Michigan and Disregarded Entities: Relief From Kmart Case Legislation????

Michigan introduces Kmart legislative "fix" language in the House of Representatives.

On Wednesday, the Michigan House Tax Policy Committee unanimously passed a bill that would reverse the Kmart notice and prevent retroactive state filings. They expect a vote by the full House next Tuesday (3/16).

It is believed that the full House and Senate will pass the bill, but the legislative process is unpredictable. With that said, organizations involved in pushing the legislation believe this bill will ultimately pass.

The next few days will be crucial for this bill. Even if the bill does pass there could be legal challenges to the bill as it retroactively denies refund claims that could be made under the Kmart court case, and attempts to make retroactive law changes which might not withstand legal challenges.

A Michigan Court of Claims case last year ruled a law written in 2007 to apply retroactively back to 2002 and for all opens years, was not valid. The decision was based on a U.S. Supreme Court case which stated retroactive law changes could only have a modest period of retroactivity. In this case, the legislation is attempting to fix something going back to 1997, which would appear not to be a "modest period."

The Michigan Association of Certified Public Accountants (MACPA) and other organizations have been involved in pushing for this legislative "fix" to the Kmart case legislation 'burden."

So What?

If this legislation passes, companies that filed a Michigan Single Business Tax (SBT) return which included a disregarded entity, will not be required or allowed to file an amended return or original return (for the disregarded entity) for prior tax years. This would definitely reduce the compliance cost, but may or may not reduce a company's tax cost depending on the situation.

Stay tuned for more. For all current and future updates, go to MICHIGAN.

Colorado: Amazon Drops Affiliates!

An article by Michael Cohn at WebCPA discusses how Colorado has dropped affiliates in response to Colorado's enactment of burdensome compliance requirements (HB 1193).

The article discusses how Amazon is dropping affiliates to hopefully persuade Colorado to change their law. If Colorado would change their law, Amazon says they would reinstate affiliates.

At this point, I am not sure if Colorado is open to those discussions, but we will have to wait and see.

Also, be prepared for other states to impose similar nexus standards OR notification requirements/obligations.

For all of the details, go to the ARTICLE.

Colorado: Further Guidance on Requirements on Out-of-State Retailers

In previous posts, I raised areas of confusion regarding Colorado's new sales tax nexus and notification requirements enacted by the signing of HB 1193. See earlier posts.

With that said, I thought I would provide some additional clarifications:

1. The first section of the legislation (HB 1193) dealing with presumption nexus for remote retailers with component members of a controlled group is in a different statute separate from the second part of the legislation. Therefore, the second part of the legislation dealing with "non-collecting retailers" appears to apply to all "non-collecting retailers" as defined in the emergency regulations. In other words, the notice requirements appear to apply to all retailers that sell into Colorado and do not collect sales tax, regardless of nexus, and regardless if the remote retailer has an affiliate with a physical presence in Colorado.


2. In regards to the $100,000 threshold, if you read the legislation closely, you will see it simply says any retailer with "total Colorado sales of more than 100,000 in year" is required to file the annual statement by "magnetic media." It doesn't say that those retailers with less than $100,000 in Colorado sales are not required to file an annual statement at all. The emergency regulations say that each non-collecting retailer with less than $100,000 "total gross sales" is exempt. Therefore, this exemption is based on "total gross sales" of the entity and not "total Colorado sales." Again, the statute does not provide the exemption, the regulations do. Who will trump?

CAVEAT: Those are my interpretations at the moment. We will have to wait and see if Colorado issues any more guidance or changes.

ADDITIONAL ITEMS TO NOTE

I have become aware that the Multistate Tax Commission (MTC) is currently in the process of creating 2 model statutes regarding sales tax:

1. The Affiliate Nexus standard - similar to New York's


2. The Notification standards - similar to Colorado's

MEANING: We could see other states adopt statutes similar to New York's and Colorado's.

CONSTITUTIONAL BURDEN?

It is believed that someone may file a lawsuit against Colorado's notification requirements prior to May 1st (when the grace period is over). The issue is that the requirements being imposed on out-of-state retailers without nexus is unconstitutional. The defense may be that the requirements being imposed are not a tax, but simply informational.

Please contact me at brian.strahle@bakertilly.com to discuss the impact on your company's situation.

For all blog posts related to this issue (past and future), go to COLORADO.

