Wisconsin Combined Reporting: Emergency Rules for Short Period Returns

As you may already know, Wisconsin has revised their tax code to require corporations to use combined reporting to compute their Wisconsin income for franchise or income tax purposes. The revision applies to taxable years beginning on or after January 1, 2009.

Click on the following link for more details:

http://www.dor.state.wi.us/combrept/index.html


Emergency Rules for Short Period Returns

On August 24th, Wisconsin released some guidance for combined groups that may have a short period in 2009. The guidance explains how to file a short period combined return if the final 2009 forms are not available at the time of filing.

The Department's emergency Administrative Rule 2.67(2)(c) (available at www.revenue.wi.gov/combrept/rules.html) describes the necessary components of a combined return. Short period returns must also satisfy these requirements. However, the required Forms 4, 4R, 4M, and 4A are not yet available, although they will be available as drafts by September 30, 2009. As soon as they are available as drafts, you can find them on the Department's web page at www.revenue.wi.gov/forms/draft/index.html.

After the draft forms are available, taxpayers filing short period combined returns may use the draft forms as if they are final forms. Although combined returns are generally required to be filed electronically, short period combined returns that are due before the final forms are available may be filed on paper.

Click on the following link for more information:

http://www.dor.state.wi.us/combrept/shortprd.html

If you have any questions, please contact me at leveragesalt@earthlink.net.

California: Business Net Receipts Tax Workshops

Just a reminder:

California's Commission on the 21st Century Economy held two workshops this week to discuss implementing a business net receipts tax (BNRT).

For more information, click on the following link:

California Commission on 21st Century Economy

If you have any questions, please contact me at leveragesalt@earthlink.net.

THE GREATEST SALT CONSULTANT: PART 1

Question: What makes a remarkable state and local tax consultant or client experience?

Answer: “Your SALT Partner” or “YSP.” YSP is a figure of speech or “ideal” of what the greatest SALT consultant should be (i.e., best practices, client service, etc.).

Over the next 12 weeks I will share one of the 12 best practices of being the greatest SALT consultant, YSP. Here is this week's.

“True Partnering Relationships” versus “One-Hit Wonder”

My first point, based on years of experience, is that state and local tax consultants should seek to be strategic partners with their clients, not provide “one-hit wonders.” Meaning, Your SALT Partner, or YSP, should be someone that develops strong relationships with their clients. Through those relationships, YSP will gain a deeper understanding of his or her client’s, or prospective client’s business, and be in a better position to provide practical, customized SALT solutions.

The opposite of YSP is a “one-hit wonder,” or a SALT consultant that “hits up” clients with the “idea of the day.” This SALT consultant is more focused on meeting his or her personal/firm goals instead of focusing on solving the client’s problem with the most practical solution.

The “one-hit wonder” is here today, gone tomorrow; not only before or after a project, but sometimes during a project. As a client, you can be “in the dark” as to the status of the project, what the consultant is finding, and what the potential solutions are (this should not happen).

YSP provides updates throughout the project to the client, and advises them as to changes or alternative solutions that arise.

Have you experienced a YSP or "one-hit wonder"?

P.S. My idea for writing about the greatest SALT consultant came from another blog, "The Greatest American Lawyer." Please check it out, it is very informative and useful, even for nonlawyers. http://greatestamericanlawyer.typepad.com/greatest_american_lawyer/

Minnesota: Do You Know Where You Live?

Court Case:

Sanchez v. Commissioner of Revenue, Supreme Court of Minnesota, A08-2281, filed August 20, 2009.

The Minnesota Supreme Court recently held that a taxpayer's "domicile" was in Minnesota for the entire tax year, despite the taxpayer having done the following:

1. Listed Minnesota home for sale in 2003.
2. Sold its house in Minnesota on June 18, 2004.
3. Taxpayer took several trips to South Dakota in 2004 prior to June 18, 2004.
4. Obtained a mailing address in South Dakota.
5. Obtained South Dakota drivers licenses, opened a checking account, obtained credit cards, registered vehicles and registered to vote in South Dakota.
6. Notified insurance providers of their new address.
7. The taxpayer did NOT rent or purchase property in South Dakota, as they planned to travel (via a motor home), and wanted to avoid the expenses and obligations of home ownership.
8. Taxpayer stated they intended to return to South Dakota to rent or buy a home later.
9. Taxpayers moved from Minnesota when the house was sold on June 18, 2004 and did not reside in Minnesota since that date.
10. Taxpayer filed 2004 return as "part-year residents."
11. Minnesota believed taxpayer was a MN resident for the entire year, and assessed additional tax, interest and penalties.

