State Tax Amnesty Program Update

The following are state tax amnesty programs that are currently in effect or will start soon:

1. Nevada (July 1 to September 30, 2010)
2. Florida (July 1 to September 30, 2010)
3. New Mexico (June 7 to September 30, 2010)
4. District of Columbia (August 2 to September 30, 2010)
5. Kansas (starts September 1 to October 15, 2010)
6. Illinois (starts October 1 to November 8, 2010)

All of the above have specific rules regarding who is eligible for amnesty and what tax types and tax years are eligible, etc. Please contact me for details.

What is an Amnesty Program?

In simple terms, it allows taxpayers with outstanding tax liabilities to come forward and pay the tax without interest and penalties. Over the past two years, approximately 20 to 25 states have held amnesty programs or periods like those identified above.

When amnesty programs are not in effect, most states still have what they call “Voluntary Disclosure Agreement” (VDA) programs which allow taxpayers to come forward on an anonymous basis, limit the number of prior years required to be filed (usually 4), and pay taxes and interest. Under most VDA programs, penalties are waived, but not interest.

If you think your company or client may want to utilize one of the above programs, please contact me to determine if they are eligible and if they should take advantage of the program.

Taxpayers who are eligible for an amnesty program, but don’t take advantage of the program, are often faced with harsh penalties if caught after the program has ended.

The Ohio CAT Tax: Consolidated vs. Combined???

If your company or client is a federal consolidated group, then you have a choice to make when complying with Ohio's Commercial Activity Tax (CAT).

General Rules

The CAT is an annual privilege tax measured by gross receipts on business activities in Ohio.

This tax applies to all types of businesses: e.g., retailers, service providers (such as lawyers, accountants, and doctors), manufacturers, and other types of businesses. The CAT also applies whether the business is located in Ohio or is located outside Ohio if the taxpayer has enough business contacts with Ohio. The CAT applies to all entities regardless of form, (e.g., sole proprietorships, partnerships, LLCs, and all types of corporations).

A person with taxable gross receipts of more than $150,000 per calendar year is subject to this tax, which requires such person to register with Ohio as a taxpayer. Please note that certain receipts are not taxable receipts, such as interest income. The tax does have limited exclusions for certain types of businesses, such as financial institutions, dealers in intangibles, insurance companies and some public utilities if those businesses pay specific other Ohio taxes.

Consolidated vs. Combined?

Consolidated Elected Taxpayer

A consolidated elected taxpayer group is a taxpayer that has elected to file as a group including all entities that have either 50 percent or more common ownership or 80 percent or more common ownership. In addition, the group can elect to include or exclude non-U.S. entities with the same common ownership in the group.

A major benefit of making this election is that receipts received between members of the group are not subject to the CAT. However, taxpayers making this election must agree that all commonly owned entities are part of the group even if nexus does not exist. This election is binding for eight calendar quarters.

Combined Taxpayer Group

If such election is not made, any taxpayers with common ownership of more than 50 percent must file as a combined taxpayer group.

A major difference between a consolidated elected taxpayer and a combined taxpayer is that a combined taxpayer only has to register all members that have the required contacts (nexus) to be required to be a taxpayer for this tax in Ohio.

Cautionary note: A combined taxpayer cannot exclude taxable gross receipts between its members nor exclude taxable gross receipts from others that are not members. A consolidated election must be made to obtain that exclusion. In addition, if the 80% common ownership test or election to exclude all entities that are not incorporated or formed under the laws of a state or of the United States election is made under the consolidated provision, such taxpayers with more than 50% ownership that have the requisite contacts (nexus) are required to register as a combined taxpayer or single entity taxpayer.

Similar to a consolidated elected taxpayer, a combined taxpayer must register, file returns, and pay the CAT as a single taxpayer.

If you have any questions, please go to Ohio's website for more details or contact me at brian.strahle@bakertilly.com.

LLCs, LPs, and LLPs: Beware of California!

California has released a Public Service Bulletin (10-24), stating beginning August 2010, the Filing Enforcement Section will start mailing Demand for Tax Returns to Limited Liability Companies, Limited Partnerships, and Limited Liability Partnerships.

