California Commission on the 21st Century Economy Releases FINAL REPORT!

Yesterday, the Commission on the 21st Century Economy released its final report and recommendations on ways to update and improve California’s revenue system and make it more reflective of the state’s economy. See the Press Release.

The Commission is recommending several significant "big" and "bold" changes to California's tax system with a five-year phase-in plan beginning in 2012.

The Commission's Final Report is 425 pages. Here is a "high level" summary:"

Section One:

These recommendations are of a statutory nature, which means they may be made effective upon passage by a majority of the State Legislature and signature by the Governor.

1. Reduce Personal Income Tax (PIT) for every taxpayer – Reduce the number of tax brackets from six to two. The new tax rate would be 2.75 percent for taxable income up to $56,000 for joint filers ($28,000 for single) and 6.5 percent for taxable income above that amount. These changes would retain the PIT’s progressive nature but reduce income tax rates for all taxpayers. The proposal would reduce the amount of income tax paid by 29 percent.
2. Eliminate the corporation tax and minimum tax – Eliminate the corporate tax, which is currently at 8.84 percent. The $800 minimum franchise tax should also be eliminated.
3. Eliminate the state general purpose sales tax – Eliminate the current 5 percent state sales tax, with the exception of the sales tax on gas and diesel fuels which would continue to be dedicated to transportation. Elimination of the sales tax would phase in over five years.
4. Establish a business net receipts tax (BNRT) – Establish a new tax, not to exceed 4 percent, applied to the net receipts of businesses. Small businesses with less than $500,000 in gross annual receipts would be exempt from this tax. This tax would have a much broader base than the sales tax (since it would apply not only to goods but also to services and to sales into the state from businesses located outside the state) and, unlike the sales tax, be deductible against federal taxes.
5. Create an independent tax dispute forum – This forum would provide taxpayers with a forum for resolving disputes with the state.

Section Two:

This recommendation requires a change in the State Constitution or a state ballot initiative in order to be effective.

1. Strengthen the state’s Rainy Day Reserve Fund – Increase the target for the reserve from 5 percent of revenues to 12.5 percent and restrict the government's ability to use reserve assets so that the reserve is available to help fund services during recessionary periods.

For more information see the Commission's website and Final Report Presentation.

What do you think of the Commission's recommendations?

How will they effect your business?

Do you think the legislature and Governor will enact these changes?

Wisconsin: Sales Tax Applies to 'Digital Goods' Starting October 1, 2009!

Beginning on October 1, 2009, Wisconsin sales and use taxes will apply to sales of digital goods.

The Wisconsin Department of Revenue (DOR) has issued Publication 240: Digital Goods - How Do Wisconsin Sales and Use Taxes Apply to Sales and Purchases of Digital Goods?

If you need assistance in applying these new rules to your sales and purchases of digital goods, please contact me at leveragesalt@earthlink.net

State Budget Update: Revenue Shortfalls Grow = New Taxes On the Way

Due to the economic conditions in which states are operating, states are cutting budgets and attempting to generate new revenues.

Back in July 2009, the National Conference of State Legislatures (NCSL) released its State Budget Update: July 2009. The report showed states are projecting a cumulative shortfall of $142.6 billion for FY 2010, which is likely to grow during the course of the fiscal year.

The NCSL has compiled a series of tables that document the measures, both proposed and enacted, that states are taking to close their budget gaps. The tables are based on data collected from various media and government outlets.

Note: As of September 11, 48 states have finalized their budgets with an additional 2 legislatures in the process of finalizing their budgets after the start of the new fiscal year (Michigan's fiscal year does not begin until October 1).

The Washington Times also published an ARTICLE today discussing actions states are taking in response to the financial crisis.

How are you being affected by the actions states are taking?

Have you been "hit" by new taxes?

Are new "nexus" laws causing your company to consider filing returns in states you have not filed in before?

THE GREATEST SALT CONSULTANT: PART 5

This is the fifth best practice of what it takes to be the "GREATEST SALT CONSULTANT."

Find the “Right Solution” for the Client (custom fit)

When a client approaches you with a problem and leads you down the path of what they think the possible solutions are, it is always wise to back-up and see if there are alternative solutions.

Your SALT Partner, or YSP, is always looking out for the best interests of the client, in search of the most practical and cost-effective (legal) solution. In addition, YSP does not attempt to sell a “cookie-cutter” pre-packaged solution because his or her firm is pushing the product. YSP does not put his or her firm’s sales goals ahead of providing the “right solution” for the client.

In other words, put yourself in the client's shoes. Think from their perspective and tell them what you would do if you were them. Isn't that what the client wants?

What do you think?

Please leave a comment or send me an e-mail with your thoughts. Thanks.


Click on the following links to access the first 4 best practices:

Greatest SALT Consultant: Part 4

Greatest SALT Consultant: Part 3

Greatest SALT Consultant: Part 2

Greatest SALT Consultant: Part 1

Wisconsin-Minnesota Income Tax Reciprocity Guidance

Wisconsin has provided some guidance on its website regarding the recent change in income-tax reciprocity between Wisconsin and Minnesota.