Issue On Appeal

The issue on appeal was whether the tax court correctly found that the taxpayer's actions failed to demonstrate either physical presence, or an intent to establish domicile, in South Dakota in 2004.

In Minnesota, "all net income of a resident individual is subject to tax." Minn. Stat. § 290.014, subd. 1 (2008). The definition of "resident" applicable here is "any individual domiciled in Minnesota." Minn. Stat. § 290.01, subd. 7(a) (2008); see Minn. R. 8001.0300, subp. 1 (2007). To establish "domicile," one must have "bodily presence . . . in a place coupled with an intent to make such a place one‟s home." Minn. R. 8001.0300, subp. 2 (2007). Domicile "is that place in which that person's habitation is fixed, without any present intentions of removal therefrom, and to which, whenever absent, that person intends to return."

While individuals can be residents of more than one state, as residency only requires physical presence in a place, individuals can have only one domicile at any time. Minn. R. 8001.0300, subp. 2. Once domicile is established in Minnesota, it is presumed to continue until another domicile is actually established. The taxpayer has the burden of proving a new domicile outside of Minnesota. See Sandberg v. Comm’r of Revenue, 383 N.W.2d 277, 283 n.7 (Minn. 1986).

"One must actually reside in the new state at the time the intent is formed to make the new state one's permanent home." Wolf v. Comm’r of Revenue, No. 7068, 1999 WL 640030, at *2 (Minn. T.C. Aug. 17, 1999); see also Davidner, 304 Minn. at 493-94, 232 N.W.2d at 7. "Residence without intention, or intention without residence" does not establish domicile. Davidner, 304 Minn. at 493, 232 N.W.2d at 7; see also Minn. R. 8001.0300, subp. 2. P.

The administrative rules of the Department of Revenue contain a list of 26 factors to consider in determining whether a taxpayer remains domiciled in Minnesota for tax purposes; no single item is determinative. Minn. R. 8001.0300, subp. 3 (2007). All parties agree that the taxpayers left Minnesota with no intent to return. The issue is whether the taxpayers established a new domicile in South Dakota.

DECISION

The MN Supreme Court has said that to "establish or change one's domicile requires one's bodily presence in a place coupled with an intent to make such place one's home." Manthey v. Comm’r of Revenue, 468 N.W.2d 548, 549 (Minn. 1991).

We need not decide whether presence and intent must be simultaneous under every possible scenario. Suffice it to say that on this record, there is ample support for the tax court's conclusion that the taxpayers had no physical presence in the State of South Dakota that was sufficient to demonstrate that they intended to make their home there and integrate their lives into the community. There is no evidence that their visits to South Dakota during 2004 were anything more than brief, temporary stays for the purpose of establishing a mailing address.

The taxpayers argued that the tax court should have found that their situation was analogous to Marcotte v. Comm’r of Revenue, No. 4541, 1987 WL 10252, at *2 (Minn. T.C. Mar. 13, 1987).

In Marcotte, the taxpayer purchased a condominium in Florida in May 1982 but retained a Minnesota condominium until the housing market improved in 1985. After going to Florida to buy the condominium, Marcotte traveled in a motor home, returning to Minnesota, and also visiting Wisconsin, Montana, and Canada. He finally settled in Florida in October 1982. The tax court concluded that Marcotte was domiciled in Florida as of May 1982, as he had a valid reason not to sell his Minnesota condominium, he had a Florida driver‟s license, registered to vote in Florida, registered his vehicles in Florida, and joined a tennis club. Marcotte also cancelled his Minneapolis Athletic Club membership, although he did retain bank accounts in Minnesota and had friends, relatives, children, and parents in the state.

According to the Court, in this case, unlike Marcotte, there was no evidence that the taxpayers established their domicile in South Dakota because South Dakota was not the place in which their habitation was fixed. Minn. R. 8001.0300, subp. 2.

