Uncertain Tax Positions; do you have any? Not sure? Well, the IRS wants to know!
As most companies are aware, FIN 48 has created the obligation for companies to identify their uncertain tax positions, determine the level of assurance or likelihood that they will or won't withstand audit, appeals and litigation scrutiny. Once that is determined, FIN 48 requires companies to disclose and create a reserve for those uncertain tax positions that reach the more likely than not (51%) threshold. With that said, up until now, this has only been a financial statement reporting standard. Now, the IRS wants to know.
The IRS has released Announcement 2010-9 which is a proposal to create a schedule requiring certain business taxpayers to report uncertain tax positions ON THEIR TAX RETURNS. Supposedly, the schedule will require the annual disclosure of uncertain tax positions in the form of a CONCISE description of those positions and information about their magnitude. The proposal does not require the taxpayer to disclose the taxpayer's risk assessment or tax reserve amounts.
STATE TAX IMPACT????
The schedule would only require disclosure of FEDERAL TAX uncertain tax positions, but what about STATE uncertain tax positions?
If the IRS won't require disclosure of state uncertain tax positions, will the states follow suit and ask for similar disclosures on their returns? It's possible. I guess we will just have to wait and see.
CURRENT STATUS of PROPOSAL
The IRS is currently asking for public comments in response to the Announcement. Comments are due by March 29, 2010.
The Announcement states the new schedule will be required to be filed by a business taxpayer with total assets in excess of $10 million, and be attached to returns filed after the release of the schedule.
Stay tuned for the unveiling of the schedule and when you or your clients will be required to file the new schedule.
Author Comment:
Ahhhhhh, the era of transparency all in the sake of helping the IRS identify what returns to audit, and what tax positions to focus on. And taxpayers were worried about the IRS asking for tax accrual workpapers; skip that. The IRS just wants you to disclose it on the tax return.
Always Thinking.
Thursday, January 28, 2010
Wednesday, January 27, 2010
COD Income Deferral: What Do The States Think?
If your company or your client has experienced cancellation of debt (COD) income over the past couple of years, then you are probably aware of the federal income tax legislation that allows taxpayers to defer the income.
Unfortunately, several states have 'decoupled' from the legislation; meaning they will not allow the deferral.
Currently, the following states have decoupled: CT, FL, IN, ME, MD, MA, MN, NJ, NC, OR and RI). More may be on the way.
In addition to the 'decoupling' issue, several state income tax questions come into play when a company experiences COD income.
- Is the COD income "business" or "nonbusiness" income?
- Should the COD income be included in the apportionment factor?
At this time, most states have not addressed either of these issues. Until they do, companies will be forced to apply general rules and guidelines to reach reasonable conclusions.
For assistance with your company's state and local taxation of COD income, please contact me at brian.strahle@bakertilly.com.
Monday, January 25, 2010
New Jersey: Just Try To Get a Sales Tax Refund!
New Jersey is proposing to make it more difficult for taxpayers to receive sales tax refunds. What do I mean?
Under a proposed amendment, (N.J. A.C. 18:2-5.8, 42 NJR 56, 1/4/10), the New Jersey Division of Taxation would require taxpayers to submit "sufficient documentation" to allow the division to determine the rationale or basis for the refund to verify the amount of the refund before interest on an overpayment begins to accrue.
What Is "Sufficient Documentation"?
Not sure, but the proposed amendment states a taxpayer must attach documentation to the refund claim form indicating the basis for such claim. You cannot just say that "documentation is available upon request."
In some cases, a taxpayer may need to include copies of each invoice where tax was incorrectly charged, and proof of payment of the entire invoice amount.
No More "Protective Refund Claims"?
The proposal would also not allow taxpayers to file protective refund claims. According to the New Jersey Division of Taxation, there is no statutory authority that requires the Division to allow protective refund claims.
If you have any questions or would like assistance with the filing of a New Jersey sales tax refund claim, please contact me at brian.strahle@bakertilly.com.
