Minnesota Delays Business Tax Refunds!

According to a release by the Minnesota Department of Revenue, Minnesota is delaying payment of business tax refunds.

The release states:

"Like many states, Minnesota faces ongoing challenges due to current economic conditions. As a result, payments of some business refund claims are being temporarily delayed to help make the most prudent use of tight resources. Refunds for individual taxpayers are not affected by this measure."


"This temporary delay primarily affects capital equipment, sales tax and corporate franchise refund payments. Payments on these claims will be sent to taxpayers as soon as practical. Interest will be paid as required by state law."

Texas and Amazon: Another Nexus Battle!

If you do a google search for "Texas and Amazon" you will find several articles about the $269 million dollar sales tax assessment Texas is litigating with Amazon.  Check out TechFlash's Article.

Here's the excerpt from Amazon's 10-Q filing:

In September 2010, the State of Texas issued an assessment of $269 million for uncollected sales taxes for the period from December 2005 to December 2009, including interest and penalties. The State of Texas is alleging that we should have collected sales taxes on applicable sales transactions during those years. We believe that the State of Texas did not provide a sufficient basis for its assessment and that the assessment is without merit. We intend to vigorously defend ourselves in this matter.

Apparently, Amazon operates a distribution center in Texas, but the distribution center is owned by a subsidiary and not the Amazon entity that sells goods online.  Therefore, Amazon has argued that the online company does not have nexus in Texas.  Texas seems to disagree.
 
Amazon has been under attack for the past few years with New York, North Carolina and Rhode Island and their "Amazon.com nexus" laws.  In addition, other states like Colorado have tried to make their compliance requirements so burdensome that out of state "non-collecting retailers" will voluntarily collect sales tax on their sales. 
 
Stay tuned for the continuing saga.
 
For more info on Amazon's "trials and tribulations," check out another article by TechFlash.
 
Also, check out my other posts on Nexus.

California Trailer Bill Impacts Several Key Areas!

Recent legislation (SB 858) signed by the Governor of California impacts the following items:

1. Net Operating Loss Suspension
2. NOL Carrybacks
3. Sourcing Rules for Services and Intangibles
4. Large Corporation Understatement Penalty
5. Use Tax Reporting

Go to the BILL for all of the details.  The following is a brief synopsis:

Net Operating Loss Suspension

This bill extends the disallowance of the net operating loss deduction and carryovers, and the carryover extension, to the 2010 and 2011 taxable years for a taxpayer with income of $300,000 or more.

NOL Carrybacks

This bill disallows net operating loss carrybacks for any net operating losses attributable to taxable years beginning before January 1, 2013, but allows net operating losses attributable to taxable years beginning on or after January 1, 2013, to be carrybacks to each of the preceding 2 taxable years.  The NOL carryback for 2013 will be limited to 50% of the NOL.  The NOL carryback for 2014 will be limited to 75% of the NOL.  After 2014, 100% of NOLs will be allowed to be carried-back.

Sourcing Rules for Services and Intangibles

For taxable years beginning on or after January 1, 2011, taxpayers who elect NOT to use the single sales factor apportionment formula to apportion their business income, must continue to apportion sales, other than sales of tangible personal property as follows:

(1) The income-producing activity is performed in this state; or

(2) The income-producing activity is performed both in and outside this state and a greater proportion of the income-producing activity is performed in this state than in any other state, based on costs of performance.

If a taxpayer does elect to use the single sales factor apportionment formula for taxable years beginning on or after January 1, 2011, then sales from services are in this state to the extent the purchaser of the service received the benefit of the service in this state.  Sales from intangible property are in this state to the extent the property is used in this state. In the case of marketable securities, sales are in this state if the customer is in this state.

If the single sales factor apportionment formula is not allowed as an option due to further legislation, then all taxpayers will be required to use the cost-of-performance method instead of market-based sourcing.

Large Corporation Understatement Penalty

Existing law imposes a penalty on a taxpayer subject to the Corporation Tax Law with an understatement of tax, as defined, in excess of $1,000,000 in an amount equal to 20% of that understatement, except as specified. For each taxable year beginning on or after January 1, 2010, this bill revises those provisions to impose a penalty for understatement of tax for each taxable year that exceeds the greater of $1,000,000 or 20% of the tax shown on an original return or shown on an amended return filed on or before the original or extended due date of the return for the taxable year.