DISSENT

Justice Alan Page dissented or disagreed with the MN Supreme Court's ruling.

Justice Page stated that the court has never before held that a taxpayer must shackle themselves to another state in any specific fashion or for any specific period of time in order to effect a change in domicile. But after this case's decision, taxpayers wishing to establish a change in domicile will have to buy or rent property in another state and remain physically present in that state for some undefined period of time. Because the taxpayers did not buy or rent property or spend sufficient time in South Dakota, they remain to this day subject, at the Commissioner of Revenue's whim, to Minnesota's income tax even though they have completely abandoned their Minnesota domicile.

WHAT NOW?

I agree with Justice Page and believe this case should be overturned. However, it is a MN Supreme Court case. Therefore, taxpayers with similar facts or circumstances should consult a state tax professional to determine the proper course of action.

As always, contact me at leveragesalt@earthlink with questions or to discuss your situation.

Net Operating Losses (NOLs): Carryback? Carryforward?

This is just a friendly reminder that if your business or client has a federal net operating loss (NOL), do not assume the same carryback or carryforward rules apply at the state level.

Not only does each state have different NOL carryback and carryforward rules, but there are different rules for the type of entity involved (C corporation, S corporation, partnership, trusts, individuals, etc.).

For example, just because a state has a NOL carryback of 2 years, and a carryforward of 20 years for C corporations, does not mean the same rules apply to trusts or individuals.

For some entities, there could be no carryback allowed. Other entities or individuals could be allowed a carryback.

MORAL of the STORY

Do not assume anything. Look it up or consult a state tax professional (me) at leveragesalt@earthlink.net.

Is Your Auditor M.I.A.?

Where is the auditor? I haven't heard from him or her in a while.

Should I call them? Or should I just wait it out, and see if they contact me again?

Have you ever asked yourself those questions?

Some taxpayers have an audit begin where the auditors come to their place of business, ask questions, review records, and then leave. When the auditors leave, they say they will let the taxpayer know if additional information is needed or if they have any questions.

Then, months go by without any contact from the auditor.

But wait, three weeks before the statute of limitations is about to expire on one of the tax years within the audit period, the state contacts the taxpayer and asks the taxpayer to sign a waiver of the statute of limitations, usually a year extension (you should always attempt to negotiate a smaller extension; 3 months if you can get it; some states have a minimum of 6 months).

After the extension is signed, the taxpayer may receive another information request or list of questions from the auditor, with a short timeline or due date for the taxpayer to respond. After the taxpayer responds, another 6 months go by without any contact from the auditor.

Then, once again, one month before the statute of limitations is about to expire, the taxpayer receives a preliminary audit assessment. This time the state won't extend the statute, and the taxpayer has less than a month to dispute the audit assessment's findings before a final assessment is received.

QUESTIONS

If your auditor goes M.I.A. in the middle of an audit, what should you do?

Should you just play the "wait and see game"? Or, should you contact the auditor sooner to find out what the status is?

If you contact the auditor sooner, you may or may not receive a response earlier? It really could go either way.

The same is true if you don't contact the auditor. You could get "lucky" and the statute of limitations could expire without receiving an assessment. On the other hand, you could receive an audit assessment with a short amount of time to respond.

What do you think? Have you experienced this before? If so, what was the result?

Please comment or e-mail me at leveragesalt@earthlink.net. Any response will be kept confidential.

Washington: Out-of-State Sellers Caught in Nexus Trap

Are you selling goods into Washington State, but do not have a permanent physical presence in Washington?

If yes, do you send employees into Washington State to maintain your market in Washington State?

If yes, you could have nexus in Washington State for B&O tax purposes.

Are your goods shipped F.O.B.?

If yes, does the freight consolidator, freight forwarder or for-hire carrier have express written authority to accept or reject the goods for the purchaser with the right of inspection?

If not, the goods could be considered to be received in Washington State.

The above conclusions are what the Court of Appeals for the State of Washington Division II reached in Lamtec Corporation, Appellant, v. Department of Revenue of the State of Washington, Respondent; No. 37516-8-11.

Important Notes

Washington's B&O tax is an excise tax imposed for the privilege of doing business. Therefore, virtually all business activities carried on within Washington are taxable.