According to the Bulletin, this is the third and final phase of California's business entity nonfiler expansion, which was part of the 2007 and 2008 tax gap augmentation. The two previous phases included using Federal Forms 1098, 1099, and K-1 data as new income sources for business entity nonfilers.

Notices of Proposed Assessments will be sent to taxpayers that do not file or provide information showing they do not have a filing requirement.

California is planning on mailing the first notices between October and December 2010.

Washington Publishes Economic Nexus Worksheet and Calculator: Helpful or Confusing?

If you are a company that doesn't sell tangible personal property under the retailing or wholesaling business and occupation (B&O) tax classifications, and you have customers, property or payroll in Washington, you may want to check out Washington's economic nexus worksheet/calculator.

The Washington Department of Revenue published this tool on their website recently. The worksheet/calculator is pretty elaborate.

Take and look and let me know what you think.

If you have any questions, or need assistance in determining if your company has economic nexus, please contact me at brian.strahle@bakertilly.com.

Illinois Enacts Amnesty Program! (Carrot and Stick)

Illinois has enacted an Amnesty program set to begin on October 1, 2010 and run through November 8, 2010.

The amnesty program covers all taxes due from a taxpayer to the State of Illinois for any taxable period ending after June 30, 2002 and prior to July 1, 2009.

Benefits of Amnesty Program ("the Carrot")

The Department will abate and not seek to collect any interest or penalties that may be applicable, and the Department will not seek civil or criminal prosecution for any taxpayer for the period of time for which amnesty has been granted to the taxpayer.

Requirements and Qualifications

Failure to pay all taxes due to the State for a taxable period will invalidate any amnesty granted under this Act. Amnesty will be granted only if all amnesty conditions are satisfied by the taxpayer.

Amnesty will not be granted to taxpayers who are a party to any criminal investigation or to any civil or criminal litigation that is pending in any circuit court or appellate court or the Supreme Court of this State for nonpayment, delinquency, or fraud in relation to any State tax imposed by any law of the State of Illinois.

Participation in an amnesty program will not preclude a taxpayer from claiming a refund for an overpayment of tax on an issue unrelated to the issues for which the taxpayer claimed amnesty or for an overpayment of tax by taxpayers estimating a non-final liability for the amnesty program pursuant to Section 506(b) of the Illinois Income Tax Act (35 ILCS 5/506(b)).

200% Penalty for NOT Participating ("the stick")

If a taxpayer has a tax liability for the taxable period ending after June 30, 2002 and prior to July 1, 2009 that is eligible for amnesty, and the taxpayer fails to satisfy the tax liability during the amnesty period, then the interest charged by the Department will be imposed in an amount that is 200% of the amount that would otherwise be imposed.

Need Help?

Please contact me at brian.strahle@bakertilly.com for assistance in determining if you qualify for the program, and/or guidance in taking advantage of the program.

S Corporation for Federal Tax Purposes = S Corporation for State Tax Purposes???

If your corporation is an S corporation for federal tax purposes, what does that mean for state tax purposes? Does every state automatically accept your federal S election and treat your corporation as an S corporation for state income purposes? Answer: No, they do not.

Some states require a federal S corporation to file a separate state S election. Some states don't.

For example, for tax years prior to 2006, Pennsylvania (PA) required taxpayers to file a separate S election to be treated as an S corporation for PA income tax purposes. Therefore, all federal S corporations were required to file C corporation returns in PA prior to 2006, unless they filed a PA S election.

For tax years after 2005, PA automatically accepts the federal S election. Therefore, all S corporations for federal purposes are treated as PA S corporations and should file S corporation tax returns in PA. PA does allow federal S corporations to elect out of S corporation treatment in PA. The form must be filed prior to the due date or extended due date of the return to which the election will apply. The election is binding for five years.

If you would like more information on Pennsylvania's rules or other states' rules, please contact me at brian.strahle@bakertilly.com.

Kansas Enacts Amnesty Program!

Kansas legislation (S572) has been passed that creates an Amnesty program which runs from September 1, 2010 to October 15, 2010 (see Legislation, Sec. 164, page 197).

The amnesty program provides relief from penalties and interest related to the following taxes due and unpaid for tax periods ending on or before December 31, 2008:

1. Privilege tax
2. Estate tax
3. Income taxes (corporate and individual)
4. Franchise tax
5. Withholding tax
6. Cigarette and tobacco products taxes
7. Sales tax
8. Compensating use tax
9. Liquor enforcement tax
10. Mineral Severance tax

Amnesty applies to the under-reporting of tax liabilities, the non-payment of such taxes and the non-reporting of such tax liabilities.

