State and local tax pressure is reshaping how asset management firms structure their operations, with a growing share of tax leaders now weighing entity restructuring and relocation as audit activity climbs, according to BDO's 2026 Tax Strategist Survey.
Among asset management tax executives, 46% named an inability to keep up with shifting regulatory demands as the leading tax risk facing their firms over the coming year, a higher share than any other sector in the survey. Separately, 84% of respondents in the industry anticipate their firm's overall tax burden will climb over the same period.
State audit scrutiny appears to be a major driver. The survey found 92% of asset management respondents view state tax audits as at least a moderate challenge over the next 12 months.
Layered onto that is a widening patchwork of state-level rules.
California's newer market-sourcing approach, which ties tax obligations to where investors are based, is forcing firms across the country to reexamine their nexus in the state and their broader filing footprint.
Meanwhile a number of states are choosing not to adopt certain provisions of the One Big Beautiful Bill Act, adding further inconsistency between jurisdictions. Non-conformity around Qualified Small Business Stock treatment and business interest deductions is chipping away at after-tax returns, and the federal law's SALT deduction phasedown for higher earners is landing directly on general partner principals.
In response, firms are increasingly reconsidering both their legal structures and their physical footprints. The survey found 66% of asset management tax leaders intend to alter their legal structure, a jump of 24 percentage points from the prior year's survey, while 56% plan to relocate or expand into new locations, up 28 points year over year. BDO notes that restructuring moves of this kind can lower nexus exposure, reduce audit risk, and improve how firms manage apportionment across jurisdictions.
Rising liabilities and mounting complexity are also changing how tax departments staff themselves. More than half of asset management tax leaders, 56%, expect to lean further into outsourced or co-sourced arrangements over the next year, the highest proportion of any industry in the survey, with 48% pointing to complex regulatory and compliance demands as the main reason.
BDO's analysis suggests outsourcing gives tax teams access to specialized knowledge and technology that would be expensive to build internally, while also allowing departments to scale more quickly as needs shift. It can also move certain costs from the investment manager onto the funds themselves. Firm size plays a role in how this plays out: smaller managers, which typically carry less international tax complexity, are more inclined to treat tax as a cost center and outsource broadly. Larger firms tend to keep core functions such as income and payroll tax in-house but seek outside expertise for their more extensive international operations.
Even as more work moves outside the firm, in-house tax leaders are still being judged on specific measures. Effective tax rate performance tops the list, cited by 66% of respondents, reflecting how directly ETR feeds into net internal rate of return for investors, a metric institutional limited partners are weighing more heavily.
Strategic transactions are the other major performance area, given how deal-stage tax decisions affect after-tax proceeds and carry economics across an increasingly varied deal landscape that includes GP stake sales, fund restructurings, continuation vehicles and co-investment structures. Even so, 24% of asset management respondents said their tax function is only somewhat involved in strategic transactions, a gap BDO flags as notable given the stakes involved.
BDO recommends firms conduct regular assessments of their SALT exposure, build a deliberate strategy around what tax work stays in-house versus what gets outsourced, and prioritize state-level ETR management, including strategies such as pass-through entity tax deductions, as ways for tax leaders to strengthen their strategic standing within the firm.
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