Use Tax Reporting

This bill authorizes an eligible person to make an irrevocable election to report qualified use tax, as defined, on that person’s income tax return, for taxable years beginning on and after January 1, 2010, and requires the Franchise Tax Board to allow a person to report and remit qualified use taxes to it and to remit the qualified use taxes collected to the board.

More Businesses Required to File Monthly Washington Excise Tax Returns!

According to Washington's website, more Washington businesses will soon be required to file excise tax returns on a monthly basis. Businesses with an annual excise tax liability over $4,800 were notified by the Department that they must report monthly beginning with the October 2010 Excise Tax Return due November 25, 2010.

If you file monthly, you are also required to file electronically.

For more information, go to Washington Excise Tax.

Pennsylvania's Post Amnesty Attack!

According to a Pennsylvania News Release on October 15, 2010, Pennsylvania has recovered nearly $1.4 million in back taxes since the end of Pennsylvania's Tax Amnesty Program on June 18.

The following is a copy of the News Release:

“Before Tax Amnesty ended, we promised to step up enforcement efforts against anyone who did not take advantage of that generous, yet limited-time offer to settle back taxes,” Revenue Secretary C. Daniel Hassell said. “We first delivered on that promise by publicly naming tens of thousands of tax delinquents online. Now we’re delivering on a second promise, to hold corporate officers personally accountable for taxes their businesses owe.

“After Tax Amnesty, we pledged to double efforts in issuing responsible party tax assessments, where assessments are filed against a business and against the corporate officers or individuals responsible for that business. In just four months, we’ve already surpassed the total number of responsible party assessments issued in all of last year.”

From June 18 through Oct. 12, the department issued more than 1,900 third-party assessments, as compared to about 1,500 issued in all of 2009. Nearly $1.4 million in back taxes has been settled as a result of this stepped-up enforcement effort.

“At that pace, Revenue stands to triple efforts to hold corporate officers and other responsible parties accountable for their businesses’ delinquent taxes,” said Hassell. “We’ve pledged to the 97 percent of Pennsylvanians who do the right thing by paying taxes in full and on time that we would pursue unpaid state taxes even more aggressively, and we continue to fulfill that promise.”

The department also released the latest monthly update to its recently expanded online list of state tax liens. The revised list details nearly 43,000 state tax liens against individuals and businesses that owe $255.8 million in state taxes.

The revised list reflects the addition of 2,002 new liens filed in September for an additional $8.1 million in overdue state taxes. New liens are in boldface type on the online list. A total of 663 liens totaling $3.7 million were satisfied and removed from the list.

Publicly identifying tax delinquents can be a successful tax collection incentive. About half of all states use Internet lists to help collect unpaid taxes, including Delaware, Maryland, New York and Virginia.

The list includes all outstanding state tax liens filed between July 1, 2009 and Oct. 1, 2010. The revised list is updated monthly to include newly filed liens and remove satisfied liens.

Information on the website is public as a result of liens filed by the Revenue Department. Each lien is recorded in the prothonotary’s office of the county where the person lives or does business. The amounts listed on the website represent the original lien amounts. The current amount of tax due may differ from the amount listed on the site because of partial payments and/or the accrual of additional interest since the tax lien was filed.

Anyone appearing on the list should call the Revenue Department at 717-783-3000 to make payment arrangements.

The complete tax delinquent list is available at www.revenue.state.pa.us, under the “Hot Topics” tab on the home page.

Media contact: Elizabeth Brassell, 717-787-6960

Editor’s Note: A table summarizing all 42,968 liens and lien amounts, by county, is available at http://www.revenue.state.pa.us/, under the “Hot Topics” tab on the home page.
 
So What?
 
If your company is delinquent, it may make sense to proactively resolve your outstanding liabilities via a PA Voluntary Disclosure Agreement.

The Pennsylvania Department of Revenue operates a voluntary disclosure program allowing taxpayers who are liable for states taxes to come forward and make settlement arrangements with the Department. Interested taxpayers must complete the Business Activities Questionnaire (Form DAS-77). Taxpayers who are under investigation by the Department's Bureau of Audits or Discovery Division are ineligible for the program. The program may be utilized with regard to corporate, sales and use, personal income, and employer withholding. Program participation is for five years plus the current year for corporate taxpayers and three years plus the current year for other taxpayers.