Amnesty does NOT apply to taxpayers in any of the following situations:

1. The taxpayer has received notice of the commencement of an audit;
2. An audit is in progress;
3. The taxpayer has received notice of an assessment;
4. As a result of an audit, the taxpayer has received notice of a proposed or estimated assessment or notice of an assessment;
5. The time to administratively appeal an issued assessment has not yet expired;
6. An assessment resulting from an audit, or any portion of such assessment, is pending in the administrative appeals process before the secretary or the state court of tax appeals, or is pending in the judicial review process before any state or federal district or appellate court.

Amnesty also does not apply to any matter that is the subject of an assessment, or any portion of an assessment, which has been affirmed by a reviewing state or federal district or appellate court.

Amnesty also does not apply to any party to any criminal investigation or to any civil or criminal litigation that is pending in any court of the United States or this state for nonpayment, delinquency or fraud in relation to any tax imposed by the state of Kansas.

Requirements for Amnesty

Amnesty for penalties and interest will be granted only to those eligible taxpayers who, within the amnesty period of September 1, 2010, to October 15, 2010, and in accordance with rules and regulations established by the secretary of revenue, have properly filed a tax return for each taxable period for which amnesty is requested, paid the entire balance of tax due and obtained approval of such amnesty by the department of revenue.

Cost of Amnesty

If a taxpayer elects to participate in the amnesty program as evidenced by full payment of the tax due as established by the secretary of revenue, that election shall constitute an express and absolute relinquishment of all administrative and judicial rights of appeal with respect to such tax liability. No tax payment received pursuant to this section shall be eligible for refund or credit. No payment of penalties or interest made prior to September 1, 2010, shall be eligible for amnesty.

Assistance?

Please contact me at brian.strahle@bakertilly.com with questions or for assistance in determining if you are eligible and should take advantage of Kansas' amnesty program.

Kansas should release more details prior to September 1, 2010.

"BOXES" and "Client Change"

Life is full of man-made rules, regulations, boundaries or what I like to call "boxes." Sometimes these boxes are helpful, in that they keep things together and keep external forces from contaminating what is inside the box, keeping people safe, organized and on-track. In other cases, the boxes serve as limiting factors, keeping things and people from reaching new bounds, creating and achieving success.

I would argue the accounting industry is trapped in some “boxes” or old ways of doing things simply because that is the way it has always been done, it has been successful, and if they were to change, they aren’t quite sure how to change or what to change to.

Simply put, it’s about clients and viewing the world from their perspective. It’s about abandoning unnecessary “boxes,” and taking advantage of technological advances. It’s also about not being afraid of change, but also not changing for change sake. It’s about finding and implementing the best, best practices for your firm or company.

Seth Godin stated in his book (Tribes), “change almost never fails because it's too early. It almost always fails because it's too late." He also stated, "organizations that require success before commitment, will have neither."

Get out of your box and stop "client change."

What do you think should change in our profession?

What should NOT change?

BNA's 2010 State Survey Obtains Troubling Responses for Internet Retailers

According to BNA's 2010 Survey of State Tax Departments and a recent BNA State Tax Blog post, 17 states indicated that an Amazon-type arrangement with an in-state affiliate would trigger nexus if the affiliate was paid less than $10,000 during the year.

Only 3 states currently have "Amazon" nexus statutes on their books, New York, North Carolina and Rhode Island. Each of their statutes have sales thresholds of either $10,000 or $5,000.

The additional 14 states that said their current statutes would include Amazon-type arrangements are: Arizona, the District of Columbia, Florida, Iowa, Maryland, Missouri, Nevada, New Mexico, North Dakota, Pennsylvania, South Dakota, Tennessee, Texas, and Washington.

So What?

This is very troubling.

These states are in essence saying that no "new" statute is necessary to impose nexus for Amazon-type arrangements. They are also saying that this nexus threshold is retroactive since it has always been in place (???).

We will have to wait and see what action these 14 states take to impose this "unspoken" policy or position.

If you are a remote retailer or affiliate, please be aware that states are on the attack.