Minnesota: R&D Credit Under Attack!

I just recently became aware that Minnesota is aggressively auditing companies who have filed research and development (R&D) credit claims on their Minnesota return.

Minnesota is hiring additional auditors to pursue invalid R&D credit claims. Despite the fact that Minnesota follows the IRS' rules in regards to the R&D credit, it is not going to approve an R&D credit simply because the IRS signs-off on it.

SO WHAT?

Therefore, if you have taken an R&D credit on your Minnesota return over the past 3 or 4 years, or will be taking one this year, please make sure your documentation is in order in preparation for an audit. In other words, an R&D credit on your Minnesota return may have turned into a "red flag" for Minnesota audit purposes.

With that said, if you do have adequate documentation to support your R&D credit, you can win under audit.

We have defended several clients recently in this position, and expect the number to rise. As always, winning or losing depends on your facts and how your position is presented.

ACTION?

If your company has taken a Minnesota R&D credit or will be taking one on this year's return, please contact me at brian.strahle@bakertilly.com to discuss if a review of your files or documentation may be helpful.

Also, if you are contacted by Minnesota for an audit, please contact me at brian.strahle@bakertilly.com for representation or assistance.

State Income Tax Compliance Reminders / ALERT!

As we approach the 2009 state income tax return deadlines of March 15th, April 15th and May 15th, I wanted to provide a brief list of some items to watch out for:

1. Service companies should be aware of the different state apportionment rules.
2. Texas and Michigan should be reviewed very closely due to the volume of notices most companies received last year.
3. Treatment of Disregarded entities by Michigan, and Michigan's Unitary test.
4. Wisconsin combined reporting rules in effect for 2009.
5. Treatment of COD income by states – apportionable income? Included in apportionment factor?
6. For Minnesota residents, cannot take a credit for taxes paid to Texas, Michigan and Ohio.
7. Most corporations are not subject to the Ohio Franchise tax anymore (for tax years ending in 2009 and beyond). The Ohio CAT tax is now fully phased-in.
8. Ohio S Corporation Status Filing requirement (FT-1120S) no longer required to be filed.
9. State depreciation adjustments (bonus depreciation and Sec. 179).
10. Composite return requirements and nonresident shareholder agreement requirements.
11. California $800 minimum tax due with 1st quarter 2010.
12. California LLC fee estimate for 2010 due 6/15/2010.
13. Remember: CA LLC Fee is based only on California receipts, not everywhere gross receipts.

Need a Second-Opinion?

As your company or your clients get closer to the filing deadline, please contact me at brian.strahle@bakertilly.com with any questions.

I am available to review any state income tax returns, provide a consultation on any state income tax FIN 48 reviews, or questions involving apportionment, nexus, business vs. nonbusiness income, unitary analysis, audit/notice representation, etc.

Thank You!

As always, I hope you find the information I provide helpful. I want to thank those of you who have contacted me with questions and comments, and the positive feedback I have received. I really appreciate it.

Colorado Imposes New Requirements on Retailers Without Nexus?

Updated for Emergency Regulations as of March 3, 2010!

As stated yesterday and in earlier posts, Colorado has not only enacted a rebuttable nexus presumption on remote sellers that are part of a controlled group of corporations that contains a retailer with a physical presence in Colorado, but they have also imposed some burdensome notification and filing requirements on "retailers that do not collect Colorado sales tax."

According to Emergency Regulations,

A retailer that does not collect Colorado sales tax is a retailer that sells taxable property or services to customers who are not exempt from sales tax but does not collect Colorado sales or use tax. Such retailers are also referred to in this regulation as “non-collecting retailers”.

NOTICE REQUIRED ON EACH INVOICE!

A non-collecting retailer must give notice with respect to all Colorado destination sales that Colorado tax is due on all non-exempt purchases. This notice must appear on each invoice. See the Emergency Regulations for details on what the notice should include.

Non-Collecting Retailers with Less than $100,000 in Total Sales are Exempt From Requirement???? (Emergency Regulations vs. HB1193 statute)

This is what the Emergency Regulations state.

Any non-collecting retailer that made total gross sales in the prior year of less than $100,000 shall be exempt from the notice requirement in (3)(a).

(NOTE: Despite this exemption, are you going to know if you will be under this threshold for the year, at the time you are making sales into Colorado?)