Under a proposed amendment, (N.J. A.C. 18:2-5.8, 42 NJR 56, 1/4/10), the New Jersey Division of Taxation would require taxpayers to submit "sufficient documentation" to allow the division to determine the rationale or basis for the refund to verify the amount of the refund before interest on an overpayment begins to accrue.
What Is "Sufficient Documentation"?
Not sure, but the proposed amendment states a taxpayer must attach documentation to the refund claim form indicating the basis for such claim. You cannot just say that "documentation is available upon request."
In some cases, a taxpayer may need to include copies of each invoice where tax was incorrectly charged, and proof of payment of the entire invoice amount.
No More "Protective Refund Claims"?
The proposal would also not allow taxpayers to file protective refund claims. According to the New Jersey Division of Taxation, there is no statutory authority that requires the Division to allow protective refund claims.
If you have any questions or would like assistance with the filing of a New Jersey sales tax refund claim, please contact me at brian.strahle@bakertilly.com.
Friday, January 22, 2010
How to Withdraw a Business from California: Franchise Tax and Sales Tax Implications
GENERAL PROCEDURES
From an income tax perspective, a company would generally not be required to confirm with the Board of Equalization or the Franchise Tax Board that they no longer have a taxable presence or legal obligation to file returns. A company would simply need to complete the following steps:
- File a final franchise or annual tax return timely, including extension, for the preceding taxable year.
- Conduct no business after the last day of the preceding taxable year.
- File the appropriate documents with the California Secretary of State (SOS) within 12 months of the filing date of the final tax return.
NOTE: effective September 29, 2006, a tax clearance certificate is no longer required for corporations, limited liability companies (LLC), limited liability partnerships (LLP), limited partnerships (LP), certain exempt organizations, and nonprofit corporations who are going to dissolve, surrender, or cancel their California business entity.
For more info, go to http://www.ftb.ca.gov/businesses/faq/Closing_a_Business_Entity.shtml.
From a sales tax perspective, if a company no longer has a taxable presence in California and has no other legal obligation to collect sales tax, generally, the company may stop collecting sales tax immediately. A company would then need to complete the following:
- File Form BOE-65, Notice of Close Out for Seller’s Permit
- File Final sales/use tax returns.
For the form and more info, go to http://www.boe.ca.gov/pdf/pub74.pdf.
The above is general advice. Please seek knowledgeable state and local tax counsel to address your specific situation. You may contact me at brian.strahle@bakertilly.com.
Wednesday, January 20, 2010
Texas: Is Your Contract "Separated" or "Lump-Sum"?
Is your construction contract "separated" or "lump-sum"? If not sure, your contracts, invoicing and all supporting documents should be clear. According to a recent Texas case, you can't just go by INTENT.
The following is an analysis of the case by Texas Tax Policy News:
According to the Case, the taxpayer provided heating, ventilating and air conditioning (HVAC) contracting services for new construction. The taxpayer entered into a subcontract with a contractor who, in turn, had entered into a contract with a prime contractor performing commercial new construction for the owner of a hotel. The taxpayer did not pay sales tax to suppliers for materials it incorporated into the job. The taxpayer claimed that its contract qualified as a separated contract for sales and use tax purposes, and therefore, it qualified for the sale for resale exemption. The contract, however, stated a lump-sum price.
The taxpayer based its claim on three arguments. First, the taxpayer argued that the contract was a separated contract by its terms, based on precedent established in Comptroller Decision No. 40,445 (2002). In that decision, the disputed contract was held to be a separated contract because the incorporated materials and labor were separately stated in a schedule of values included in a revised bid proposal, which was specifically incorporated by the contract.
In this hearing, however, even though the contract required a statement of values on which to base applications for payment, the contract did not require the statement of values to break out the charges for incorporated materials and labor. Additionally, the taxpayer neglected to provide a copy of the statement of values as evidence. The Comptroller determined that the testimony regarding the statement of values was insufficient to compensate for the absence of the evidence.