On Friday, September 18, 2009 the income tax reciprocity agreement between Minnesota and Wisconsin was terminated by Minnesota effective for taxable years beginning after December 31, 2009.

The tax liability of a Wisconsin resident working in Minnesota should not change as a result. The Department of Revenue will be contacting affected Wisconsin residents and employers in the next few weeks.

This change does not impact your 2009 tax returns.

Minnesota has provided some guidance on its website as well.

Ohio Supreme Court Upholds Collection of State Commercial Activity Tax From Grocers

On September 17, 2009, the Supreme Court of Ohio ruled that collecting the state’s commercial activity tax (CAT) from grocers based on their gross receipts is not an unconstitutional “excise tax upon the sale or purchase of food.” According to the Court, the CAT is a tax on the privilege of doing business, not a direct tax on the items being sold.

For more details, please see the Ohio Supreme Court's website and ruling.

Brief Summary

In 2005, as part of legislation overhauling Ohio’s business tax structure, the General Assembly eliminated the former state corporate franchise tax and tangible personal property tax and replaced them with the CAT. The CAT is assessed on businesses with taxable gross receipts for the privilege of doing business in the state. Businesses grossing less than $150,000 in a calendar year need not register for or pay the tax. Businesses grossing between $150,000 and $1 million pay a flat $150 tax. The tax paid by businesses with gross receipts over $1 million is measured by .26 percent of their annual gross business receipts.

A group of plaintiffs including individual grocery store owners, food wholesalers and the Ohio Grocers Association filed suit in the Franklin County Court of Common Pleas seeking a declaratory judgment that the state tax commissioner is prohibited from assessing the CAT against any of their gross business receipts arising from the sale of food for off-premises consumption.

The plaintiffs, who also sought a refund of prior-year CAT taxes they have paid on their receipts from food sales since 2005, based their claim on provisions of the Ohio Constitution that prohibit the state from levying or collecting any “excise tax upon the sale or purchase of food.”

The trial court ruled in favor of the tax commissioner, holding that the cited constitutional provisions bar only the collection of state sales tax on the sale or purchase of food, and that the CAT was not a tax levied on food purchases, but rather a franchise tax levied on all businesses for the privilege of doing business in Ohio.

On review, the 10th District Court of Appeals reversed the trial court and ruled that imposing the CAT on a grocer or food wholesaler based on a percentage of its business receipts from the sale of food constituted levying an unconstitutional “excise tax on the sale of food.” The tax commissioner sought and was granted Supreme Court review of the 10th District’s ruling.

Justice Maureen O'Connor stated in the Ohio Supreme Court opinion:

“Section 3(C), Article XII prohibits any excise tax ‘levied or collected upon the sale or purchase of food.’ Similarly, Section 13 prohibits ‘sales or other excise taxes’ upon food sales at other points in the distribution chain, such as wholesale sales. It is well accepted that taken together, these sections prohibit a sales tax on food, and indeed, sales of food remain exempt from the sales tax. R.C. 5739.02(B)(2). The Grocers, however, assert that Sections 3(C) and 13 do more—namely, prohibit a tax on the privilege of doing business to the degree that the privilege is measured by gross receipts derived from food sales. The court of appeals agreed with this interpretation of these sections.”

“That interpretation is not, however, the best reading of the sections. The actual wording of Sections 3(C) and 13 does not prohibit the state from using gross receipts to compute the amount of a privilege-of-doing-business tax, even if those gross receipts include proceeds from the sale of food. And ... interpreting Sections 3(C) and 13 to allow such a tax is not only faithful to the text, it is (1) consonant with long-settled legal principles governing the taxation of the privilege of doing business, (2) implied by the structure of Sections 3(C) and 13, and (3) confirmed by the history both preceding and succeeding the enactment of those provisions. And when the CAT’s practical operation is considered, it becomes evident that it is what it purports to be: a permissible tax on the privilege of doing business, not a proscribed tax upon the sale or purchase of food. For these reasons, we reverse the judgment of the court of appeals.”

CONCLUSION

The CAT tax is regarded as a tax on the privilege of doing business and is constitutional, according to the Ohio Supreme Court.

(Ohio Grocers Association et. al., v. Levin, Ohio, Slip Opinion No. 2009-Ohio-4872, 9/17/09)

Court Reporters, Videographers and Sales Tax?

MyLegal.com has published an article I wrote on the application of sales tax to court reporters, videographers and other litigation support personnel.

Please check out MyLegal.com's website and sign-in to become a member, and read THE ARTICLE.

The article discusses:

1. What are You Selling and is it Taxable? (service vs. tangible personal property)
2. Invoice and Billing Guidance (impact on tax determination)
3. What are You Buying and is it Taxable?
4. Audit Tips and Potential Issues
5. Audit Prep Advice
6. Other Advice regarding Statute of Limitations, Voluntary Disclosure Programs, and impact of relying on a Department of Revenue's advice

If you have any questions regarding the issues discussed in the article, please contact me at leveragesalt@earthlink.net.