The actual statute under HB 1193 states:

the Executive Director of the DOR may require any retailer that does not collect Colorado sales tax that makes total Colorado Sales of more than one hundred thousand dollars in a year to file the annual statement described in sub-subparagraph (A) of this subparagraph (II) by magnetic media or another machine-readable form for that year.

Therefore, under the statute, the $100,000 gross receipts threshold or exemption does not exist in regards to the "notice requirement."

Unfortunately, until Colorado clarifies, this remains unclear.

Penalty for Non-Compliance ($5 for EACH INVOICE)

The non-collecting retailer shall pay a penalty of $5 for each invoice documenting a sale to a Colorado purchaser on which the required notice does not appear.

GRACE PERIOD (Waiver of Penalties March 1 - April 30)

Because of the brief time period between enactment of the governing statute and required implementation, if a non-collecting retailer begins to provide the required notices or begins to collect Colorado sales tax prior to May 1, 2010, any penalties that would otherwise be due for invoices issued between March 1, 2010 and April 30, 2010 shall be waived. However, no such waiver shall automatically apply if the non-collecting retailer does not begin to issue the required notices or begin to collect Colorado sales tax prior to May 1, 2010.

SUMMARY

In addition to the above notification requirement per notice, there is the annual notices (one to the purchasers by 1/31; and one to Colorado DOR by 3/1). See yesterday's post.

Current Confusion:

1. Do these notice requirements only apply to remote retailers that do not collect sales tax, and are part of a controlled group of corporations that contains a retailer with a physical presence in Colorado?
2. Or do the notice requirements apply to all retailers that sell into Colorado regardless of nexus, and regardless if the remote retailer has an affiliate with a physical presence in Colorado?
3. Can the state impose information reporting requirements on remote retailers that lack nexus on their own just because an affiliate has nexus, if the affiliate does not act or represent the remote retailer in any way?
4. Are remote retailers that sell less than $100,000 in total sales in a year exempt from the notification and filing requirements?

If these changes impact your company, please contact me at brian.strahle@bakertilly.com for guidance. Also, stay tuned for additional updates or changes.

For current udpates go to COLORADO.

Colorado: New Retailer Nexus Presumption Standard Begins March 1, 2010! (plus other filing requirements)

As I stated in earlier posts, Colorado has suspended several tax exemptions, and expanded or clarified the taxation of software, etc. However, one of the bills the Governor signed creates a rebuttable nexus presumption that out-of-state retailers (that do not collect Colorado sales tax) are doing business in Colorado if they are part of a controlled group of corporations which contains a retailer with a physical presence in Colorado. This new law takes effect March 1, 2010; or in other words, today!

Here is the excerpt from the Bill (H1193):

COMMENCING MARCH 1, 2010, IF A RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX IS PART OF A CONTROLLED GROUP OF CORPORATIONS, AND THAT CONTROLLED GROUP HAS A COMPONENT MEMBER THAT IS A RETAILER WITH PHYSICAL PRESENCE IN THIS STATE, THE RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX IS PRESUMED TO BE DOING BUSINESS IN THIS STATE. FOR PURPOSES OF THIS SUBPARAGRAPH (II), "CONTROLLED GROUP OF CORPORATIONS" HAS THE SAME MEANING AS SET FORTH IN SECTION 1563 (a) OF THE FEDERAL "INTERNAL REVENUE CODE OF 1986", AS AMENDED, AND "COMPONENT MEMBER" HAS THE SAME MEANING AS SET FORTH IN SECTION 1563 (b) OF THE FEDERAL "INTERNAL REVENUE CODE OF 1986", AS AMENDED. THIS PRESUMPTION MAY BE REBUTTED BY PROOF THAT DURING THE CALENDAR YEAR IN QUESTION, THE COMPONENT MEMBER THAT IS A RETAILER WITH PHYSICAL PRESENCE IN THIS STATE DID NOT ENGAGE IN ANY CONSTITUTIONALLY SUFFICIENT SOLICITATION IN THIS STATE ON BEHALF OF THE RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX.

Requirements of Retailers That Do NOT Collect Colorado Sales Tax

In addition to the rebuttable nexus presumption standard, Colorado has also created a few additional requirements for companies that do NOT collect Colorado sales tax. Again, for your convenience, I have published the actual excerpts from the bill.

