Leverage | SALT

MARYLAND: WYNNE CASE UPDATE

2013-05-20T10:03:00.000-04:00

On Friday, May 17, 2013, the Maryland Court of Appeals denied the comptroller's motion for reconsideration in Comptroller v. Wynne, which struck down the state's application of credits against pass through income from S corporations; however, the court stayed implementation of the ruling to allow the comptroller to petition the U.S. Supreme Court for certiorari.

Hence, the ruling is still standing (which was pro-taxpayer), but the effective date is on hold allowing Maryland time to petition the U.S. Supreme Court.

For previous posts on Wynne, go to WYNNE CASE UPDATE.

MARKETPLACE FAIRNESS ACT: THE END OF THE SALES TAX WORLD AS WE KNOW IT

2013-05-16T07:00:00.000-04:00

The Marketplace Fairness Act (MFA), if passed, will impose sales/use tax collection obligations on remote retailers. I was thinking the other day and a few questions or thoughts came to mind that have not been discussed:

Will foreign (international) non-U.S. companies be required to collect on remote sales? If so, how will the states enforce it? If the states can't enforce it, then doesn't the MFA create an unfair advantage for international companies? Will the MFA make it more attractive for companies to re-locate outside the U.S.?
The MFA will eliminate all nexus questions for sales tax purposes (clarity and bright line). No more nexus reviews/studies for SALT consultants. No more litigation regarding what is nexus and what isn't nexus (atleast for sales/use tax purposes).
The MFA will eliminate or reduce the amount of use tax exposure companies have because everyone should be collecting sales/use tax on their taxable sales regardless of nexus.
How will states enforce this collection obligation on remote retailers?
Will all 22 Streamlined Sales Tax Project (SSTP) states go along with it?
Will every state simplify their legislation (other than the 22 SSTP states) so they can impose this collection obligation?
The strategy of implementing an Internet sales company will be dead (if it wasn't already). What will be the next strategy for sales tax purposes?
The only thing the MFA doesn't create is uniformity among the states about the taxability of products and services. Hence, this complexity will still remain.
Will someone challenge the MFA on constitutional grounds (due process and commerce clause)? And if so, who will win?
How much revenue will states actually receive from the MFA and how will it impact their budgets?
Will states tax more products and services since they can ignore the nexus issue?
Or will states be able to reduce the number of products and services they tax due to the increase in revenue they believe they will receive?
Will the change in the sales tax nexus/collection standard creep over into the income tax world?

The MFA, if passed, will be a world changer in the sales tax world. On one hand, all companies will have compliance / set-up issues like never before (unless they meet the small business exemption). Taxability questions will remain to be complex. On the other hand, companies will no longer have nexus questions and use tax audit exposure / risk should be reduced.

Will this new world be better? Does it make sense for our digital and service based economy?

BRIAN STRAHLE: "SALT CELEBRITY"

2013-05-15T08:32:00.001-04:00

Okay, okay. You can stop laughing now. Like there is such a thing as a "SALT CELEBRITY."

In any case, I was recently asked to be interviewed by the Bloomberg BNA SALT blog team to discuss what it is like to write a SALT blog and provide tips for those who might be interested in writing one.

Please go to Expert Insight: Brian Strahle on Blogging, Creativity, and Coping with SALT Celebrity for the full interview.

After reading it, please come back and post your lovely comments here.

Thank you, thank you, thank you.

MARKETPLACE FAIRNESS ACT: IMPACT ON NON-INTERNET REMOTE RETAILERS?

2013-05-08T10:11:00.000-04:00

Everywhere you look, people, the media, etc. are talking about the Marketplace Fairness Act (day after day after day). Is it fair? Will it pass the House? How will it impact business? Will it change customers buying habits? Etc.?

Regardless of what opinion you or I may have, we must prepare for the potential enactment.

I feel like there has been a great deal of discussion about the bill, but who has actually read the bill????

Here is a link to a copy of the bill if you are so inclined - MARKETPLACE FAIRNESS ACT.

COLLECTION OBLIGATION WITHOUT TAXABLE PRESENCE (NEXUS)

If you read the bill, you will begin to understand that the legislation is creating a tax collection obligation on businesses without nexus (or a taxable presence in a state). The Act clearly states that it does not create any nexus between a person and a state or locality. Nexus has historically been the basis for when a business had the obligation or requirement to begin to collect sales tax in a state. Therefore, the Act does not create nexus for an out-of-state company. The Act only creates a collection obligation.