Illinois: Proposed Regulations to Increase Franchise Tax?

On September 4th, the Illinois Secretary of State issued proposed regulations in the 2009 Illinois Register, Volume 33, Issue 36 , that if enacted, would increase the Illinois Franchise Tax paid by companies based in Illinois.

The proposed regulations are as follows:

Section 150.632 Business Transacted and Property Located in Illinois

When a corporation having its principal office in Illinois has invested part of its earned surplus in corporate stocks and other securities through the principal office in Illinois, the stocks and securities should be considered property located in Illinois, and the income from them should be regarded as part of the business transacted by the corporation at or from places of business within Illinois.

Section 150.635 Amounts Transferred to Paid-in Capital

All amounts transferred from a corporation's retained earnings or from any other entry in its stockholders' equity to its paid-in capital are subject to all franchise taxes imposed by the Business Corporation Act.

CONCLUSION

These regulations are proposed and have not been enacted. It is currently unclear as to how the regulations will be interpreted and applied, but companies with a commercial domicile in Illinois will want to watch closely.

Companies based in Illinois may also want to consider changing to an LLC, since an LLC is not subject to the franchise tax (albeit, LLCs are subject to tax, but the tax is currently less than the franchise tax on paid-in capital).

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

FORMAL COMMENT LETTER

Also, please check out the Illinois Chamber of Commerce Tax Institute blog. The Illinois Chamber Tax Institute is soliciting comments from members in anticipation of filing a formal comment letter with the Joint Committee on Administrative Rules.

Minnesota Terminates Income Tax Reciprocity with Wisconsin

According to a Minnesota Department of Revenue News Release, Minnesota has decided to end its income tax reciprocity program with Wisconsin, effective January 1, 2010. As a result, Minnesota residents who work in Wisconsin will be required to file returns in both states next year.

Termination of the reciprocity agreement will impact about 13,000 Minnesotans and 33,500 Wisconsin residents who meet the filing requirements and work across the border. No Minnesota resident will pay more in Minnesota tax, but some who work in Wisconsin will pay more Wisconsin taxes.

According to the news release, the reciprocity agreement was originally intended for taxpayer simplification, not to reduce taxes on cross-border workers. Due to technological advances, the burden on taxpayers is believed to have been relieved. Therefore, the state's financial budget concerns overrode the need to continue the program.

For more details, see the MN DOR News Release.

THE GREATEST SALT CONSULTANT: PART 4

This is the fourth best practice of what it takes to be the "GREATEST SALT CONSULTANT."

No Timesheets (Measure Staff by Results, Not Effort)

Clients are not paying for “effort." They are paying for “results.” Therefore, Your SALT Partner (YSP) measures staff by results, not effort; meaning, YSP does not use timesheets to track time or effort expended by his or her staff.

The costs of YSP’s employees are fixed costs; therefore, timesheets are allocations of fixed costs (employees) to clients. Do firms allocate other fixed costs to their clients? No. Then don’t do it with employee costs.

Timesheets are a “crutch,” or replacement for poor project management and poor people management. There are other, more useful tools to manage projects and people (their called managers). Other tools could be a “SCORECARD” and “Project Management Report.”

Example “SCORECARD:”

• Pull your weight (volume of work / meeting deadlines for assigned work)
• Willingness to help others near deadlines (shifting of work / unassigned work)
• Identify tax process improvement ideas
• Identify tax savings ideas
• Work product requires less review time
• Positive attitude

What do you think?

If you are a client, are you paying for effort or results?

If you are a tax professional, are you measuring and managing effort or results?

Please leave a comment or e-mail me at leveragesalt@earthlink.net with your thoughts. Thank you.


Click on the following links to access the first 3 best practices:

Greatest SALT Consultant: Part 3

Greatest SALT Consultant: Part 2

Greatest SALT Consultant: Part 1

Tax Foundation Argues Against NY "Amazon Tax" Ruling

According to a News Release by the Tax Foundation, the Foundation has filed a friend-of-the-court brief with the New York State Supreme Court's Appellate Division arguing that the state cannot legally compel Amazon.com, an out-of-state retailer, to collect sales taxes on purchases because the retailer does not have a physical presence in the state.

In the brief, Tax Foundation Tax Counsel Joseph Henchman reviews "substantial nexus" standards and states, "economic and technological developments of the past few decades make preserving a bright-line physical presence nexus rule for state taxation all the more vital."

The Fiscal Fact summarizes main points expressed in the brief as:

1. States Can Only Tax Businesses That Have "Substantial Nexus" With the State
2. The "Amazon Tax" Goes Beyond Any Previous Extension of Physical Presence
3. New York's law is an unprecedented expansion of state taxing authority.
4. Unconstitutionally Expansive Nexus Standards Like the "Amazon Tax" Undermine Legal Certainty, Interstate Commerce, and Economic Growth

NOTE:

The amicus curiae brief ("friend of the court") was filed by the Tax Foundation on September 9, 2009 in the New York Supreme Court, Appellate Division, First Department.