Notification to Purchasers

EACH RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX SHALL NOTIFY COLORADO PURCHASERS THAT SALES OR USE TAX IS DUE ON CERTAIN PURCHASES MADE FROM THE RETAILER AND THAT THE STATE OF COLORADO REQUIRES THE PURCHASER TO FILE A SALES OR USE TAX RETURN.

EACH RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX SHALL SEND NOTIFICATION TO ALL COLORADO PURCHASERS BY JANUARY 31 OF EACH YEAR SHOWING SUCH INFORMATION AS THE COLORADO DEPARTMENT OF REVENUE SHALL REQUIRE BY RULE AND THE TOTAL AMOUNT PAID BY THE PURCHASER FOR COLORADO PURCHASES MADE FROM THE RETAILER IN THE PREVIOUS CALENDAR YEAR. SUCH NOTIFICATION SHALL INCLUDE, IF AVAILABLE, THE DATES OF PURCHASES, THE AMOUNTS OF EACH PURCHASE, AND THE CATEGORY OF THE PURCHASE, INCLUDING, IF KNOWN BY THE RETAILER, WHETHER THE PURCHASE IS EXEMPT OR NOT EXEMPT FROM TAXATION. THE NOTIFICATION SHALL STATE THAT THE STATE OF COLORADO REQUIRES A SALES OR USE TAX RETURN TO BE FILED AND SALES OR USE TAX PAID ON CERTAIN COLORADO PURCHASES MADE BY THE PURCHASER FROM THE RETAILER.

Notification to the Department of Revenue

EACH RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX SHALL FILE AN ANNUAL STATEMENT FOR EACH PURCHASER TO THE DEPARTMENT OF REVENUE ON SUCH FORMS AS ARE PROVIDED OR APPROVED BY THE DEPARTMENT SHOWING THE TOTAL AMOUNT PAID FOR COLORADO PURCHASES OF SUCH PURCHASERS DURING THE PRECEDING CALENDAR YEAR OR ANY PORTION THEREOF, AND SUCH ANNUAL STATEMENT SHALL BE FILED ON OR BEFORE MARCH 1 OF EACH YEAR.

THE EXECUTIVE DIRECTOR OF THE DEPARTMENT OF REVENUE MAY REQUIRE ANY RETAILER THAT DOES NOT COLLECT COLORADO SALES TAX THAT MAKES TOTAL COLORADO SALES OF MORE THAN ONE HUNDRED THOUSAND DOLLARS IN A YEAR TO FILE THE ANNUAL STATEMENT.

Penalties for Non-Compliance

There are penalties for not filing the appropriate notifications to Colorado purchasers and the Colorado DOR. See the bill for all of the ugly details.

Conclusion

If these new provisions impact your company, please be aware that Colorado is in the middle of issuing emergency regulations surrounding this new law. If you have any questions regarding these new requirements and standards, please contact me at brian.strahle@bakertilly.com.

For current updates, go to COLORADO.

Colorado Governor Signs BILLS Suspending Special Tax Breaks

On February 24th, the Governor of Colorado signed nine pieces of legislation that suspend or eliminate several special tax breaks in order to help balance the state’s budget by generating $15.6 million in revenue this fiscal year and $132.6 million next fiscal year.

According to the PRESS RELEASE, the Governor did not want to sign the nine pieces of legislation, but felt he had no choice.

Gov. Ritter signed the following bills:

1. House Bill 1189, Eliminate Sales Tax Exemption for Direct Mail
2. House Bill 1190, Suspend Industrial Fuel Sales and Use Tax Exemption
3. House Bill 1191, Eliminate Candy and Soda Sales Tax Exemption
4. House Bill 1192, Repeal Sales and Use Tax Exemption of Standardized Software
5. House Bill 1193, Sales Tax Out-of-State Retailers
6. House Bill 1194, Eliminate Non-Essential Articles Sales Tax Exemption
7. House Bill 1195, Suspend Ag Sales & Use Tax Exemption
8. House Bill 1196, Income Tax Credit Vehicles Using Alternative Fuels
9. House Bill 1199, Limit the Net Operating Loss Deduction Temporary Limit

Two additional bills are pending:

1. House Bill 1197, Reduce Conservation Easement Cap Amount
2. House Bill 1200, Limit Enterprise Zone Investment Tax Credit

Tax Increases in Colorado - Will it Spread?