Second, the taxpayer argued that the contract was separated because the parties intended it to be separated and treated it as such. The taxpayer initially billed the contractor for sales tax on the incorporated materials. The contractor directed the taxpayer to cease charging tax on the incorporated materials, and provided the taxpayer with a resale certificate for them.
Subsequently, the contractor submitted two change orders, one directing the taxpayer to deduct an amount of sales tax from the original contract amount, another directing the taxpayer to apply a credit in sales tax against the contract amount. Per taxpayer testimony, the taxpayer had charged sales tax on materials only, and the change orders were triggered by the issuance of the resale certificate. Regarding whether these documents served to establish intent, the Comptroller held that intent could not be given any weight under established Comptroller precedent. See Comptroller Decisions 35,473 (1996) and 24,368 (1990).
The Comptroller stated, “The parties' intent cannot override the clear language of the contract providing for a lump-sum contract price.”
Third, the taxpayer argued that the contract was separated because it incorporated the contract between the prime contractor and the owner, which, it claimed, was separated. The Comptroller did not address the argument because the taxpayer neither produced a copy of that contract nor described its provisions.
BOTTOM-LINE
If you aren't sure whether your contract is "separated" or "lump-sum," please contact me at brian.strahle@bakertilly.com to discuss.
The following is an analysis of the case by Texas Tax Policy News:
According to the Case, the taxpayer provided heating, ventilating and air conditioning (HVAC) contracting services for new construction. The taxpayer entered into a subcontract with a contractor who, in turn, had entered into a contract with a prime contractor performing commercial new construction for the owner of a hotel. The taxpayer did not pay sales tax to suppliers for materials it incorporated into the job. The taxpayer claimed that its contract qualified as a separated contract for sales and use tax purposes, and therefore, it qualified for the sale for resale exemption. The contract, however, stated a lump-sum price.
The taxpayer based its claim on three arguments. First, the taxpayer argued that the contract was a separated contract by its terms, based on precedent established in Comptroller Decision No. 40,445 (2002). In that decision, the disputed contract was held to be a separated contract because the incorporated materials and labor were separately stated in a schedule of values included in a revised bid proposal, which was specifically incorporated by the contract.
In this hearing, however, even though the contract required a statement of values on which to base applications for payment, the contract did not require the statement of values to break out the charges for incorporated materials and labor. Additionally, the taxpayer neglected to provide a copy of the statement of values as evidence. The Comptroller determined that the testimony regarding the statement of values was insufficient to compensate for the absence of the evidence.
Second, the taxpayer argued that the contract was separated because the parties intended it to be separated and treated it as such. The taxpayer initially billed the contractor for sales tax on the incorporated materials. The contractor directed the taxpayer to cease charging tax on the incorporated materials, and provided the taxpayer with a resale certificate for them.
Subsequently, the contractor submitted two change orders, one directing the taxpayer to deduct an amount of sales tax from the original contract amount, another directing the taxpayer to apply a credit in sales tax against the contract amount. Per taxpayer testimony, the taxpayer had charged sales tax on materials only, and the change orders were triggered by the issuance of the resale certificate. Regarding whether these documents served to establish intent, the Comptroller held that intent could not be given any weight under established Comptroller precedent. See Comptroller Decisions 35,473 (1996) and 24,368 (1990).
The Comptroller stated, “The parties' intent cannot override the clear language of the contract providing for a lump-sum contract price.”
Third, the taxpayer argued that the contract was separated because it incorporated the contract between the prime contractor and the owner, which, it claimed, was separated. The Comptroller did not address the argument because the taxpayer neither produced a copy of that contract nor described its provisions.
BOTTOM-LINE
If you aren't sure whether your contract is "separated" or "lump-sum," please contact me at brian.strahle@bakertilly.com to discuss.
Monday, January 18, 2010
Texas: Data Processing or Manufacturing?
If you've often wondered if your company's activities could be considered "manufacturing" for sales tax purposes in Texas (or other states for that matter), then you will want to read about the following case.