Washington's rules for interstate sales of tangible property state when goods originating outside of Washington are received by a purchaser in Washington, and the out-of-state seller has nexus with Washington, the B&O tax applies to the seller.

Facts:

1. Lamtec is a company based in New Jersey with no permanent physical location in Washington State.
2. Lamtec sent employees into Washington State to maintain Lamtec's market in Washington State, but not to solicit or accept individual orders.
3. All goods were shipped F.O.B. (from New Jersey)

Lamtec Had Nexus

First, the Court held that Lamtec's activities within Washington were "significantly associated with Lamtec's ability to establish and maintain a market in Washington."

Given Lamtec's business strategy of maintaining long-term relationships with a small number of customers; its in-person customer visits were critical to maintaining its existing Washington customers.

Lamtec sent employees into Washington to provide information, listen to concerns about Lamtec products, participate in telephone calls that customers placed to Lamtec's technical and customer service departments in New Jersey, field questions concerning potential price increases and new products, and maintain general client relations.

The Goods Were Received in Washington State

The Court also held that the goods Lamtec sold to Washington State customers were received by the purchasers within Washington State despite the goods being shipped F.O.B.

According to Washington tax code (WAC 458-20-193(7)(a):

Delivery of the goods to a freight consolidator, freight forwarder or for-hire carrier located outside this state merely utilized to arrange for and/or transport the goods into this state is not receipt of the goods by the purchaser or its agent unless the consolidator, forwarder or for-hire carrier has express written authority to accept or reject the goods for the purchaser with the right of inspection.

Because the for-hire carriers in Lamtec's case did not have express written authority to accept or reject the goods for the purchasers with the right of inspection, the Court held the goods were received in Washington.

Takeaway - Mitigate Exposure

If you are selling into Washington State without a permanent physical presence in Washington, you should review your activities in Washington and your shipping practices to determine your exposure to B&O tax.

Takeaway - Opportunity

After reviewing your activities in Washington and your shipping practices, you may be able to change your business practices to reduce your exposure to B&O tax going forward.

Please contact me at leveragesalt@earthlink.net to discuss your facts, and potential exposure, or opportunity.

Click on the following link to access the case:

http://www.courts.wa.gov/opinions/index.cfm?fa=opinions.showOpinion&filename=375168MAJ

Partnerships, Estates and Trusts: When Is Your Extended State Return Due?

This is a reminder for businesses and tax professionals who file returns for partnerships, estates and trusts.

If you recall, the IRS issued regulations (IR-2008-84; T.D. 9407; NPRM REG-115457-08) reducing the automatic extension period from six months to five months for partnerships filing Form 1065 or Form 8804, and estates and trusts filing Form 1041.

The change applies to returns due on or after January 1, 2009.

FEDERAL Return Impact

For all calendar-year partnerships and estates and trusts who filed extensions or requested automatic extensions, their FEDERAL returns are due September 15, 2009 instead of October 15, 2009.

STATE Return Impact

If your partnership, estate or trust files in multiple states, please note that some states follow federal automatic extension periods and some don't. Meaning, some state returns are NOW due September 15, 2009 that have historically been due later.

It is important for you to confirm the due dates for the state returns you will be filing over the next 2 months.

S Corporation Note

S Corporation due dates at the FEDERAL level did not change: the original return due date for calendar-year taxpayers remains March 15th, and the extension period is still 6 months providing a due date of September 15th.

Therefore, state return due dates for S corporations did not change as well.

Need Help?

If you have any questions, or would like assistance in determining the due dates for your state returns, please contact me at leveragesalt@earthlink.net.

California: IOUs to Stop September 4th!

According to a press release by the State Controller of California, John Chiang, he has completed “stress testing” the Department of Finance’s cash projections from the State’s newly-revised budget and has determined the new spending plan will provide the State Treasury with enough cash to stop issuing IOUs on September 4, almost one month earlier than expected.

The Controller has advised the Governor, Treasurer and legislative leaders that current projections show the State will need to borrow $10.5 billion to meet California’s cash needs for the fiscal year.

Based on the State Treasurer’s assurance that he will be able to obtain an interim $1.5 billion loan by August 28, the Controller set September 4 as the date he could stop issuing IOUs and the Treasurer may begin redeeming those that have already been issued.