IMPACT ON NON-INTERNET REMOTE RETAILERS

"Remote Sale" is defined as a sale into a State in which the seller would not legally be required to pay, collect or remit State or local sales and use taxes unless provided by this Act."

"Remote Seller" is defined as a person that makes remote sales in the State.

Hence, it appears that this Act would apply to any business (not just Internet Retailers) that makes sales into a state in which it does not have nexus. Therefore, manufacturers or other non-Internet retailers who sell directly to retail customers who do not have sales representatives or any other physical connection with a state may (under this Act) be required to collect sales tax on its remote sales.

Brick and mortar retail stores who sale to customers over the phone, or ship products to customers in other states may be required to collect sales tax in those states.

Have you been focused on Internet retailers without thinking about how it will impact your business?

Does your company have non-Internet remote retail sales in states where you don't have nexus?

For past posts on the Act, go to What is Fair?

Marketplace Fairness Act: What is Fair? How Will You Comply?

2013-05-07T12:17:00.001-04:00

The U.S. Senate approved the Marketplace Fairness Act (MFA) 69 to 27 yesterday. It now heads to the House of Representatives for a vote. If approved, online retailers will be required to charge sales tax in 45 states plus District of Columbia. This legislation could have broader impact for any business with sales greater than $1m into a state. The MFA is expected to face more resistance in the House.

WHAT IS REALLY FAIR?

I think the article in USA TODAY raises an interesting point - brick and mortar businesses currently only collect sales tax in the state where they have a store. Online businesses currently only collect sales tax in the state where they are based. Isn't that fair? Why should online businesses now have to collect sales tax in any state in which they have a sale but no physical location? Brick and mortar businesses don't have to do that. Isn't that discouraging online businesses and encouraging brick and mortar businesses? Is that really "leveling" the playing field or "tilting" it in the direction of brick and mortar businesses? Or is tilting the playing field in favor of large online businesses against small online businesses?

HOW WILL YOU COMPLY?

Regardless of whether it is constitutional or it levels the playing field or doesn't, is a battle between big and small businesses, is unfair, is more fair or will cause the growth of Internet sales to diminish - one thing is certain - if it is enacted, businesses will have to figure out how to comply without hurting their businesses.

States are supposed to simplify their tax codes and provide software to help businesses comply. During that process, companies will have to decide if they are going to hire someone in-house to handle the compliance or hire an outside firm to handle. Finding the right outside consultant at the right price may be the difference.

If this is enacted and you need help, please contact me to discuss how to find the best resource for your company.

For more info on the Marketplace Fairness Act, check out my earlier post: The Marketplace Fairness Act: Is It Really Fair?

STATE TAXES: WHAT WILL MAKE YOUR COMPANY CHANGE - CHOICE or AUDIT NOTICE?

2013-04-29T10:40:00.000-04:00

This is my second day of being 40. . . so far so good. I want to thank you for the birthday wishes I received.

Over the past couple of weeks (either because I was turning 40 or because I am simply a deep thinker and emotional person), I was thinking about what causes REAL change in a person? Is it simply a choice a person makes, or is it usually because some outside force or factor occurred to cause that change? For example, you often hear about people getting involved in certain causes or nonprofit organizations after a loved one of theirs has a certain disease or a tragedy happens in their life. Some people lose their jobs which is the catalyst for them to finally chase their dream career.

My point is, I think some or most people will continue to do the same thing (even though they have a burning desire to do something else) until they are forced to by some outside factor. It is difficult for people to come to their "tipping point" on their own or simply out of choice. Why do you think this is?

I'm not sure what the answer is, all I know is that people generally change direction either out of fear or pleasure. However, based on what I have observed, it seems that fear or tragedy is the greater motivator or cause of change.

So how does this relate to state taxes? Well, I am so glad you asked. Companies more often than not seem to play the "wait and see game" when they expand their business across state lines. They may not comply with the new and complex rules of other states right away. As the company continues to expand in more and more states, the exposure for state tax liability may grow and grow. However, the company may choose not to file or comply because they are following the "same as last year" approach. The problem with this approach is that the statute of limitations don't start until the company files a tax return; hence, until the company starts filing, the company has state tax exposure for each tax year back to the first year it began doing business in the state. Add on interest and penalties and the exposure can be substantial. So what do you do if this scenario describes your company and you want to do something about it?