In a recent Texas Case, a taxpayer claimed that certain equipment (such as scanners) used in its business of scanning and imaging documents for its customers was exempt manufacturing equipment. The taxpayer claimed the exemption based on Section 151.318(a)(2) of the Tax Code. The provision exempts equipment that is directly used or consumed in the manufacture of tangible personal property for ultimate sale provided the equipment is both necessary and essential to the manufacturing process and directly makes or causes a chemical or physical change to the product being manufactured for sale.
The Hearing found that the equipment did not qualify for exemption because the taxpayer's sales of scanning and imaging were data processing services and not sales of tangible personal property. A service provider is not eligible for the manufacturing exemption.
The following is an analysis of the case by Texas Tax Policy News:
The taxpayer scanned and imaged various items including bound materials, engineering and large format documents, microfiche, microfilm and magnetic tape, and placed the data in electronic format, such as JPG files and TIFF files, on optical disks such as CD-ROMs. JPG and TIFF files cannot be word (text)-searched, nor can the data in the files be manipulated by the user. But, the taxpayer typically used directory file names that contained a numbered indexing system (for example, 0001.JPG, 0002.JPG, 0003.JPG) which allowed the user to view a particular file by searching for its identifying number in the directory.
The taxpayer claimed that it was a manufacturer selling tangible personal property as opposed to a provider of data processing services. This claim was based on the “essence of the transaction” test. That is, customers paid for, and were primarily interested in receiving, tangible personal property (such as a CD-ROM) produced by the taxpayer.
The taxpayer compared its business to that of a professional photographer selling photographic images, in that the taxpayer imaged documents on a disk or other medium, and charged clients on a per-image basis. Photographers are considered manufacturers of the images they sell. In addition, the taxpayer observed that photocopying machines are viewed as exempt manufacturing equipment, and the copies produced by them and sold are tangible personal property.
The Comptroller turned to the plain meaning and common usage of the term “data” to determine that the taxpayer's transactions were data processing service transactions, not manufacturing. A standard dictionary definition of “data” is “information in numerical form that can be digitally transmitted or processed.”
The result is that charges for entry of even a small amount of data are taxed as data processing services. Moreover, the source of the data is critical. By definition, data processing is a service performed using the customer's data. With data processing, the services performed in connection with the data are primarily valued by the customer, not the medium (tangible personal property) in which the data is received by the customer.
Activities performed by the taxpayer, such as indexing, scanning, data storing and providing data retrieval have long been determined to be taxable data processing services. See Rule 3.330 and STAR 9401L1282B08 for more information.
BOTTOM-LINE
Opportunities do exist to treat activities that you would generally consider "non-manufacturing" as "manufacturing" when it comes to sales tax. Therefore, it pays to continually look for opportunities in this area.
If you have questions regarding your company's activities and if they qualify, please contact me at brian.strahle@bakertilly.com.
In a recent Texas Case, a taxpayer claimed that certain equipment (such as scanners) used in its business of scanning and imaging documents for its customers was exempt manufacturing equipment. The taxpayer claimed the exemption based on Section 151.318(a)(2) of the Tax Code. The provision exempts equipment that is directly used or consumed in the manufacture of tangible personal property for ultimate sale provided the equipment is both necessary and essential to the manufacturing process and directly makes or causes a chemical or physical change to the product being manufactured for sale.
The Hearing found that the equipment did not qualify for exemption because the taxpayer's sales of scanning and imaging were data processing services and not sales of tangible personal property. A service provider is not eligible for the manufacturing exemption.
The following is an analysis of the case by Texas Tax Policy News:
The taxpayer scanned and imaged various items including bound materials, engineering and large format documents, microfiche, microfilm and magnetic tape, and placed the data in electronic format, such as JPG files and TIFF files, on optical disks such as CD-ROMs. JPG and TIFF files cannot be word (text)-searched, nor can the data in the files be manipulated by the user. But, the taxpayer typically used directory file names that contained a numbered indexing system (for example, 0001.JPG, 0002.JPG, 0003.JPG) which allowed the user to view a particular file by searching for its identifying number in the directory.