As you can see, Colorado has balanced their budget by raising taxes (eliminating or suspending exemptions, etc.) and asking everyone, or atleast several groups of taxpayers to share the pain.

Based on legislative proposals being discussed around the country in several states, I think you can expect to see other states finally reach a breaking point where they are forced to raise taxes to balance their budgets as well.

Stay tuned.

For current updates, go to COLORADO.

State Depreciation Adjustments: Limitations on Sec. 179, Bonus Depreciation, Etc.

As you may be aware, most, if not all states require taxpayers to make some type of adjustment to taxable income for depreciation taken on the federal return, including Sec. 179 and/or bonus depreciation.

For example, Minnesota requires 80% of federal bonus depreciation to be added-back to taxable income. Minnesota also did not adopt the increased Sec. 179 expensing; therefore, 80% of the difference between what Minnesota allows and what is allowed for federal purposes is added-back.

Another example is Texas. Texas, recently provided guidance in its Tax Policy News regarding Sec. 179 adjustments as follows:

An Internal Revenue Code (IRC) Section 179 expense deduction is allowed for taxable entities that elect to deduct cost of goods sold (COGS) to compute their margin. Only taxable entities that sell real or tangible personal property in the ordinary course of business are eligible to deduct COGS. Allowable costs include depreciation and IRC Section 179 expense deductions that are related specifically to equipment used in the production of goods.

“Internal Revenue Code” is defined in Texas Tax Code Section 171.0001(9) as the Internal Revenue Code of 1986 in effect for the federal tax year beginning on Jan. 1, 2007, not including any changes made by federal law after that date. Therefore, for Texas franchise tax, any increase or decrease in the Section 179 expense deduction is tied to the IRC Section 179 in effect as of Jan. 1, 2007. The changes in the Section 179 expense deduction allowed by the Small Business and Work Opportunity Act of 2007 and the American Recovery and Reinvestment Act of 2009 do not apply to franchise tax reports.

Therefore, for franchise tax report year 2008, the limit is $112,000. The limit for 2009 is $115,000, for 2010 is $120,000, and for 2011 is $25,000. Again, the years as noted are the "franchise tax report year," and not the "accounting period/year." The report coming due in May of 2010 is the 2010 report year.

If you have questions about a state's depreciation adjustments please contact me at brian.strahle@bakertilly.com.

State Income Tax Nexus: Is Your Company Protected?

"P.L. 86-272" - have you heard of it?

It is the Federal Interstate Income Tax Law (P.L. 86-272) that prohibits any state from imposing a net income tax on income derived within that state from interstate commerce if the only business activity within the state is the "solicitation of orders" for tangible personal property, provided that the orders are approved and filled outside the state. (15 U.S.C. §381)

After reading that, do you see all of the criteria your company must meet in order for P.L. 86-272 to apply to your company's situation?

In order to provide some guidance or clarity, the following is a brief tutorial on P.L. 86-272.

MAIN POINTS TO CONSIDER WHEN APPLYING P.L. 86-272

1. P.L. 86-272 only applies to "income taxes" or "taxes based on income." Therefore, it does not apply to franchise taxes if they are not based on income. An example of this is Texas' Franchise Tax (Margin Tax). Also, the gross receipts tax portion of Michigan's MBT (however, P.L. 86-272 does apply to the business income tax portion of Michigan's MBT). Other examples of where P.L. 86-272 does not apply include Ohio's CAT tax and Washington's Business and Occupation (B&O) tax.
2. P.L. 86-272 does NOT apply to companies that are soliciting sales of services or other business activities that are NOT selling tangible personal property. Therefore, P.L. 86-272 does not apply to service companies/providers that are only soliciting sales in a state, whether it is via its own employees or even through the use of independent contractors.
3. P.L. 86-272 only applies to companies that are soliciting sales of tangible personal property in a state with their own employees or via independent contractors. With that said, "solicitation of sales" can be the only activity that these employees or independent contractors complete. Some "ancillary activities" are allowed, but BE CAREFUL.
4. If your company is selling tangible personal property, you can still lose the protection of P.L. 86-272 if your company performs other activities within in a state in addition to solicitation, such as installation. The use of independent contractors to perform other activities such as installation can also lead to the loss of protection under P.L. 86-272.
5. If your sales representatives, whether they are employees or independent contractors, have the right to approve sales orders in the state of solicitation, then P.L. 86-272 protection may be lost. Sales orders should be sent out of state for approval.