The case of Amazon.com, LLC v. New York State Department of Taxation and Finance, No. 601247-2008, is on appeal from the trial-level Supreme Court of New York.

Please leave a comment or e-mail me with any feedback or questions at leveragesalt@earthlink.net.

North Carolina: Sales Tax Rate Change Guidance (Started Sept 1st!)

REMINDER

The 2009 North Carolina General Assembly has enacted legislation that provides for a temporary additional 1% State sales and use tax effective September 1, 2009 and will expire on July 1, 2011.

Senate Bill 202 was ratified by the House of Representatives and the Senate on August 5, 2009 and has been signed by Governor Perdue.

GUIDANCE

The North Carolina Department of Revenue has released several documents providing guidance on how to comply with, and apply the sales tax rate change to different types of transactions. See North Carolina's Department of Revenue website for more details.

If you have any questions or need any assistance regarding the sales tax rate change, please contact me at leveragesalt@earthlink.net.

California: Business Net Receipts Tax Proposal Keeps Moving Forward

California's Commission on the 21st Century Economy is reaching the end of its discussion on proposals for revising California's taxing structure.

The Commission met on September 10th and released several new documents discussing its current thoughts on potential proposals, including changes to the personal income tax, a business net receipts tax, changes to the corporation tax, sales and use tax, and requirements regarding the rainy day reserve fund. For more information, see the Commission's website.

According to the Commission's website, the following is a description of the major components of the proposed tax plan, with the initial year of implementation in 2012.

Personal Income Tax

The personal income tax (PIT) would significantly change in structure and the state’s reliance on this revenue source would diminish substantially. Under the proposal, the number of tax brackets would be reduced from six to two; credits would be eliminated (except for the other states’ tax credit); deductions would be dramatically curtailed.

After a phase-in period based on reductions in the current law PIT, the new PIT structure beginning in year three of the plan would be as follows:

1. Tax rate of 2.75% for income up to $56,000 for joint filers ($28,000 single filers) and 6.50% for incomes above that amount.
2. Standard deduction of $45,000 for joint filers ($22,500 single filers).
3. Itemized deductions limited to mortgage interest, property taxes and charitable contributions.

Corporation Tax

The corporation tax on businesses would be eliminated in 2012, the first year of the tax plan.

Sales and Use Tax

The state portion of the sales and use tax (SUT) would be phased-out beginning in the initial year of the tax plan. The SUT would be reduced by 1% during each of the five years of the plan’s phase-in period.

Annual reductions would be contingent on the revenues generated by the newly imposed business net receipts tax as described below. To the extent that revenue from the new tax fell short of estimates, the precise reduction in the SUT rate would be adjusted.

Business Net Receipts Tax

A business net receipts tax (BNRT) would be imposed on all businesses deemed to be doing business in the state. Doing business would constitute not only physical presence in the state but also economic presence.

The tax would be based on net receipts, calculated by subtracting purchases from the gross receipts of the firm. It would apply to all forms of business including C corporations, pass-through entities and sole proprietorships.

The BNRT would apply to all sectors of the economy. The tax would be phased-in over a five year period as other taxes were eliminated and phased-out.

Rainy Day Reserve Fund

The annual transfer of 3 percent would continue under this proposal. New reserve requirements would increase the target for the reserve fund to 12.5 percent of state revenues, up from 5 percent of revenues. Unanticipated or one-time revenues and receipts would be dedicated to building up the reserve.

The circumstances under which revenue transfers to the reserve fund could be suspended would be severely restricted. In addition, there would be more stringent controls on the circumstances for the withdrawals of moneys from the reserve fund as well as the purposes for which the money could be used.

REMEMBER

All of the above proposals are in the early discussion stages, and only represent current recommendations by the Commission. There are a number of steps to be taken before these proposals would be enacted into law, including a great deal of scrutiny and review.

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

California: New Registration & Reporting Requirements (Use Tax)

California has released a Special Notice alerting taxpayers to the new registration and reporting requirements for "qualified purchasers" to report and pay use tax directly to the Board of Equalization (BOE).

California Use Tax

Generally, use tax applies when a person or business in California purchases tangible merchandise to be used, consumed, given away, or stored in this state from a retailer outside of this state who does not collect California tax on the sale. In simpler terms, if sales tax would apply when a particular item is purchased in California, use tax applies when a similar purchase is made from a retailer outside the state and no tax is charged. Use tax is not a new tax. It has been a part of the Revenue and Taxation Code since the 1930's. Only the registration requirement is new under AB x4-18.

According to the notice, a "qualified purchaser" is a person that meets the following conditions:

1. The person receives at least $100,000 in gross receipts from business operations per calendar year. Note: Gross receipts is the total of all receipts from both in-state and out-of-state business operations.
2. The person is not required to hold a seller's permit or certificate of registration for use tax (under section 6226 of the Revenue and Taxation Code).
3. The person is not a holder of a use tax direct payment permit as described in section 7051.3 of the Revenue and Taxation Code.
4. The person is not otherwise registered with the BOE to report use tax.