Well, the good news is that your company may be able to file what is called a "Voluntary Disclosure Agreement" (VDA) with the state. This allows your company to come forward and pay back taxes and interest with the benefit of abating all penalties. The biggest benefit is usually the limited look-back period. Meaning, most (not all) states' VDA programs only require a company to file returns for the previous 4 years instead of all of the prior years' returns that are required (which depends on each company's situation).

WHAT IS YOUR COMPANY"S TIPPING POINT?

So what has been your company's strategy in regards to filing in multiple states as it has expanded? What is your company's next step to mitigate any exposure?

Will your company CHOOSE to change its behavior on its own, or will it be FORCED to change once it receives the audit notice?

What is your company's "tipping point"?

The "Pause" Button and the Marketplace Fairness Act (kind of)

2013-04-24T21:46:00.000-04:00

I'm back from vacation. Hope you missed me. I missed you.

We went to San Francisco for a few days. We walked on the Golden Gate Bridge and rode a cable car. We also escaped to Yosemite Park for a few days where we walked among the huge trees, saw multiple beautiful waterfalls and relaxed in a rental house by the river. It was truly a beautiful, relaxing, nature wonderland. You may see pictures and post cards of this type of beauty, but it does not compare to actually seeing it in person. It was sometimes hard to believe that type of beauty actually exists. To end the week, we returned to San Francisco and explored the northern Californian coast line. We stopped and sat on the beach for a while. It was like three vacations in one. I didn't want it to end.

You probably don't know this, since this is a state tax blog, but I am an emotional person. I actually turn 40 this Sunday. Can't believe it. Every vacation we take is like a time capsule. We make so many memories with our daughters. Sometimes I just want to hit the "pause" button and freeze time, but time just keeps going.

The main thing I notice on vacation versus every day life, is the pace. On this vacation, we really slowed down the pace and relaxed. Especially since we didn't have a cell phone signal during the time we were in Yosemite. I have to say, it was kind of nice. It makes you realize how fast our normal every day lives are. The world we live in today is so fast. It's also full of discontent and depression. People are always striving for more. When will enough be enough?

Life is so short, what are we doing? What are we spending our time doing? Who do we spend our time with? Are we so busy that we never look up? We never take the time to enjoy life? Enjoy our family?

As I get back in the flow of work this week, I am trying to take time every day to "pause." To remember that life is too short to be afraid. Life is too short to stress about details that don't really matter. At the end of the day, the striving for perfection is a goal that can't be met and will only lead to continuous depression and discontent. We must strive to be effective and be who we are. Who we were meant to be.

Do something fun every day. Letting go is sometimes the best way to hold on.

** SIDE NOTE: Yes, I know the MARKETPLACE FAIRNESS ACT is moving through the House and the Senate. Will it pass? It is looking more likely. Is it constitutional? Maybe not. Is it a new tax? No. Is it a new tax collection mechanism? Yes.

Tax Season Wrap-Up: Rejuvenate and LIVE!

2013-04-11T15:25:00.000-04:00

I hope everyone had (or is wrapping up) their tax "busy season" without much pain or burn-out.

I will be taking some time off over the next week. I hope you take some time to rejuvenate and get a vision for the rest of the year.

Life is short. Live it.

Blurred Vision and Multistate Taxes: Here Comes the Boom!

2013-04-10T13:47:00.001-04:00

If you are a CFO, Controller, Tax Director or other tax professional, what do you want on a daily basis? What are your goals and objectives? What do you struggle with? What are your constant challenges?

In regards to state and local taxes, one of the constant challenges is finding clarity in a world where "generally" and "it depends on the state" are common phrases.

In addition, several areas of state and local tax can be grey or open to interpretation which can create issues OR opportunities.

Some of those areas that may create "blurred vision" are:

Determining whether you business has nexus (having a taxable presence in a state)
Determining whether something your business sells or buys is taxable for sales tax purposes
Determining whether one of your entities is "unitary" with another related entity and should file a combined income tax return
Determining whether some of you business income is "non-business" income and can be allocated instead of apportioned
Determining if software-as-a-service or cloud computing is taxable for sales tax purposes
Determining how to source revenue from services or intangible property for sales tax and income tax purposes
Determining if your business activities qualify your company for specific credits and incentives opportunities (next step, actually capturing and utilizing those credits)
Remembering to self-assess use tax on taxable purchases when the seller doesn't charge you sales tax
Determining the impact of IRC Sec. 382 on you company's net operating loss carryforward on a state by state basis
Knowing how to structure your company's operations in a state tax-efficient manner

This is just 10 areas or items. What other items can you think of? What is keeping you up at night from a state tax perspective? Is it simply not knowing what you don't know?