California Delays Refunds! (Again)

Due to California's cash flow problems, the Governor and Legislature approved legislation delaying the payment of personal income and business tax refunds until there is sufficient cash in the Treasury to pay all claims.

For more info, go to California Delays Refunds.

Texas Franchise Tax: New Filing Requirement for Passive Entities!

According to the 2011 Texas Franchise Tax Instructions, effective Jan. 1, 2011, passive entities that are registered or are required to be registered with either the Texas Secretary of State (SOS) or the Comptroller’s office will be required to file a report annually to affirm that the entity qualifies as a passive entity for the period upon which the tax is based.

Previously, an entity that filed as passive on a prior report was not required to file a subsequent franchise tax report, as long as the entity continued to qualify as passive.

A passive entity that is registered or is required to be registered with the SOS or the Comptroller’s office must now file a No Tax Due Information Report (Form 05-163) annually as a passive entity. A passive entity is not required to file an Ownership Information Report.

Michigan Tax Amnesty May 15, 2011!!

Put it on your calendar.  If you have failed to file a return or pay a tax due to Michigan for taxes due prior to January 1, 2010, you may want to take advantage of Michigan's new Amnesty program beginning May 15, 2011 and ending June 30, 2011.

On October 5, 2010, the Governor of Michigan approved a bill (L.2010, S884, (P.A. 198) that creates a tax amnesty program to be held May 15, 2011 and end June 30, 2011.  The taxpayer must make a written request for a waiver of all criminal and civil penalties for failing to file a return or failing to pay a tax due Michigan for any tax administered by the Department of Treasury. 

The taxpayer must submit any unfiled returns or amended returns, and make full payment of the tax and interest due for any prior period not later than the last day of the amnesty period (June 30, 2011).  Again, the amnesty applies only to taxes due prior to January 1, 2010.

New York: Passive General Partner Interest Equals NEXUS!

Generally, if a corporation is a holding company not licensed to do business in New York, but is a general partner in a partnership that is doing business in New York, then the holding company would be subject to tax in New York. (20 NCYRR 1-3.2(a)(5) under Article 9-A).

In a recent case, Shell Gas Gathering Corp. #2, New York Division of Tax Appeals, Tax Appeals Tribunal, DTA Nos.821569 and 821570, September 23, 2010, the holding company held a passive ownership interest in a limited liability company.  The LLC was doing business in New York.  The holding company was not.  The holding company also lacked a unitary relationship with the LLC.

Regardless of those facts, the New York Tax Appeals Tribunal held the holding company had sufficient nexus due to the ownership interest in an LLC that does business in New York.  According to the ruling, New York's power to tax is not required to be based on the taxpayers' own activities in New York.  Rather, the power to tax is based on whether New York has given something for which it may impose a tax in return.  Hence, New York satisfied this requirement because it accorded privileges and immunities that led to capital appreciation which inured to the benefit of the taxpayers.

Michigan Wants You!!

Did you receive a "Letter of Inquiry Concerning Michigan Taxes"?  Was it dated September 10, 2010 and requires a response by October 26, 2010?  If so, you are not alone.

It appears Michigan has sent out these letters to every out-of-state company with sales into Michigan (that it is aware of).

The letter requires companies to review their activities in Michigan and determine if they have nexus in Michigan.  If you do, they give you the opportunity to fill out a Nexus Questionnaire and Voluntary Disclosure Request.  If you do not have nexus, you still have to fill out the nexus questionnaire and explain why you don't have nexus.

The Voluntary Disclosure Request will require your company to file Michigan Single Business Tax (SBT) Returns or Michigan Business Tax (MBT) Returns for the 3 or 4 previous tax years.

If you received one of these letters and would like assistance, please contact me.

Minnesota Nonresident Shareholders and Partners Beware!

We have learned the Minnesota Department of Revenue is issuing notices on 2006 tax returns for nonresident taxpayers who have filed a Schedule M1NR that does not include interest and ordinary dividend income received as a shareholder or partner as reported by the S Corporation or partnership.