When is a return due?

The return for 2009, along with payment, is due by April 15, 2010. Registrants are also being asked to report purchases for 2007 and 2008. The provisions of AB x4-18 impose a due date of April 15 for use tax reported by qualified purchasers.

However, the provisions of this bill do not change the due date for use tax liabilities from prior years. Therefore, returns for purchases made in 2007 and 2008 were due January 31, 2008 and January 31, 2009, respectively. Penalty and interest applies to payments received after the due date of each return period.

Can a" qualified purchaser" be relieved from penalty and interest charges?

The BOE may grant relief of penalty charges, but not interest, if it is determined that a person's failure to file a timely return or payment was due to reasonable cause and circumstances beyond the person's control. To request relief of penalty charges, a person may submit a completed BOE-735, Request for Relief of Penalty.

BOTTOM LINE:

California has imposed these requirements to get California taxpayers to remit use tax on taxable purchasers where the seller has not charged sales tax. Tax has rarely been remitted to the state voluntarily on these types of purchases due to the difficulty in enforcing compliance.

Therefore, if you meet the conditions to be a "qualified purchaser," then you need to follow the new registration and reporting requirements or you may be subject to penalties and interest.

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

Illinois Releases Service Taxes Report (Sales Tax on More Services?)

The Illinois General Assembly Commission on Government Forecasting and Accountability has released a REPORT discussing sales tax on services.

The report suggests, based on several factors, that Illinois should broaden its sales tax to apply to more services. Currently, Illinois taxes 17 services, while the average state taxes 56.

The Executive Summary states:

"This report represents an update to the 2006 report by the Commission on the topic of service taxes. Recent interest in the topic has led the Commission to revisit the estimate it made in the 2006 report along with updating the summary of what services other States tax. Similar to the previous report, this examination is meant to be an initial analysis and a discussion of the topic that broadly outlines the history and issues related to service taxes. Further investigation and more detailed analysis would be warranted in going forward with any new initiatives concerning tax services."

The 29 page report concludes with:

"In conclusion, service taxes have repeatedly been brought up as a potential stream of revenue for the State. The service sector has become a greater portion of the economy in both the nation and Illinois. Services are taxed differently throughout the country but not very broadly in Illinois. Potential revenue from the taxation of services was estimated between $3.6 billion and $7.3 billion. The growth in the service tax estimates from the 2006 report are mainly due to changes in revenue estimate methodology, natural growth in the service sector, and methodology changes related to the final use percentages of certain sectors. Volatility, equity, cascading taxes, and opposition to the taxation of services are all topics that must be considered when considering imposing such new taxation."

Conclusion

Whether or not the Illinois legislature will actually enact legislation to tax more services is unclear. The budget crisis of the state would make it a more viable option; however, proposals to tax services have consistently faced strong opposition from taxpayers and industry groups when such proposals have been considered in the past.

If you operate in Illinois, be on the lookout for developments in this area over the next six months.

Questions? Contact me at leveragesalt@earthlink.net.

THE GREATEST SALT CONSULTANT: PART 3

This is the third best practice of what it takes to be the "GREATEST SALT CONSULTANT."

FIXED-FEES (no surprises at the end of a project)

Since "Your SALT Partner" or YSP does not sell time, YSP should bill on a fixed-fee basis. This forces YSP to discuss the scope, expectations, and value being provided before the project even begins. This helps tie the value being provided with the fee being charged. It also keeps the client and YSP from having the “fun conversation” at the end of the project as to why the fees are more than expected.

What do you think?

Is your SALT consultant charging fixed-fees or billing by the hour?

If so, do you know what the fee will be before the project is finished?

Click on the following links to access the first 2 best practices:

Greatest SALT Consultant: Part 2

Greatest SALT Consultant: Part 1

Texas: Tax Requirements for Filings With The Secretary of State

According to the Texas Comptroller of Public Accounts, information about Franchise Tax requirements for filing a termination, withdrawal or cancellation of registration with the Texas Secretary of State has been updated in accordance with SB 1442, 81st Regular Session.

The changes to Texas' Web site, Window on State Government, are outlined below.

Three Franchise Tax publications are now obsolete and have been removed from the Web site:

1. 98-336D - Requirements to Dissolve/Terminate, Merge or Convert a Texas Entity
2. 98-336F - Requirements to Withdraw or Terminate a Certificate of Authority/Application for Registration to Transact Business in Texas
3. 98-336R - Requirements to Reinstate a Texas Entity or the Certificate of Authority/Application for Registration of a Non-Texas Entity

These publications have been replaced by a new Web page entitled Tax Requirements for Filings with the Secretary of State.

You will find links to this new Web page in the following locations:

1. Texas Taxes under "I Want To..."
2. Franchise Tax under "Filing and Paying" and under "Filing Resources - Closing or reinstating a business?"
3. Texas Franchise Tax for Reports Due On or Before December 31, 2007 under "Filing and Paying" and under "Resources - Closing or reinstating a business?"
4. e-Services under "Franchise Tax e-Services"
5. Certificates of Account Status in the second paragraph.