Sometimes just making an informed decision instead of no decision is the best form of action.

Don't play the "wait and see game." Otherwise, when the audit notice arrives you might say to yourself - "Here Comes the Boom!"

Virginia Transportation Funding Legislation Enacted: How Will You Be Impacted?

2013-04-09T09:56:00.000-04:00

Virginia transportation funding legislation was approved by the General Assembly and the Governor last week, and will become effective July 1, 2013.

The tax law changes to fund the bill will impact all taxpayers in Virginia, with specific impacts for auto dealers, industries that purchase and use diesel fuel, motor carriers, vending machine operators and hotel operators. Some tax increases (additional sales tax increase, transient occupancy tax and an additional real estate transfer tax) are based on whether the county or city is within a "Planning District." Currently, Hampton Roads and Northern Virginia are the only jurisdictions that meet the definition of a "Planning District."

I have highlighted a few of the changes below. For all of the details, go to HB 2313 or contact me with specific questions.

GENERAL SALES AND USE TAX CHANGES

Starting July 1, 2013, the Virginia state sales and use tax rate goes from 4% to 4.3% (there is a 1% local sales and use tax rate in most localities, hence, the rate will generally overall increase to 5.3% from 5%). Specific counties, will be levied an additional sales and use tax rate of 0.7%.

The legislation also establishes procedures for the collection of the state and local sales and use taxes from remote sellers for sales made in Virginia, contingent upon the federal government passing legislation requiring such collection.

SALES TAX ON SALE OF MOTOR VEHICLES

Currently, the tax rate on motor vehicles is 3%. A rate of 4.15% will be phased in over four years as follows:

• 3% through June 30, 2013;

• 4% beginning July 1, 2013, through June 30, 2014;

• 4.05% beginning July 1, 2014, through June 30, 2015;

• 4.1% beginning July 1, 2015, through June 30, 2016; and

• 4.15% beginning on and after July 1, 2016.

The minimum tax on the sale of a motor vehicle will change from $35 to $75.

ANNUAL MOTOR VEHICLE REGISTRATION TAX

An annual license tax of $64 per vehicle will also be imposed on an electric motor vehicle, a hybrid electric motor vehicle, or an alternative fuel vehicle that is registered in Virginia. However, no license tax may be levied on any vehicle that is (1) subject to the tax on liquid alternative fuel or the tax on all other alternative fuel, (2) subject to the federal excise tax levied under IRC §4041, (3) a moped, or (4) registered under the International Registration Plan. The annual license tax will be due when the highway vehicle is first registered in Virginia and upon each subsequent renewal of registration.

An "alternative fuel vehicle" is a vehicle that is equipped to be powered by a combustible gas, liquid, or other source of energy that can be used to generate power to operate a highway vehicle and that is neither a motor fuel nor electricity used to recharge an electric motor vehicle or a hybrid electric motor vehicle. A "hybrid electric motor vehicle" is a motor vehicle that uses electricity and another source of motive power.

MOTOR FUEL TAX CHANGES

The current 17.5-cent-per-gallon tax on gasoline, gasohol, and diesel fuel will be replaced. Beginning July 1, 2013, the tax rate will be 3.5% of the statewide average wholesale price of a gallon of unleaded regular gasoline for the applicable base period, excluding federal and state excise taxes, and 6% of the statewide average wholesale price of a gallon of diesel fuel for the applicable base period, excluding federal and state excise taxes. "Wholesale price" means the price at the rack.

If the federal government does not pass legislation authorizing Virginia and other states to collect sales and use taxes from retail dealers located outside the state by January 1, 2015, then the motor fuels tax rate imposed on gasoline will be raised from 3.5% to 5.1%. The motor fuels tax rate on diesel fuel will remain at 6%.

Do You Know When Your Company Needs State Tax Advice?

2013-04-05T17:01:00.000-04:00

"Life Events." They can be great or extremely challenging. You know, like turning 16 and getting your driver's license. Graduating from high school or college. Getting your first job, first date. Getting married. Your first baby and so on. Then come some tragic or obviously difficult events, like the death of a loved one. We can all relate to some or all of these experiences.