New LinkedIn Group for MN Tax Pros: "Minnesota Tax Club"

I started a new group on LinkedIn to facilitate networking among Minnesota tax professionals called, the "Minnesota Tax Club."

The Minnesota Tax Club is a group organized to connect Minnesota tax professionals, CFOs, Controllers, Tax Directors, accountants, attorneys, etc. Discussion topics may include any tax topic, tax profession topic, etc.

If you are looking for a group to connect with other tax professionals in Minnesota, join this group. Unlike other cities, such as Chicago, there appears to be no "tax club" for Minnesota or Minneapolis. There are other organizations like the MN CPA Society or TEI, etc.

At this point, this is just a LinkedIn group. This may become a full-fledged organization down the road.

District of Columbia "Jumps on the Amnesty Bandwagon"

The District of Columbia is offering a tax amnesty from August 2 to September 30, 2010. During this limited time frame, individuals, businesses and other entities with unpaid DC tax obligations are eligible to receive an abatement of penalties and fees due without fear of criminal penalties.

The amnesty program applies to the following types of taxes delinquent prior to December 31, 2009:

• Individual Income
• Corporate and Unincorporated Franchise
• Withholding
• Sales and Use
• Personal Property
• Fiduciary Income
• Motor Fuel
• Special Event
• Gross Receipts
• Estate
• Tobacco
• Toll Communication

Real property taxes and the ball park fee are NOT eligible for the amnesty program.

According to the District of Columbia's Amnesty website, the Office of Tax and Revenue (OTR) is mailing amnesty eligibility notices to taxpayers shown on its records as having amnesty-eligible liabilities. Taxpayers who have not filed returns which should have been filed prior to December 31, 2009 should complete those returns and file them with a DC Amnesty Application, together with full payment of the tax and interest due.

Need Assistance?

If you need assistance in determining if you qualify, or if you should take advantage of this opportunity, please contact me at brian.strahle@bakertilly.com.

MultiState Tax Commission Begins Drafting Model Sales and Use Tax Notice and Reporting Statute

As discussed in earlier posts, the MultiState Tax Commission has decided to begin its project for a Sales & Use Tax Notice and Reporting Statute and a “Click-Through” Nexus Statute. The committee is using Colorado's and Oklahoma's statutes as a starting point.

According to information released by the MultiState Tax Commission, a drafting group was formed to develop a policy checklist which served as the basis for teleconference discussions on April 22, 2010; May 13, 2010; and June 22, 2010. On June 22, 2010, the Subcommittee completed its preliminary answers to the policy checklist.

These answers do not reflect the Subcommittee’s formal position at this point. Rather, the answers reflect its policy direction to the drafting committee, which has accordingly produced a first draft for the Subcommittee’s consideration and discussion at its July 26, 2010 in-person meeting.

For all of the details, click on the following links:

MTC Uniformity and Subcommittees

Model Sales and Use Tax Notice and Reporting Statute

So What?

You might be asking yourself, so what? What does this mean? Well, it most likely means that more states are going to adopt statutes similar to Colorado's and Oklahoma's; therefore, the MTC wants to draft a model statute that other states can use which would help create uniformity among the states.

What does this mean for your company? It means if you haven't already had to comply with Colorado's or Oklahoma's new statutes, you may have to do it in the future for other states. Prepare now.

If you have any questions about how to prepare or comply, please contact me at brian.strahle@bakertilly.com.

My Anniversary and Musings: Don't Be A Stranger

Today is my 18th wedding anniversary! My high school sweetheart and I have been married for 18 years (we've been together for 21 years). We started dating when we were 16 years old and got married at 19. We have two daughters, one age 10 and the other is almost 7 years old.

During our time together, we have experienced many ups and downs and have made so many great memories. We have changed a lot over the years and changed together. Our connection has continued to grow stronger and deeper.

So, I guess on this day, I am being a little reflective and feel like sharing.

I've been writing this blog for a year and half, and have made so many connections with other people as a result. I am truly thankful.

I desire to have quality connections with people and not quantity for quantity's sake. In this day and age of social media where we can become consumed with numbers such as how many followers we have on Twitter, how many connections we have on LinkedIn, or how many friends we have on Facebook. It really doesn't matter how many we have, it matters how much of a connection we truly have with one another. It seems we have been able to turn social media into a game just like other areas of our lives where we compare ourselves to each other, where we rate each other, where there has to be winners and losers.