The taxpayer claimed that it was a manufacturer selling tangible personal property as opposed to a provider of data processing services. This claim was based on the “essence of the transaction” test. That is, customers paid for, and were primarily interested in receiving, tangible personal property (such as a CD-ROM) produced by the taxpayer.
The taxpayer compared its business to that of a professional photographer selling photographic images, in that the taxpayer imaged documents on a disk or other medium, and charged clients on a per-image basis. Photographers are considered manufacturers of the images they sell. In addition, the taxpayer observed that photocopying machines are viewed as exempt manufacturing equipment, and the copies produced by them and sold are tangible personal property.
The Comptroller turned to the plain meaning and common usage of the term “data” to determine that the taxpayer's transactions were data processing service transactions, not manufacturing. A standard dictionary definition of “data” is “information in numerical form that can be digitally transmitted or processed.”
The result is that charges for entry of even a small amount of data are taxed as data processing services. Moreover, the source of the data is critical. By definition, data processing is a service performed using the customer's data. With data processing, the services performed in connection with the data are primarily valued by the customer, not the medium (tangible personal property) in which the data is received by the customer.
Activities performed by the taxpayer, such as indexing, scanning, data storing and providing data retrieval have long been determined to be taxable data processing services. See Rule 3.330 and STAR 9401L1282B08 for more information.
BOTTOM-LINE
Opportunities do exist to treat activities that you would generally consider "non-manufacturing" as "manufacturing" when it comes to sales tax. Therefore, it pays to continually look for opportunities in this area.
If you have questions regarding your company's activities and if they qualify, please contact me at brian.strahle@bakertilly.com.
Friday, January 15, 2010
Minnesota: Mandatory Electronic Payments - When?
If you had a sales and use tax liability of $10,000 or more in the state’s fiscal year (July 1 - June 30), you are required to pay all taxes electronically. Also, if you are required to pay any other state tax, such as withholding tax or corporate franchise tax, electronically, you are required to pay all state taxes, other than individual income tax, electronically.
For example, if you are required to pay state withholding taxes electronically, you are also required to pay your sales and use tax electronically, even if the total amount of sales and use tax paid in the fiscal year is under $10,000. This is true for all state taxes due under your Federal Employer’s Identification Number (FEIN); regardless of whether separate Minnesota State Tax Identification Numbers are used for reporting under a single FEIN.
This is not recalculated each year; once you are required to pay your state taxes electronically, you are always required to pay electronically.
It is your responsibility to review your tax liability for the previous year and determine if you are required to pay electronically.
If you are required to pay sales and use tax electronically you should see a message when you log into e-File Minnesota in the next few weeks. Although this message will appear for a short time to initially notify you of the requirement, remember that it is your responsibility to determine if you are required to pay electronically.
Penalties will be assessed if you meet the threshold but do not pay electronically. You can make your payment electronically using e-File Minnesota.
For more information, see Minnesota's 2009 Sales Tax Newsletter.
For example, if you are required to pay state withholding taxes electronically, you are also required to pay your sales and use tax electronically, even if the total amount of sales and use tax paid in the fiscal year is under $10,000. This is true for all state taxes due under your Federal Employer’s Identification Number (FEIN); regardless of whether separate Minnesota State Tax Identification Numbers are used for reporting under a single FEIN.
This is not recalculated each year; once you are required to pay your state taxes electronically, you are always required to pay electronically.
It is your responsibility to review your tax liability for the previous year and determine if you are required to pay electronically.
If you are required to pay sales and use tax electronically you should see a message when you log into e-File Minnesota in the next few weeks. Although this message will appear for a short time to initially notify you of the requirement, remember that it is your responsibility to determine if you are required to pay electronically.
Penalties will be assessed if you meet the threshold but do not pay electronically. You can make your payment electronically using e-File Minnesota.
For more information, see Minnesota's 2009 Sales Tax Newsletter.
Wednesday, January 13, 2010
Illinois Amends Regulation: Allows Income Tax Credits
Are your partnership's partners or S corporation's shareholders included in an Illinois Composite return?