How does this relate to state taxes?

Well, companies (like humans) experience "life events" such as:

Formation of their business (type of entity (C corp, S corp, LLC, etc.), location, etc.)
Research and development of their product or service
Manufacturing or supply chain development (vendors, suppliers)
Buying, leasing or building a facility (i.e., manufacturing, distribution, office, etc.)
Hiring employees and/or sales reps
Soliciting sales across the state lines
Hiring independent contractors
Shipping products across state lines
Selling goods online
Storing goods (inventory) in a third party warehouse
Servicing / repairing products sold (either with own employees or third parties)
Installing goods
Selling / purchasing software (online software and services / SaaS / Cloud Computing)
Providing services to customers in other states (some services performed in home state; some services performed in customer's state)
Forming additional entities
Acquiring other companies
Having transactions between entities that are commonly owned or controlled
Selling assets or stock of an entity
Incurring losses
Drop shipping products to customers

This list is just a sample of the transactions or "life events" a business may experience during the course of its existence. Each one of these events have a state and local tax consequence that could positively or negatively impact a business. Companies that proactively address these issues are less likely to have regrets later on when the auditor or buyer of their business comes calling.

In business and in life, change is inevitable. Overpaying state taxes is a choice.

New York "Amazon Law" Ruled Constitutional: But Wait, There's More

2013-03-29T09:34:00.000-04:00

The New York Court of Appeals (New York's (NY) highest court) finally rules in Amazon.com and Overstock.com case that NY's "Amazon" law is NOT unconstitutional because it subjects online retailers (without a physical presence in NY) to NY sales and compensating use taxes.

Why is this important?

Online retailers are presumed to be soliciting business in NY if the retailer enters into an agreement with a NY resident for a commission or consideration, and directly or indirectly refers potential customers, whether by a link on an internet website or otherwise, to the seller.

This sales tax collection requirement (presumption) only kicks in if the cumulative gross receipts from sales by the online retailer to NY customers who are referred to the retailer by all NY residents with this type of commission agreement with the retailers, is greater than $10,000 during the preceding four quarterly periods.

Example:
If your online business has commission (website link "click-thru") arrangements with 3 NY residents, then you would add together all of the NY sales your business had that came to your business via those 3 NY residents to see if you exceeded the $10,000 threshold. If you exceed that threshold, then you would be presumed to have nexus.

Court "Punts" Physical Presence Issue To U.S. Supreme Court

The ruling states, "the world has changed dramatically in the last two decades, and it may be that the physical presence test is outdated. An entity may now have a profound impact upon a foreign jurisdiction solely through its virtual projection via the Internet. That question, however, would be for the United States Supreme Court to consider."

Court Agrees with NY Legislation Attaching Significance to Physical Presence of Website Owner

The ruling states, "there are clearly parallels between a mail-order business and an online retailer –- both are able to conduct their operations without maintaining a physical presence in a particular state. Indeed, physical presence is not typically associated with the Internet in that many websites are designed to reach a national or even a global audience from a single server whose location is of minimal import. However, through this statute, the legislature has attached significance to the physical presence of a resident website owner. The decision to do so recognizes that, even in the Internet world, many websites are geared toward predominantly local audiences -- including, for instance, radio stations, religious institutions and schools -- such that the physical presence of the website owner becomes relevant to Commerce Clause analysis. Indeed, the Appellate Division record in this case contains examples of such websites urging their local constituents to support them by making purchases through their Amazon links. Essentially, through these types of affiliation agreements, a vendor is deemed to have established an in-state sales force."

Opportunity to Rebut Presumption if Considered "PASSIVE ADVERTISING"

According to the ruling, "no one disputes that a substantial nexus would be lacking if New York residents were merely engaged to post passive advertisements on their websites. The bottom line is that if a vendor is paying New York residents to actively solicit business in this State, there is no reason why that vendor should not shoulder the appropriate tax burden."

Therefore, the question remains - is your online business simply advertising on other websites, or is their a commissioned sales arrangement which turns the in-state resident into a sales rep?

The DISSENTING Opinion

One dissenting judge in the case stated, "the majority correctly summarizes the law by saying that "if New York residents were merely engaged to post passive advertisements on their websites" no tax could be collected, but that a vendor who "is paying New York residents to actively solicit business in this State" may be required to remit tax."