At the Controller’s request, the Pooled Money Investment Board (PMIB) has scheduled an emergency meeting for August 21. At that meeting, the Controller will ask the board to approve a redemption date of September 4, which is almost one month earlier than the October 2 maturity date printed on the IOUs.

Click on the following link to access the press release:

http://www.sco.ca.gov/eo_pressrel_6080.html

LeverageMotivation: "Score" (or Finish Strong!)

(A little break from state and local taxes to provide some inspiration or motivation.)

Put the ball in the goal, the basket or the end zone! (depending on the game you are playing)

The game isn't about strategy, planning, passing, formations, offense or defense, intricate plays, etc. The point of the game is to score.

Soccer Analogy:

Don't run all the way down the field with the ball, only to let the goalie grab the ball before you kick it (in the goal).

Application to YOU

Therefore, in life and business, as in sports, don't spend all of your time planning, and even moving forward, to only run out of steam in the end. Finish Strong. Score.

Should States Charge Sales Tax on Services?

Michael Mazerov at the Center of Budget and Policy Priorities (CBPP) has written an article suggesting (or recommending) that states should expand their sales tax base to include services.

I have not had a chance to analyze the article and 45 page report yet, but I wanted to go ahead and make you aware of it, so you could look it over.

Click on the following link to access the article:

http://www.cbpp.org/cms/index.cfm?fa=view&id=2888

Please provide me with your thoughts on the article and report, either by commenting on this post or sending me an e-mail at leveragesalt@earthlink.net. I would love to hear from you.

Hawaii: Voluntary Disclosure Program for Undeclared Offshore Bank Account Income

Hawaii Department of Taxation published Tax Information Release (TIR) 2009-03 on August 6, 2009. The TIR announces a concurrent voluntary disclosure program for those participating in the present Internal Revenue Service (IRS) voluntary disclosure program for undeclared offshore bank account income.

Background

As the TIR states, in March 2009, the IRS announced guidelines for taxpayers making voluntary disclosures of unreported income generated through undeclared offshore bank accounts located in countries outside the United States.

In response to increased federal enforcement efforts associated with unreported offshore income, the IRS encouraged taxpayers to take advantage of the voluntary disclosure program stating,

"[t]axpayers with undisclosed foreign accounts or entities should make a voluntary disclosure because it enables them to become compliant, avoid substantial civil penalties and generally eliminate the risk of criminal prosecution."

Hawaii's Response

In furtherance of the IRS' efforts, Hawaii is likewise encouraging taxpayers with corresponding Hawaii income sourced from undeclared foreign bank accounts to make a voluntary disclosure with the Department.

Hawaii's Deadline

As of the date of the TIR, a timely federal disclosure is made by September 23, 2009. Therefore, a timely voluntary disclosure for Hawaii purposes is made by notifying the Department of the intent to submit a voluntary disclosure pursuant to the TIR by September 23, 2009.

Click on the following link to access TIR 2009-03, for more details on eligibility, waiver of penalties, and penalties for not participating in the voluntary disclosure program, etc.:

http://www6.hawaii.gov/tax/tir/tir09-03.pdf

If you have any questions, please contact me at leveragesalt@earthlink.net.

North Carolina: Governor Signs Budget Enacting Tax Increases

The Governor of North Carolina has signed the budget bill (SB 202) into law.

The budget bill includes all of the tax law changes and increases I described in an earlier blog post, such as a new income tax surcharge, sales tax rate increases, and the new Amazon law nexus provision, etc.

Click on the following link to access the details in my earlier post:

http://leveragesalt.blogspot.com/2009/08/north-carolina-budget-bill-in-general.html

If you have any questions, please contact me at leveragesalt@earthlink.net.

Connecticut: Gov.'s Budget Proposal Includes Familiar Tax Increases

Like all, or most states are dealing with their financial budget crisis, they are cutting services AND raising taxes out of necessity (it appears).

