom grants.
Also, some businesses might be onshoring operations to the U.S. in response to tariffs and supply chain security concerns. Learn more in our insight, Site Selection Under Pressure: How to Expand Without Leaving Value on the Table.
Moreover, when it comes to taking advantage of credits and incentives, 72% of respondents seek some form of outside advisory assistance, while 27% rely on a fully in-house staffing model. Those findings suggest many organizations see value in leveraging outside advisors to help them better identify and pursue available credits and incentives opportunities.