Procedural "Pain"

I know from personal experience it can be difficult to navigate the procedural process (or pain) of either keeping an entity in "good standing," or dissolving, withdrawing or terminating a company's registration to transact business in Texas.

Please contact me at leveragesalt@earthlink.net if you have any questions or need assistance.

ALERT: CHANGE IN DOMAIN NAME!

This is an ALERT to notify you that the domain name for the LeverageSALT blog has been changed from: www.leveragesalt.blogspot.com to www.leveragestateandlocaltax.com.

This change is in-process and will be finalized over the next couple of days.

Please correct any links to this blog, etc. to point to the new address.

Thank you.

Best Regards,

Brian Strahle

Washington: New Requirement for Purchases of Goods and Services for Resale - "Reseller Permits"

According to a Washington News Release, Washington state laws governing how businesses purchase goods and services for resale are changing in a big way next year.

THE CHANGE

Beginning Jan. 1, 2010, only businesses with a Department of Revenue-issued reseller permit can purchase items for resale without paying sales tax.

REASON FOR CHANGE

According to the Washington Department of Revenue (DOR), the legislatively mandated switch from the current resale certificate program is projected to recover up to $100 million annually in state and local sales tax revenue that is now lost when businesses buy items for their own use but don’t pay sales tax when due.

Examples of misuse of the self-issued resale certificates include a dentist buying a big screen TV for office or home use, a nonprofit corporation purchasing office equipment for its own use, and a janitorial firm buying cleaning supplies used in its business. Sales tax is due on all of these purchases because the materials aren’t being resold.

WHO QUALIFIES?

The Department estimates that 30 percent of registered businesses in Washington qualify for and will receive the new reseller permit. Businesses that do not report retail or wholesale sales generally will not be eligible for permits. Farmers will continue to be eligible to purchase certain materials such as feed and seed tax-free.

According to the Washington DOR, more than 155,000 businesses were mailed permits automatically this month. Another 330,000 were advised that they would not be sent a permit but could apply for one if they could demonstrate a legitimate business need. These include contractors, many of whom can qualify for permits depending on the nature of their work.

About 326,000 registered non-reporters, who don’t file tax returns and don’t collect sales tax, will not qualify for permits.

AFTER DECEMBER 31, 2009?

After Dec. 31, 2009, businesses that do not have a reseller permit will need to pay sales tax on products they purchase to resell, but can claim a deduction for sales tax paid at source on their state excise tax returns or seek a refund if they do resell them.

Businesses that have been issued permits must present copies to those businesses from which they buy items for resale. The sellers must keep the permits on file for five years and only make tax-free sales to businesses with permits.

If you have any questions on how this change impacts your business or your clients, please contact me at leveragesalt@earthlink.net.

Connecticut: Bill to Become Law Today Without Signature

Governor M. Jodi Rell announced last week that she will neither sign nor veto the state budget given final approval by legislative Democrats last Tuesday morning, allowing the bill to become law without her signature according to the state Constitution. However, Governor Rell said she will exercise her line-item veto power to remove new earmarks and new “pork-barrel” spending items added to the bill. See the News Release for more details.

The Budget Bill (H.B. 6802) was passed by the Connecticut General Assembly on August 31, 2009 and contains the following key tax provisions/changes.

Personal and Pass-Through Entity Tax Changes:

Beginning with the 2009 tax year,

1. taxes are increased for joint filers with taxable incomes over $1 million, heads of households with taxable incomes over $800,000, and single filers and married individuals filing separately with taxable incomes over $500,000;
2. the flat income tax rate for trusts and estates is increased from 5.0% to 6.5%;
3. scheduled tax reductions are delayed for single filers for three years;
4. CT law is decoupled from the federal domestic production activities deduction (Sec. 199);
5. An "economic nexus" standard is established for determining whether an out-of-state S corporation or partnership is subject to tax (for income years beginning on or after January 1, 2010); and
6. use tax tables are required to be included on tax forms.

Corporation Tax Changes

1. A 10% corporate tax surcharge is imposed for income years beginning in 2009, 2010 and 2011.
2. An "economic nexus" standard is established for determining whether an out-of-state C corporation is subject to the corporation business tax (for income years beginning on or after January 1, 2010).
3. CT law is decoupled from the federal domestic production activities deduction (Sec. 199).
4. The maximum preference tax is increased for groups of companies filing combined corporation business tax returns from $250,000 to $500,000.
5. The period for which a company can carry forward unused credits for the donation of open space land is extended from 15 to 25 years (for income years beginning on or after January 1, 2009).
6. Rates and eligibility requirements are adjusted for the film production, film production infrastructure, and digital animation production credits (for income years beginning on or after January 1, 2010).

Sale Tax Changes

1. Lowers the sales and use tax rate from 6% to 5.5% effective January 1, 2010. The rate decrease is contingent on the state meeting certain revenue goals.
2. The fee for a seller's permit will be increased from $50 to $100 per permit effective October 1, 2009.