If so, you will want to know that Illinois recently amended their regulations to allow partnerships and S corporations to claim income tax credits on behalf of their partners or shareholders who elect to be included in an Illinois Composite return.
The amended regulation applies to tax years ending on or after December 31, 2009 (86 Ill. Admin Code Sec. 5150, effective 12/22/09).
If so, you will want to know that Illinois recently amended their regulations to allow partnerships and S corporations to claim income tax credits on behalf of their partners or shareholders who elect to be included in an Illinois Composite return.
The amended regulation applies to tax years ending on or after December 31, 2009 (86 Ill. Admin Code Sec. 5150, effective 12/22/09).
Monday, January 11, 2010
Service Companies: Difference Between "Costs-of-Performance" and "Market-Based" Sourcing
In simple terms, the "income-producing activity" test and the "costs of performance" (COP) test are used to source sales of services to the state where the service is performed. "Market-based" sourcing is sourcing sales of services to the state where the customer receives the benefit.
Example: a service was performed in State A, and the customer is in State B.
If State A is a market-based sourcing state, the sale would not be sourced to State A. If State B was a COP state, then the sale would not be sourced to State B either. On the other hand, if State A is a COP state, the sale would be sourced to State A. If State B is a market-based sourcing state, the sale would also be sourced to State B.
In other words, depending on the rules of the states involved, you could source the sale to both states, one state, or none of the states.
Now, most states which are COP states source sales based on where the greater portion of the income-producing activity was conducted. However, there are some states that prorate the sourcing of the sale when some services are performed in more than one state.
Currently, 10 states use "market-based" sourcing (6 of those states changed within the past few years. California changes to "market-based" sourcing in 2011, and New York is currently considering tax reform that would change to "market-based" sourcing.
If you have any questions or need assistance, please contact me at brian.strahle@bakertilly.com.
Example: a service was performed in State A, and the customer is in State B.
If State A is a market-based sourcing state, the sale would not be sourced to State A. If State B was a COP state, then the sale would not be sourced to State B either. On the other hand, if State A is a COP state, the sale would be sourced to State A. If State B is a market-based sourcing state, the sale would also be sourced to State B.
In other words, depending on the rules of the states involved, you could source the sale to both states, one state, or none of the states.
Now, most states which are COP states source sales based on where the greater portion of the income-producing activity was conducted. However, there are some states that prorate the sourcing of the sale when some services are performed in more than one state.
Currently, 10 states use "market-based" sourcing (6 of those states changed within the past few years. California changes to "market-based" sourcing in 2011, and New York is currently considering tax reform that would change to "market-based" sourcing.
If you have any questions or need assistance, please contact me at brian.strahle@bakertilly.com.
Friday, January 8, 2010
Minnesota: Corporate Franchise Tax Law Changes for 2009
According to Minnesota's WEBSITE, the following apply to tax years beginning after December 31, 2008:
- Designated Member for unitary group is no longer required to have MN Nexus.
- Apportionment - Sales Factor is now weighted at 84%.
- 80% of Federal Bonus Depreciation must be added-back to taxable income.
- 80% of difference between Sec. 179 expense allowed for Federal v. MN must be added-back to taxable income.
- Discharge of Indebtedness income (COD Income) is NOT allowed to be deferred as allowed for Federal purposes.
Wednesday, January 6, 2010
Ohio Changes Sourcing of Sales for Sales Tax Purposes: Starting 1/1/2010!
According to Ohio Tax Information Release No. St 2009-03 (12/01/2009), a few changes to the way sales of tangible personal property and taxable services are sourced were enacted in H.B. 429 of the 127th General Assembly and will take effect Jan. 1, 2010.
These changes, which are found in Ohio Revised Code (R.C.) section 5739.033(B), will allow Ohio to retain origin sourcing for most sales of tangible personal property made by Ohio vendors to Ohio consumers. Other sales will be sourced to the location where the consumer receives the property or service that was sold pursuant to R.C. 5739.033(C). Leases and rentals will continue to be sourced according to the provisions of R.C. 5739.033(I). For the majority of vendors, these changes will mean little, if anything, to their method of doing business.