Interest and ordinary dividend income earned by a nonresident through most sources are not taxed by Minnesota, but interest and ordinary dividend income from Minnesota sources earned by a nonresident as a shareholder of an S corporation or as a partner of a partnership are taxable.

Connecticut Issues Guidance Regarding Economic Nexus

Effective for tax years beginning on or after January 1, 2010, any companies, partnerships, and S corporations that derive income from Connecticut or have a substantial economic presence within Connecticut, in either case attributable to the purposeful direction of business activities toward Connecticut, will be subject to tax in Connecticut.

To provide guidance to taxpayers, Connecticut released an "Informational Publication 2010(29)."  The publication provides answers to several questions taxpayers have about the application of Connecticut's economic nexus standard. 

According to the publication, the purposeful direction of business activities toward Connecticut will be evaluated based on the frequency, quantity and systematic nature of the business’s economic contacts in Connecticut.

The publication also provides taxpayer examples and a "bright line test." 

A company, partnership or S corporation that is not otherwise subject to income taxation or a requirement to file a return in this state under Chapter 208 or Chapter 229 of the Connecticut General Statutes shall not be deemed to have economic nexus for a taxable year if the frequency, quantity and systematic nature of the business’s economic contacts with the state are such that it has receipts from business activities that are less than $500,000 attributable to Connecticut sources during such taxable year. This bright line test does not preclude the Commissioner from contending that a company, partnership or S corporation has an obligation to file a return or pay a tax under Chapter 208 or Chapter 229 of the Connecticut General Statutes as a matter of law other than attributable to the Economic Nexus Legislation. Note: The determination as to whether a pass-through entity, including, but not limited to, partnerships and S corporations, satisfies the bright line test shall be made at the entity level.

Regardless of the economic nexus standard, it is important to remember that Federal Public Law 86-272 does provide protection to businesses that have economic nexus in Connecticut against Connecticut taxation.  According to the publication, P.L. 86-272, 15 U.S.C. 381-384, restricts Connecticut from imposing an income tax on income derived within its borders from interstate commerce if the only business activity of the business within Connecticut consists of the solicitation of orders for sales of tangible personal property, which orders are to be sent outside Connecticut for acceptance or rejection, and, if accepted, are filled by shipment or delivery from a point outside Connecticut. P.L. 86-272 protection is not afforded to transactions other than sales of tangible personal property. In addition, P.L. 86-272 does not apply to taxes that are not based on income.

Example: Catalog Corp., an out-of-state corporation that is not otherwise subject to Connecticut income taxation, remotely solicits (i.e. by mail and telephone) orders for the company’s tangible products from Connecticut customers. Sales are approved and shipped via common carrier from outside Connecticut. Although Catalog Corp. may have a substantial economic presence within Connecticut, it is nevertheless immune from Connecticut income taxation pursuant to P.L. 86-272.

As stated in other posts, the "economic nexus" standard is a growing trend among states.  If you have questions how this standard impacts your business, please contact me.

Is the Ohio CAT Sourcing of Service Receipts Unconstitutional?

The recent state and local tax report issued by Morrison Foerster covers some interesting topics.  If you've never read any of their reports, I suggest you do.  They usually contain some interesting and useful info. 

In this case, as I read the article about the unconstitutionality of Ohio's CAT sourcing rule for services, I understand the author's points. However, I don't always see how Ohio's rule is different from other states that apportion service income using "market-based" sourcing versus the "costs of performance" standard.

It appears Ohio is only taxing Ohio sales (albeit using market based sourcing instead of costs of performance); therefore, how is Ohio's CAT not apportioned? Ohio's CAT is not taxing 100% of the business' sales, only Ohio sales.

More and more states have moved to "market-based" sourcing for service income. For sales of tangible personal property, sales are sourced by destination. "Market-based" sourcing is simply destination sourcing for services. Therefore, sales of services are starting to be sourced the same way as sales of tangible personal property. It could be argued this makes more sense.

If Ohio's sourcing rules are unconstitutional for sourcing of service income, isn't it unconstitutional for sales of tangible personal property as well?

If Ohio's sourcing rules are unconstitutional, then aren't all other states that impose "market based" sourcing unconstitutional as well?

Just some thoughts.  What do you think?