Therefore, I would enjoy the opportunity to develop stronger connections with those of you who visit my blog on a regular basis, or subscribe via e-mail or feed.

Please post a comment on this blog, or send me an e-mail and tell me more about yourself. What do you enjoy doing? What are your hobbies? What do you enjoy the most about your job? What do you dislike about your job?

You can e-mail me at brian.strahle@bakertilly.com.

Thank you for visiting and connecting. Don't be a stranger!

Construction Contractors: Sales Tax Questions and Answers?

The following is provided as a guide to help ensure construction contractors adequately address common sales and use tax issues. Also check out earlier posts for additional information related to construction contractors.

Government or Tax-Exempt Entity Construction Jobs (applies to all states)

1. Is Your Company paying sales tax to vendors on the purchase of materials in every state?
2. If not, has Your Company confirmed that the applicable state allows Your Company to purchase materials tax-free and obtained the proper documentation?

General Items (applies to all states)

1. Is Your Company taking advantage of state and local Brownfield Credits? LEED Credits?
2. Is Your Company using a direct pay permit in any state?
3. Is Your Company verifying correct sales tax rates are being utilized on long-term projects?
4. Does Your Company pay sales tax on leases of equipment?
5. Does Your Company pay sales tax on leases of equipment with an operator?
6. Is Your Company self-assessing use tax on general administrative purchases?
7. Is Your Company self-assessing use tax on out of state purchases of materials when not charged sales tax?
8. Does Your Company have a process in place to determine if what they are installing is considered real property or tangible personal property by the state in which the project is conducted?

Arizona Projects

1. Do subcontractors contract directly with Your Company (the general contractor) or the owner of the property?
2. Does Your Company act as the general contractor or construction manager?
3. Does Your Company back-out "design costs" from its AZ Transaction Privilege Tax calculation?
4. Does Your Company issue prime contractor certificates to its subcontractors?
5. Are architecture and engineering services provided by a separate entity? If yes, does the separate A&E entity contract directly with the owner of the property or with Your Company (the general contractor)?
6. Does Your Company collect commercial lease income in Arizona? If so, does Your Company pay city transaction privilege tax on its lease income?
7. Does Your Company pay sales tax on its equipment purchases?
8. Does Your Company pay sales tax on its materials purchases?

California Projects

1. Is Your Company paying sales tax to vendors on all material purchases?
2. Is Your Company charging sales tax to its customers on all fixtures it installs?
3. Is Your Company issuing resale certificates to subcontractors for materials or fixtures?

Florida Projects

1. Are any projects in enterprise zones?
2. If so, did Your Company apply for any sales tax refunds?

Texas Projects

1. Does Your Company perform any commercial remodeling jobs in Texas?
2. If so, does Your Company collect sales tax on the full contract price?
3. If so, is Your Company taking a credit for the sales tax Your Company already paid to vendors on the purchase of the materials?
4. Does Your Company perform new construction jobs in Texas?
5. If so, is Your Company paying sales tax to vendors on purchases of materials?

Property Management (applies to all states)

1. Does property management have a process in place to determine what is taxable and what isn't taxable from a sales tax standpoint?

Questions? Answers?

If you would like to discuss any of the above questions, or more importantly, your answers to the questions to determine what you should do next, please contact me at brian.strahle@bakertilly.com.

The Nexus Wars: Fighting in an Ever Changing Landscape!

I will be speaking in November at the Minnesota CPA Society's Annual Tax Conference in Minneapolis, MN about state tax nexus. I have entitled the session, "The Nexus Wars: Fighting in an Ever Changing Landscape."

The presentation will be an interactive session seeking to provide attendees with an update on states nexus rules (statutes, case law, rulings, etc.) that are constantly changing and far-reaching. We will discuss why nexus is important, what creates nexus for different types of state taxes, and how a company can mitigate their state tax nexus exposure. The topics will be discussed in the context of real world examples, providing attendees with practical knowledge that can be applied to their company or clients.