These are just a few of the main points to consider when applying P.L. 86-272 to your company's situation. If you are not sure whether your company has nexus or is protected under P.L. 86-272, please contact me at brian.strahle@bakertilly.com.

Minnesota: Research Credit Confusion???

In 2008, House Bill HF 3149 changed some language in Minnesota statute 290.068, Subd 3, which apparently has caused some confusion among taxpayers. Therefore, I thought I would try to provide some clarity.

CONFUSION??

HF 3149 changed the language of 290.068, Subd 3, by saying:

"the credit for the taxable year shall not exceed the liability for tax. 'Liability for tax' for purposes of this section means the tax imposed under Section 290.06, subdivision 1, for the taxable year reduced by the sum of the nonrefundable credits allowed under this chapter."
Before the amendment, the statute said:

"the 'liability for tax' for purposes of this section means the tax imposed under this chapter."

Some taxpayers interpreted this change as creating a new limitation on the use of the Minnesota research credit, such as limiting the credit to the difference between a taxpayer's regular tax liability and it's alternative minimum tax liability. However, that is not the case.

CLARIFICATION

The House Research Bill Summary related to Bill HF 3149 states that the change in language in the credit for increasing research activities was made to clarify that the research credit applies against the regular corporate franchise tax and not the alternative minimum tax. Effective beginning in tax year 2008.

If you follow the form instructions and the statute 290.068, Subd 3, you will find that the credit is always limited to a taxpayer’s “regular franchise tax” liability.

Therefore, if you are in AMT, the credit is still available, but it is limited to the amount of the taxpayer’s “regular franchise tax” liability.

If you have any questions regarding your Minnesota research credit, please contact me at brian.strahle@bakertilly.com.

Colorado: Proposals Pass House and Senate!

Colorado is seriously considering the following:

1. Limiting the amount of NOLS that a corporation may claim for tax years beginning on or after January 1, 2011, but prior to January 1, 2014, to $250,000 (House Bill 1199, approved in Senate, 2/10/10). See the bill for all of the details.
2. Suspending the sales tax exclusion for sales and purchases of electricity, coal, gas, fuel oil, steam, coke, or nuclear fuel for use in processing, manufacturing, mining, refining, irrigation, construction, telegraph, telephone, and radio communication, street transportation services, and all industrial uses (HB 1190, approved in Senate 2/10/10).
3. Changing the taxation of "standardized software" or "pre-packaged software." Under the proposal, tangible personal property subject to tax would include "standardized software," without regard to how it is acquired by the purchaser or downloaded to the purchaser's computer. Separately stated IT services or separately stated custom software that is part of "modified off-the-shelf software" would not be intended to be taxed as long as they constitute "pure" custom software (HB 1192, approved in Senate 2/10/10). Would take effect on March 1, 2010.
4. Retailers that do not collect Colorado sales tax would be presumed to be doing business in the state if that retailer is part of a controlled group of corporations that has a component member that is a retailer with physical presence in the state. The presumption would be rebuttable. The bill includes additional requirements. (HB 1193, approved in Senate 2/10/10).

If you operate in Colorado, stay tuned to see if these changes get enacted. They are getting close.

For current updates, go to COLORADO.

Illinois: Pass-Through Entity Payments Correction (Form IL-1000)

Correction for 2009 Form IL-1000, Pass-through Entity Payments Income Tax Return

Issue:
The 2009 Form IL-1000 does not allow a place for taxpayers to take credit for payments made on Form IL-1000-P, Pass-through entity prepayment voucher. How do we calculate the return and take credit for those payments?

Answer:
For 2009, you should calculate the return as it is provided. After calculating Line 8, Tax due, you may subtract any payment amounts you made on Form IL-1000-P, before writing your check or money order for payment. Be sure to write the amount you are actually paying in the box at the top of the form because it may be different from the amount you are actually paying.

EX:
Line 8 – $1000.00
IL-1000-P payments made – $500.00

Make annual payment for $500.00 and write $500.00 in the box at the top of the form.

EX:
Line 8 – $1000.00
IL-1000-P payments made – $1000.00

Send no annual payment with the return and write $0.00 in the box at the top of the form.