Amnesty Program

1. Department of Revenue Services is required to establish a "tax settlement initiative program" from October 1, 2009 to December 31, 2009.

In addition to the above, other changes were also made to Cigarette and Tobacco taxes, and Estate and Gift Taxes which I will not go into here.

For access to the entire bill, click on the following link:

Emergency Certified Bill 6802, An Act Concerning Expenditures and Revenue for the Biennium Ending June 30, 2011.

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

Labor Day: What is it? Why?

I hope everyone is having a great labor day weekend. I wasn't going to post anything today, but then I thought I would look up the history of Labor Day. Why do we have it?

So I did a little Google search, and of course found several sites; however, I thought I would provide a link to the History Channel's summary, Labor Day History.

The History Channel's summary ends with:

"Although Labor Day is meant as a celebration of the labor movement and its achievements, it has come to be celebrated as the last, long summer weekend before Autumn."

I agree. Sometimes we just take holidays for granted without recognizing why we are celebrating them. What are you celebrating this Labor Day?

Ohio CFT Information Release: Phase-Out Reminder!

Ohio has issued an information release to remind taxpayers that the franchise tax phase-out was complete with the filing of the 2009 franchise tax report (based on the taxable year ending in 2008).

Most corporations are not subject to the franchise tax for tax years (report years) 2010 and thereafter. Corporations that are not subject to the 2010 franchise tax (based on the taxable year ending in 2009) are not subject to the minimum fee and have no report year 2010 franchise tax payment or filing obligation.

For those corporations still subject to the franchise tax, prior filing and payment requirements apply. Financial institutions must file form FT 1120FI; all other corporations still subject to the franchise tax must file form FT 1120.

Click on the following link to access the Release:

Ohio Phase-Out Reminder CFT 2009-01

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

Ohio CAT Information Release: Changes Beginning October 15, 2009

Ohio has issued an information release to inform taxpayers of the modifications that occurred in Am. Sub. H.B. 1, which take effect October 15, 2009 with regard to the due dates of the $150 annual minimum tax, annual and quarterly returns, and the deadline for cancelling commercial activity tax (“CAT”) accounts.

Click on the following link for all of the details:

Ohio CAT Information Release 2009-01

BEWARE: AMNESTY in EFFECT!

This is a reminder that Amnesty began September 1st for the following states:

DELAWARE (September 1 through October 30, 2009)

LOUISIANA (September 1 through October 31, 2009)

MAINE (September 1 through November 30, 2009)

MARYLAND (September 1 through October 30, 2009)

Click on the above links to access additional information about each state's amnesty program.

REMINDER:

OREGON's amnesty program begins October 1st and runs through November 19, 2009.

If you have any questions regarding the amnesty programs, or would like assistance in determining if you should take advantage of the programs, please contact me at leveragesalt@earthlink.net.

Texas: August 2009 Tax Policy News Released

Are you operating a management company in Texas?

Are you having difficulty determining the sourcing for Texas local sales and use taxes?

If you answered yes to any of the above questions, then you will want to check out the Texas Comptroller of Accounts August 2009 Issue of Tax Policy News.

In the August 2009 issue, the Texas Comptroller provides additional guidance and definitions around what constitutes a management company for Texas Franchise Tax Purposes, and guidance regarding the sourcing of Texas local sales and use taxes.

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

THE GREATEST SALT CONSULTANT: PART 2

This is the 2nd best practice of what it takes to be "the GREATEST SALT CONSULTANT."

Selling Knowledge and Solutions, NOT Time

"Your SALT Partner" or YSP sells knowledge and solutions to improve cash flow and profit margin, and reduce the costs of doing business.

How you might ask? Through the identification of SALT issues and opportunities applicable to a client’s business, YSP can:

1. Mitigate exposure to assessments of back taxes, penalties or interest;
2. Reduce audit assessments of taxes, penalties and interests;
3. Obtain refunds of overpaid taxes;
4. Stop payment of taxes not legally owed;

Example:
Scenario (a): YSP conducts 8 hours of research to answer your question.

Scenario (b): YSP conducts 1 hour of research to answer your question.

Which scenario is worth more to the client?

Answer: several factors determine the value of what YSP is providing in both scenarios, but the value is not based on how long it took YSP.

Would you want to buy a house that was built in six weeks or six months?

Or do you just want a house built to your specifications by a builder that keeps you informed and stays on schedule and on-budget (the schedule and budget was agreed to upfront)?

What do you think? Please comment or e-mail me at leveragesalt@earthlink.net.

Click on the following link to access the first best practice:

THE GREATEST SALT CONSULTANT: PART 1

Wisconsin: Manpower Overcomes "Look Through" Position

Case: Manpower, Inc. vs. Wisconsin Department of Revenue, Docket No. 05-S-046, State of Wisconsin Tax Appeals Commission.

Issue: This case concerned the taxation of temporary help services.