"Our task here is to decide whether certain New York based websites -- Overstock's "Affiliates" and Amazon's "Associates" -- are the equivalent of sales agents, soliciting business for Overstock and Amazon, or are only media in which Overstock and Amazon advertise their products. I think they are the latter."

SO WHAT?

If you are an online retailer with New York "affiliates" or "independent contractors" with links on their website to your site, then you will want to take a closer look at how this impacts your business.

If you are an online retailer with non-NY "affiliates" or "independent contractors" with links on their website to your site, then this is a reminder to be aware of where those affiliates are located. Other states either have laws similar to New York's or may simply interpret their current nexus laws in a broad manner to apply nexus to online retailers.  Each state's rules are different and need to be reviewed before making any decision regarding your company.

For more information on nexus, check out my previous posts.

The Marketplace Fairness Act: Is It Really Fair?

2013-03-24T14:57:00.000-04:00

The Marketplace Fairness Act (S.336) was advanced or "endorsed" by a voice vote in the Senate this week. The Senate endorsed the measure as an amendment to the chamber's budget resolution.

The Act would allow states to require out-of-state online retailers to collect sales taxes from in-state purchasers.

If you have been following this bill (or others like it), then you know that this issue is not a new one. However, this bill is gaining more support and traction than any other bill in the past. Hence, despite the opposition (i.e., burden on small retailers, unconstitutional imposition of tax on out of state retailers without a physical presence in the state, precedent set by the Quill case), the push to "level the playing field" between brick and mortar retailers and online retailers keeps getting stronger.

One of the arguments in support of the Act is that the tax is not a new tax. The tax is already required to be paid on the purchases in-state companies or individuals make from the online retailer; however, compliance rests upon the purchaser to self-assess use tax and remit it to the state. Hence, the problem states are complaining about is - if the online retailer doesn't collect the tax, the state will never receive the tax it is and has been legally owed. Annual online sales keeps growing and purchaser self-imposed/assessed use tax apparently is not.

Another argument in support of the Act is fairness between online retailers and brick and mortar retailers. "Fairness" - now, that is a strange concept when it comes to taxes. What you think is fair, may not be what I think is fair. For example, is it fair for states to require out of state companies which have no physical connection with a state to collect taxes from in-state purchasers even though such a law would not be constitutional under the Due Process Clause, Commerce Clause and Quill?

Should the state seek to find a better mechanism or procedure/avenue to collect the legally owed use tax from its own residents instead of placing a collection burden on out of state companies? Out of state companies do not use the roads, legal system, etc. within the purchaser's state. The purchasers do. Brick and mortar companies do.

If the goal is simply to collect use tax that the state has not been receiving in the past - should states seek to find a way to enforce laws that are already on their books, instead of trying to pass a new law that creates another burden?

What do you think?

Here is a recent article in Forbes magazine, if you want to keep reading about this lovely Act.

MARYLAND WYNNE CASE UPDATE

2013-03-14T06:00:00.000-04:00

The Maryland comptroller filed a motion for reconsideration in the Maryland Court of Appeals on February 27, 2013 asking the court to reconsider its decision, or to declare that its decision will operate only prospectively for nonparties. The comptroller argues this is an appropriate remedy because local governments have relied on the state's interpretation of the statute and already spent the revenue collected through application of the credit. And, the court acknowledged that its ruling was not the outcome intended by the General Assembly, which clearly intended the credit to apply only to the state portion.

The comptroller estimates that local governments will suffer a negative fiscal impact of $40 million per year should the court order refunds for all eligible taxpayers. Finally, the comptroller asserts that, at a minimum, the court should stay the effect of its judgment to permit an opportunity for legislative action and because the state will likely seek a U.S. Supreme Court review of the decision.

It is possible that we won’t know if the case is accepted until the U.S. Supreme Court convenes in October.

See previous post for more info on Wynne.

State Tax Revenues: Corporate Income Tax Not That Important?

2013-03-13T07:00:00.000-04:00

Based on research by the Tax Foundation, corporate income taxes make up a small percentage of state tax revenue across the U.S.

This supports the basis for recent proposals put forth by several state Governors to repeal corporate income taxes and increase sales tax rates or broaden the sales tax base.

The research by the Tax Foundation also coincides with the fact that mid-sized companies generally pay more in state indirect taxes (i.e., gross receipts taxes, franchise taxes, sales and use tax, property tax, payroll tax, etc.) than state income taxes.