For all of the details, see the Ohio Information Release.
For assistance, contact me at brian.strahle@bakertilly.com.
These changes, which are found in Ohio Revised Code (R.C.) section 5739.033(B), will allow Ohio to retain origin sourcing for most sales of tangible personal property made by Ohio vendors to Ohio consumers. Other sales will be sourced to the location where the consumer receives the property or service that was sold pursuant to R.C. 5739.033(C). Leases and rentals will continue to be sourced according to the provisions of R.C. 5739.033(I). For the majority of vendors, these changes will mean little, if anything, to their method of doing business.
For all of the details, see the Ohio Information Release.
For assistance, contact me at brian.strahle@bakertilly.com.
Monday, January 4, 2010
2010: The End of the "Wait and See Game"????
At a high level, all of the potential state tax law changes that may occur in 2010 will impact taxpayers by making state tax compliance easier, decrease audit activity, and result in less tax being paid by all. Okay, I am only kidding. Actually, as you might expect, the exact opposite should be expected. Meaning, state tax compliance will continue to become more complicated, audit activity will rise, and more tax will probably be paid.
I would say that most if not all state tax law changes appear to be motivated by the states' desire to increase revenue in a time when states are facing large budget deficits. Due to budget problems, states will look to obtain more tax dollars from taxpayers by enforcing the laws already on the books through increased audit efforts, nexus questionnaires, etc. States will also continue to work to close what they perceive to be loopholes through the use of combined reporting, etc. States will also seek to obtain more tax dollars from out-of-state taxpayers by implementing or enforcing economic nexus type rules, agency nexus, market based sourcing on sales of services, "Amazon" nexus, etc. More states may also enact amnesty programs that appear to have been very successful in bringing in significant amounts of revenue. In addition, more states may consider changing from an income tax to a "receipts based tax" that is not dependent on taxpayers actually having net income (similar to Michigan's Business Tax and Texas's Margin Tax (Franchise Tax)).
The goal of each state appears to be to increase revenue without hurting the state's economy or raising tax rates. This can be done by either widening the tax base, taxing more out-of-state companies, decoupling from federal tax stimulus law changes, and changing intricate state tax rules like apportionment, transfer-pricing, combined reporting, etc.
As a result, Taxpayers who have played the "wait and see game" in regards to their state tax obligations or exposure, are beginning to see the cost/benefit analysis swing in favor of being proactive rather than reactive. Similar to our health, preventative measures can be implemented now that are less costly than required emergency procedures down the road.
What do you think? Will you be proactive or reactive?
I would say that most if not all state tax law changes appear to be motivated by the states' desire to increase revenue in a time when states are facing large budget deficits. Due to budget problems, states will look to obtain more tax dollars from taxpayers by enforcing the laws already on the books through increased audit efforts, nexus questionnaires, etc. States will also continue to work to close what they perceive to be loopholes through the use of combined reporting, etc. States will also seek to obtain more tax dollars from out-of-state taxpayers by implementing or enforcing economic nexus type rules, agency nexus, market based sourcing on sales of services, "Amazon" nexus, etc. More states may also enact amnesty programs that appear to have been very successful in bringing in significant amounts of revenue. In addition, more states may consider changing from an income tax to a "receipts based tax" that is not dependent on taxpayers actually having net income (similar to Michigan's Business Tax and Texas's Margin Tax (Franchise Tax)).
The goal of each state appears to be to increase revenue without hurting the state's economy or raising tax rates. This can be done by either widening the tax base, taxing more out-of-state companies, decoupling from federal tax stimulus law changes, and changing intricate state tax rules like apportionment, transfer-pricing, combined reporting, etc.
As a result, Taxpayers who have played the "wait and see game" in regards to their state tax obligations or exposure, are beginning to see the cost/benefit analysis swing in favor of being proactive rather than reactive. Similar to our health, preventative measures can be implemented now that are less costly than required emergency procedures down the road.
What do you think? Will you be proactive or reactive?
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