Therefore, the Connecticut Governor's budget proposal includes some tax increases, that are similar to what other states are doing:

1. Adopting an "economic nexus" provision (retroactive to January 1, 2009)
2. Imposing a 10% corporate income tax surcharge in tax years 2009, 2010, and 2011
3. Increasing tobacco and alcohol tax rates by varying percentages up to 10%

For more details, click on the following links to access the budget proposal:

http://www.ct.gov/governorrell/cwp/view.asp?A=3675&Q=444328

http://www.ct.gov/governorrell/lib/governorrell/budget_documents_30jul09.pdf

As always, if you have any questions, please contact me at leveragesalt@earthlink.net.

Maine: More Info on Tax Receivables Reduction Initiative

Maine Revenue Services released a publication to announce the 2009 Tax Receivables Reduction Initiative.

Click on the following link to access Maine's publication:

http://www.maine.gov/revenue/publications/alerts/2009/August2009Vol19Iss5.htm

I reported this initiative in an earlier post (http://leveragesalt.blogspot.com/2009/06/maine-2009-tax-receivables-reduction.html), but thought I would provide a reminder.

If you have any questions, or require assistance in taking advantage of the initiative, please contact me at leveragesalt@earthlink.net.

Connecticut: Amazon Law Update

Senate Bill 806 which would have enacted the well-known "Amazon law" (similar to NY and RI), did not make it past the Senate Committee on Revenue, Finance and Bonding.

The bill was originally introduced on February 3, 2009.

If you have any questions, please contact me at leveragesalt@earthlink.net.

North Carolina Budget Bill in General Assembly; to Governor?

The North Carolina General Assembly voted and passed Senate Bill 202 yesterday. The General Assembly is scheduled to vote again today. If it passes, it will head to the Governor for signature.

The bill (SB 202) contains several tax law changes:

1. A surtax (or additional income tax) equal to 2% or 3% of the tax payable by the taxpayer (would apply to corporations and individuals for calendar tax years 2009 and 2010).


2. Sales tax rate would increase from 4.5% to 5.5% from 9/1/09 to 10/1/09.


3. Sales tax rate would increase to 5.75% effective 10/1/09 and expire on 7/1/2011.


4. The "Amazon Law" or affiliate nexus provision (similar to NY and RI) requiring remote merchants or sellers to collect sales tax on sales to in-state purchasers based on the affiliate's nexus connection to North Carolina.


5. Expands the sales tax base of digital property.


6. Increases the alcohol excise and tobacco products tax rates.


7. Changes in North Carolina's conformity with the Internal Revenue Code (impacts deductions for real property taxes, motor vehicle sales taxes, deferral of cancellation of indebtedness income (COD), corporate deductions of original issue discount on high-yield discount obligations, and bonus depreciation).

Click on the following link to access SB 202 (pages 218 thru 238 discusses the tax changes):

http://www.ncga.state.nc.us/sessions/2009/budget/2009/S202-CCSMAxf-3.pdf

If you have any questions, please contact me at leveragesalt@earthlink.net.

Delaware: Voluntary Tax Compliance Initiative (VTCI) Info / Reminder!

Just a reminder: the Delaware Voluntary Tax Compliance Initiative (VTCI) begins September 1, 2009 and ends on October 30, 2009.

To provide general information regarding the VTCI, Delaware has released "frequently asked questions."

For more information, please click on the following link to access Delaware's website:

http://revenue.delaware.gov/amnesty.shtml

If you have any questions or would like assistance in taking advantage of the VTCI, please contact me at leveragesalt@earthlink.net.

Total State and Local Business Taxes: A Study by COST and Ernst & Young

Ernst and Young in-conjunction with the Council on State Taxation (COST) has released their seventh annual report on state and local taxes. The study presents detailed, state-by-state estimates of the state and local taxes paid by businesses for fiscal year 2008.

According to the report, the key findings were:

1. State and local business tax growth is slowing in line with state and local taxes in general.
2. Business taxes accounted for 44.1% of total state and local taxes.
3. The total state and local business tax burden is 83% higher than the estimated value of public services directly benefiting businesses.
4. Property taxes on business property totaled $209 billion, equal to 36% of total state and local business taxes.
5. Sales tax on business inputs and capital equipment totaled $131 billion, 22% of business taxes.
6. Corporate income tax collections were $56.9 billion, less than 10% of total state and local business taxes or 16% of state taxes on business.

To access the study/report, please click on the following link:

http://www.cost.org/Page.aspx?id=69654