Some of the topics we will cover are:

1. Income tax nexus vs. Sales tax nexus
2. Gross receipts tax nexus vs. Income tax nexus
3. Business Activity Taxes nexus
4. De minimis nexus vs. Substantial nexus
5. Economic nexus / Factor Presence nexus
6. Agency nexus (independent contractors and third parties)
7. Affiliate nexus
8. "Amazon” nexus (e-commerce)
9. P.L. 86-272 nexus protection and its limits
10. Transactional nexus and Dissociation
11. Exemptions to nexus
12. Nexus for Foreign (non-us) companies
13. The benefits of a nexus review
14. To File or Not to File?
15. How to mitigate nexus exposure once it is identified
16. How NOT to answer a nexus questionnaire

I Want to Hear From YOU!!!

In preparation for my presentation, I would love to hear from you. What is your "nexus war"? What is your main nexus concern or issue? What practical examples have you been through? Arguments, protests, nexus questionnaires "gone bad," etc.? Amnesty programs and voluntary disclosure agreement success stories?

Please comment on this blog or e-mail me at brian.strahle@bakertilly.com with your "nexus war" or "battle scar."

Oklahoma Issues Proposed Emergency Rule for Internet Retailers

The Oklahoma Tax Commission issued a Press Release on June 30, 2010 which provides a Proposed Draft of an Emergency Rule regarding the Notice Requirements imposed by HB 2359. See previous post regarding HB 2359 and the Notice Requirements.

The proposed Emergency Rule defines the following important terms for purposes of the Notice Requirements:

1. "Non-collecting retailer" means a retailer making sales of tangible personal property from a place of business outside of Oklahoma to be shipped to Oklahoma for use and who is not required to collect Oklahoma sales or use taxes.
2. "Oklahoma purchaser" means a purchaser that requests goods be shipped to Oklahoma.
3. "Online auction website" means a collection of web pages on the Internet that allows persons to display tangible personal property for sale which is purchased through a competitive process where participants place bids with the highest bidder purchasing the item when the bidding period ends.
4. "Invoice" includes a purchase order, bill, receipt, sales slip, order form, or packing statement.
5. "De minimis retailer" means any non-collecting retailer that made total gross sales in the prior year of less than $100,000.00 and reasonably expects sales in the current year will be less than $100,000.00.

Requirements For Notice

According to the proposed Emergency Rule, every non-collecting retailer must give notice that Oklahoma use tax is due on nonexempt purchases of tangible personal property and should be paid by the Oklahoma purchaser. The notice must be readily visible and must appear on a non-collecting retailer’s Internet website or catalog, as applicable, and on each invoice provided to the purchaser as part of the sale. If the non-collecting retailer does not provide an invoice to the purchaser, notice will be considered sufficient if the non-collecting retailer sends a confirmation e-mail containing the notice.

The notice must contain the information set forth as follows:

1. The non-collecting retailer is not required, and does not, collect Oklahoma sales or use tax;
2. The purchase is subject to Oklahoma use tax unless it is specifically exempt from taxation;
3. The purchase is not exempt merely because it is made over the Internet, by catalog, or by other remote means;
4. The State of Oklahoma requires Oklahoma purchasers to report all purchases that were not taxed and pay tax on those purchases. The tax may be reported and paid on the Oklahoma individual income tax return [Form 511] or by filing a consumer use tax return. [Form 21-1];
5. The referenced forms and corresponding instructions are available on the Oklahoma Tax Commission website, http://www.tax.ok.gov/.

Notices for Other States?

If a retailer is required to provide a similar notice for another state in addition to Oklahoma, and the retailer provides a single notice to all purchasers with respect to items purchased for delivery into all states, the notice required in subsection (b) of this Section shall be sufficient if it contains substantially the information required in a form that is generalized to any state.

Application to Online Auction Sites

With the exception of notification on invoices, the provisions of the proposed Emergency Rule will apply to online auction websites as defined earlier.

Retailer Prohibition

A non-collecting retailer shall not advertise on its retail Internet website or retail catalog that there is no tax due on purchases made from the retailer for use in Oklahoma.

De Minimis Retailer Exception

A de minimis retailer as defined earlier is exempt from the notice requirements.

Waiting Approval by Governor

This proposed Emergency Rule will become effective when approved by the Governor.

If you need assistance in applying these requirements to your company or client, please contact me at brian.strahle@bakertilly.com.