Go to Tax Foundation - Monday Map for details.

SALT UPDATE BRIEFING

2013-03-12T08:50:00.002-04:00

Here are a few of the top SALT news/updates that I read this morning and thought you might find interesting:

California considering tax breaks for "Drone" Manufacturers
Massachusetts Public Interest Research Group (a consumer organization known as MASSPIRG) calls for more oversight of tax incentives
Ohio Association of Realtors opposes the Governor's proposal to expand sales tax to services
Multistate Tax Commission (MTC) will be holding a hearing to propose amendments to it's MTC apportionment formula
Arkansas House of Representatives introduces bill to create combined reporting and change the corporate income tax rate to a flat 6%
Oregon Supreme Court rules in two separate cases: (1) that gain on the sale of a FCC license is business income (Crystal Communications, Inc.), and (2) gain from the sale of stock by a telecommunications company whose affiliated did business in Oregon was business income (Centurytel, Inc.)

If any of these developments may have an impact on your company, please contact me to discuss.

Like My Daddy Used to Say

2013-03-11T11:26:00.000-04:00

Today is the 5 year anniversary of the day my dad left this world. It's hard to believe it's been 5 years.

My dad was a handyman who could fix just about anything. He had a workshop full of tools (every tool known to mankind). Growing up, it seemed like every weekend we were working on something around the house, the car or building something.

My dad worked at the same company for over 40 years. He started at the company right out of high school. He started in the mail room and worked his way up to drafting supervisor where he managed a group of approximately 30 employees.

My mom and dad where also married for over 40 years. My dad was a loving, funny, and organized father and husband. He worked very hard and was very particular about things. He did things in a very orderly fashion, had his tools extremely organized. Everything was in its place. He was always checking and "double-checking" things. One example of this would be, when we would leave the house (especially on vacation), he would double-check, triple-check or quadruple check the locks on the doors. He tried to make sure everything was always in tip-top shape. He had a maintenance schedule for all of the appliances, yard equipment and cars (he actually followed them).

My dad also loved to play games. Board games, card games, and games in the yard. I can still remember playing horseshoes in the yard with him. We would play and play.

In the years before he died, he loved playing with my kids. My kids and him would play all kinds of board games. They would laugh and laugh. I miss that so much.

Today, I can see my dad in myself, in alot of things I do and how I act. I am a very detailed, organized person. I am particular in how things get done. I like to take care of my home and cars. I see myself as a preventer and fixer. I try to make the lives of my wife and kids as easy as possible. My wife and kids come to me all the time with things that need fixed. For example, my wife can struggle with an issue all day, and I will come home and fix it in 5 minutes. The same happens with my kids.

Next month I will turn 40. I can't believe it. My kids are growing up so fast. It's just a reminder that the cycle of life continues and keeps going. We can't stop it. It is also a reminder that we must focus on the things that matter in life. The fact is, things don't matter, people do.

Life is short. Eternity is forever.

Like my daddy used to say . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Location Matters: State Taxes and Credits and Incentives

2013-03-11T07:00:00.000-04:00

Where should your company locate its headquarters? R&D facility? Retail store? Distribution center? Manufacturing plant? Data center?

The answer to those questions rely on several non-tax factors, but if you are looking for help in determining the potential state tax impact, take at look at the Tax Foundation's report - Location Matters.

When you have a choice of where to invest, it is important to take all factors (i.e., business, legal, workforce, supply-chain, etc.) into consideration, including state taxes, and credits and incentives.

D.C. Combined Reporting - Transition Rules for 3/15 and 4/15!

2013-03-07T07:00:00.001-05:00

I have been working with several clients on applying the new D.C. Combined Reporting rules to determine which entities should be included in one D.C. Combined return. The ownership tests and unitary tests are more complicated than you may think. Hence, if you haven't addressed the implementation of D.C. combined reporting for your business, please contact me as soon as possible.

If 2012 will be the first year that your business (group of entities) files a D.C. combined return, the selection of the "designated agent" is extremely important, as this will impact what type of D.C. return is filed, and when the 2012 return is due (generally, either March 15th or April 15th).

In addition, 2013 estimated payments will need to be made by the "designated agent" and not by the separate entities that will be included in the combined return. Therefore, you need to select the appropriate entity to be the "designated agent.

Also, specific "transition rules" will impact how you file your 2012 extensions for each entity and will determine whether those extensions are due March 15th or April 15th.