EX:
Line 8 – $1000.00
IL-1000-P payments made – $1500.00

Send no annual payment with the return, write $0.00 in the box at the top of the form, and be sure to distribute total payments made, including any overpayment, on Schedule K-1-P or K-1-T to partners/shareholders/beneficiaries because you, as the entity, cannot claim a refund on this return. Only owners are allowed to claim refunds on their Illinois annual returns.

Minnesota: State of the State Address = Jobs Creation Bill??

In Minnesota, Governor Tim Pawlenty delivered his State of the State Address yesterday. Within his speech, he communicated that he would be proposing a "Jobs Creation Bill" that has six vital parts:

1. A 20% reduction in the corporate tax rate;
2. A 20% exclusion from taxation for small businesses;
3. An angel investment tax credit;
4. A supercharged research and development tax credit;
5. A capital gains exclusion for qualified investments; and
6. Incentives for companies to invest in Minnesota small businesses.

Currently Minnesota has the 8th worst business tax climate with the 3rd highest corporate tax rate in the world. With Minnesota's budget deficit currently estimated at $1.2 billion and growing, the Governor is seeking to cut spending and taxes to encourage economic investment and development within Minnesota.

Stay tuned to see if any of the Governor's proposals get enacted.

Michigan: Disregarded Entities ON ALERT!

Is it just me, or does Michigan like to be the center of attention? Okay, just a little humor.

ATTENTION: DISREGARDED ENTITIES!

If you are operating in Michigan or have any connection with Michigan today or especially in the past, you are going to want to read Michigan's latest NOTICE to taxpayers regarding KMART Michigan Property Services, LLC.

According to the Notice and as a result of the Court of Appeals case,

KMPS was required to file a SBT return, regardless of its classification as a disregarded entity for federal tax purposes, because KMPS fit within the statutory definition of a “person” conducting business activity and the SBTA required all persons conducting business activity in the state to file a SBT return. Therefore, the SBTA does not support the requirement of RAB 1999-9 that an organization that is a disregarded entity for federal tax purposes for a given taxable period must also file as a disregarded entity for state tax purposes.

RETROACTIVE APPLICATION!!

The main point in all of this is that Michigan will apply the result of the Kmart court case to all open tax years.

RETURNS REQUIRED FOR ALL TAX YEARS EXCEEDING FILING THRESHOLD

Pursuant to Kmart, persons that are disregarded entities for federal tax purposes that filed as a branch, division, or sole proprietor of their owner for SBT purposes ("previously disregarded entities") must now file a separate SBT return for all open tax periods.

Previously disregarded entities are considered non-filers for statute of limitations purposes under MCL 205.27a. Consequently, returns must be filed for all tax years for which the previously disregarded entity exceeds the filing threshold.

NOTE: Disregarded entities may be eligible to file a Voluntary Disclosure Agreement to limit the lookback period; however, at this time, it is unclear.

AMENDED RETURNS FOR TAXPAYERS THAT INCLUDED DISREGARDED ENTITIES

Persons that previously filed SBT returns that included one or more previously disregarded entities must amend their returns for all open periods. These persons may not amend returns beyond the statute of limitations set forth under MCL 205.27a.

ALL ACTION MUST TAKE PLACE BY SEPTEMBER 30, 2010

All persons required to file or amend a return under Kmart and this Notice must do so by September 30, 2010.

INTEREST AND PENALTIES

Interest under MCL 205.23 and MCL 205.24 is due for any deficiencies in tax payments and shall be added to the tax from the time the tax was originally due. Interest on refunds due to amended returns or returns filed by previously disregarded entities shall be calculated and added to the refund commencing 45 days after the claim is filed.

Failure to file penalties under MCL 205.24 will be waived for all returns filed and paid by September 30, 2010. Penalty will be assessed against any previously disregarded entity that fails to file a required return by September 30, 2010.

REGISTRATION, FILING, CONTROLLED GROUPS

Additional guidance on registration, filing and controlled groups is provided in the NOTICE.

CURRENT RECOMMENDATION?

The Michigan legislature may take action before September to clarify or rectify this situation. Also, additional information from the Michigan Department of Treasury may be released to provide more guidance. Therefore, disregarded entities may want to hold-off on complying with this notice until things become clearer.

If you have any questions or need assistance, please contact me at brian.strahle@bakertilly.com.