Audit Period: January 1, 1996 through December 31, 1999

Tax and Interest Assessed on March 30, 2004: $1,976,315.90

Brief Summary

In brief, Manpower is in the business of placing temporary help workers with companies in need of additional help. The workers are assigned by Manpower based on the skills and interests they possess and are paid by Manpower. The workers may be sent out for a day, or a week, or months. While out on a job site, the temporary help employees are not supervised by Manpower.

In this matter, the Department is seeking to impose on Manpower sales tax for the temporary help services performed by its employees that match any service listed in Wis. Stat. § 77.52 (2).

Manpower argues that temporary help services are not specifically enumerated in Wis. Stat. § 77.52(2) and, therefore, are not subject to sales tax.

DEPARTMENT'S POSITION

The position taken by the Department in this case - that when a worker placed by Manpower performs a task which would be taxable if provided as part of a taxable service, then Manpower's gross receipts related to that task are subject to the sales tax - has been described by the Department as the “Look Through” position.

In October of 2002, the Department issued a draft tax bulletin that first publicly announced the “Look Through” position. This was the first written notice received by Manpower of the Department's position.

The Department argues:

1. Manpower is selling the skill-related services of its employees and Manpower receives compensation in exchange for the services performed by its employees.


2. the term “services” in the sales and use tax statutes is not limited to those provided by “conventional service providers.”


3. “services” must be construed very broadly and that the case law and statutes do not support Manpower.


4. Manpower's position is a matter of semantics, not substance.


5. the Wisconsin Legislature has acted to exempt only the sale of services by one identified type of service provider—veterinarians—from the imposition of sales and use tax under Wis. Stat. § 77.52(2)(a)10 and it has not acted to do so in reference to “temporary help companies.”

MANPOWER'S POSITION

Manpower argues:

1. temporary help services are not taxable under Wis. Stat. § 77.52. Manpower makes a number of claims in support of this argument.


2. unlike goods, only services that are specifically listed in Wis. Stat. § 77.52 are subject to the sales and use tax, and “temporary help services” is not generically listed there.


3. under Wisconsin law, tax liability cannot be imposed without clear and express language and ambiguities must be resolved against taxability.


4. temporary help services are distinguishable in certain respects from the list of taxable services in Wis. Stat. § 77.52, in that (i) Manpower does not supervise or direct the workers, (ii) Manpower does not define the scope of the work, (iii) Manpower does not warrant a specific outcome or result, (iv) Manpower does not provide tools or equipment or training to the workers, and (v) Manpower does not control the location of the work.


5. for purposes of the sales and use tax, workers placed by Manpower are employees of Manpower's clients, not Manpower.


6. the Department has historically accepted Manpower's position.


7. the Department's theory of liability has not been accepted by other states.


8. the Department's construction would lead to inequitable results.


9. the Department audited Manpower three previous times and did not issue a similar assessment; therefore, the Department should be equitably estopped from pursuing this assessment.

DECISION

After reviewing the nearly 1,700 pages filed by the parties in support of their motions and listening to the oral arguments, the appeals commission concluded that Wis. Stat. § 77.52 is ambiguous as to whether or not temporary help services are included in the services listed therein.

Are temporary help services a subset of services and, hence, potentially taxable, or are temporary help services something fundamentally different and nontaxable?

According to the commission, both constructions are reasonable, which makes the application of the statutory language ambiguous in this particular factual context.

According to the commission, certain aspects of these transactions stand out:

1. the workers that Manpower sends out are in many ways essentially substitutes or stand-ins for the purchaser's own work force, and the wages of one's own workforce, as the Department agrees, are clearly not subject to sales and use tax.


2. once at a job site, a Manpower employee may wind up doing tasks that are clearly non-taxable based on the purchaser's needs on that particular day, which calls into question the nature of the original transaction itself.


3. the minute-by-minute recordkeeping requirements suggested by the Department are significantly more burdensome than those normally required of a seller subject to sales tax.


4. there are at least two major differences between a taxable service and a service provided by a temporary help company: (1) Manpower does not control the employee performing the taxable service; and (2) Manpower does not guarantee a particular result.

An examination of the substance and realities as suggested by the litigants led the commission to the conclusion that there is a reasonable doubt that temporary help services and the taxable services listed in the statute are the same thing.

Therefore, the commission concluded that “temporary help services” are not the same as the services that the legislature has enumerated in Wis. Stat. § 77.52, and “temporary help services” are not taxable.

TAKE-AWAYS

1. If you are a "temporary staffing company," then you should review your taxability situation in Wisconsin and other states.
2. Be aware of what services are taxed in the states in which you operate.
3. Be aware of what positions your state(s) is taking toward your industry. Wisconsin, like other states, tax specific services. Services that are not specifically listed as taxable, are generally assumed to be nontaxable. In this case, Manpower's services were not listed as taxable, but Wisconsin was attempting to invoke their "look-through" position; which the commission struck down.
4. Be aware of the lack of uniformity among states. The service your company provides could be taxable in one state, and not be taxable in another.
5. Be alert for states changing their tax laws to tax more services.
6. This is another example of how service companies are becoming a target for additional sales tax revenue.

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