The complexity of this analysis and the new compliance burden is something that, unfortunately, companies need to deal with. It may cost more now, but the effort should reduce headaches later on.

Will Maryland Match Virginia's Corporate Income Tax Rate?

2013-03-06T07:00:00.000-05:00

The Tax Foundation testified regarding Maryland's bill to decrease its corporate income tax rate.

According to the Tax Foundation, Maryland House Bill 261 would reduce Maryland’s state corporate income tax rate from 8.25 percent to 6 percent. Maryland’s corporate income tax rate is currently the 15th highest nationally and the third highest in the region.

Will Maryland match Virginia's corporate income tax rate?

Minnesota Tax Reform: Poorly Designed??

2013-03-05T07:00:00.000-05:00

According to the Tax Foundation, the Minnesota Governor has proposed poorly designed tax reform.

Minnesota Governor Mark Dayton (D) recently proposed his 2014-2015 biennial budget, which includes $2.1 billion in revenue increases. Included are increased income taxes on high-income earners, an expansion of the sales tax base, and a steep hike in cigarette excise taxes.

Go the Tax Foundation article for all of the details.

BUILD It and They Will Come!

2013-03-04T10:22:00.000-05:00

According to an article back in October, 2012 by Bloomberg BusinessWeek, mid-sized companies get no respect. The "small" and the "big" get all of the attention by government and even professional service firms.

In that vein, I wanted to make you aware of a website I came across recently that I think you might find valuable - The BUILD Network. According to the site, it provides "smart ideas for leaders of mid-sized companies." That is my goal from a state and local tax standpoint. To provide mid-sized companies with leverage to operate their businesses in a state-tax efficient manner.

The articles on BUILD cover a wide variety of topics from leadership, teaming, strategy, management, etc. Check it out and let me know what you think.

The State Tax Sequester Begins?

2013-03-01T16:17:00.001-05:00

It's March 1st. The state tax sequester begins (just kidding; I think).

Did you know that sequester (as a verb) means to isolate or hide away?

Sequester (as a noun) means a general cut in government spending.

The way the federal government has been acting over the past several months (or forever), may make state governments want to sequester from the federal government. In fact, some states are proposing to do away with their income tax and replace the revenue with a broader sales tax on services.

In the context of sequester, states do annually decide what portions of the Internal Revenue Code to conform to or not conform to. As the federal government keeps debating what to do with taxes and government programs, states may be forced to conform even less. Unlike the federal government, state governments have to balance their budgets every year (just like you and me; of course we have debt; hopefully nothing like the federal government).

What do you think the states or your state will do, continue to do, or do differently as a result of the sequestration?

Virginia General Assembly Passes Transportation Bill / Awaits Gov. Signature

2013-02-26T11:01:00.002-05:00

HB 2313, which passed the House 60 to 40 on February 22 and the Senate 25 to 15 the following day, would raise $880 million for transportation annually while eliminating motor fuel taxes and replacing them with wholesale taxes, effective July 1. It would also increase the sales tax rate on non-food items from 5 percent to 5.3 percent.

According to Gov. Bob McDonnell, the current 17.5-cent-per-gallon fuel tax is worth 45 cents on the dollar of its value in 1986. Under the bill, it would be replaced with wholesale taxes of 3.5 percent and 6 percent on gasoline and diesel fuel, respectively. Sales tax on non-food items would rise from 5 percent to 5.3 percent to allocate more general fund revenue to transportation.

The sales tax in the northern Virginia and Hampton Roads regions would rise to 6 percent, with additional funds used for transportation projects in those regions.

A registration fee of $100 for electric, alternative fuel, and hybrid vehicles would also go into effect, along with an increased levy on car sales from 3 percent to 4.3 percent.

The Governor is expected to sign the bill.

FREE Insight on D.C. Combined Reporting for Real Estate Investors and Developers

2013-02-22T08:51:00.000-05:00

Real estate investors or groups that own, develop or manage real estate in Washington D.C. are facing a new franchise tax reporting methodology that may change the amount of franchise tax paid to D.C. for tax years beginning after December 31, 2010. This new methodology is called Combined Reporting (DCCR).

If you are a real estate investor or developer with real estate projects in D.C., please contact me to receive a free two-page explanation to learn about the potential impact on your business, the key tests to determine if combined reporting applies to you, and the action steps you can take to mitigate the impact.