REWIND: The Top 18 State Tax Blog Posts of 2011! (I Think)

As the end of 2011 approaches, I thought it might be fun to provide you with my list of favorite posts from 2011.  Here are my Top 18 with links for your convenience.  Take a look and let me know what your favorites are.

1. State IRC. Section 382 Limitations on Net Operating Losses: Do They Exist?
2. Iowa Says: No Physical Presence? No Problem.
3. State and Local Taxes: What Will Happen in 2011?
4. Sales Tax Problems Cause SEC Fine!
5. "Bundled Transactions" - Who Cares?
6. All Companies Have Nexus in Washington State?
7. Amazon's State Tax Planning: Follow-Up Commentary
8. BEWARE: California's New "Doing Business" Standards In Effect!
9. State Tax Notices: A Game???
10. Nexus: To File or Not to File?
11. Where Should Your Company Relocate or Invest?
12. Don't Put the Cart Before the Horse (State Tax Planning vs. Business Purpose)
13. Practical Tips for Navigating the Sales Tax "Minefield" of "Cloud Computing"
14. FIN 48 Reserve for Uncertain State Tax Positions: Will It Ever End??
15. How to Avoid Intercompany Expense Addback and Combination
16. What Are Your State and Local Tax "Blind Spots"?
17. Are You A Victim of "Crunch Time"?
18. State and Local Tax Due Diligence: Don't Restructure Without It!

I hope each of you have a Merry Christmas and Happy New Year! 

May your time spent with family be blessed and may God give you a vision for 2012!!

State and Local Tax Year-End Planning????

As your company or clients discuss year-end planning, I want to remind you that this is a good time to address state and local tax issues and opportunities.

The following is a brief list of some ideas that might apply:

Nexus and FIN 48: At this time of year, it is a good time for companies to address their nexus position in advance of their FIN 48 analysis. Operations may also be able to be restructured. If your company or client utilizes telecommuting employees or independent contractors and hasn’t addressed their nexus position in a while, this may be a good time. Also, more states have adopted economic nexus standards and “bright line” nexus standards that may come into play.

Sales and Use Tax: It is also a good time to conduct a reverse sales tax audit to identify sales and use tax refund opportunities and potential exposure. If your company or client has started to sale items over the Internet, we should talk. If your client has purchased any software, SaaS or cloud computing recently, they may want to confirm there is no sales or use tax exposure.

Income Tax: For C corporations, a reverse income tax audit could identify state income/franchise and gross receipts tax refund opportunities and potential exposure. Combined reporting and apportionment issues or opportunities may exist.

Income Tax: For flow-through entities, a reverse income tax audit may be helpful on major states such as Texas, Michigan, Washington, Pennsylvania, etc.

Credits and Incentives: If your company or clients are entering into new states, hiring new employees, building new facilities, retaining employees, "going green," involved with renewable energy, etc. this is a good time to identify and capture credit and incentive opportunities.

Transaction Due Diligence: If your company or clients are entering into any acquisitions of other companies or assets, state and local tax issues should be reviewed to determine exposure, successor liability, and nexus impact.

Residency Issues: For individual tax clients that have changed their residency to another state or are considering such a change, guidance should be provided in regards to what records they need to maintain, etc.to support their residency or domicile.

Employee Misclassification: If your company or client utilizes a high volume of independent contractors, contracts should be reviewed to mitigate exposure of those independent contractors being reclassified as employees.

Michigan and Disregarded Entities - The Wait is Over!!!

Disregarded entities can stop waiting, and can now officially NOT FILE separate MBT returns in Michigan.

As I stated in an earlier post in November, Michigan had delayed the deadline once again in the hopes that legislation would be passed to resolve and remove this filing requirement.  Well, Michigan has done it and passed SB 369 on December 14, 2011.

According to SB 369, a person that is a disregarded entity for federal income tax purposes under the Internal Revenue Code that prior to January 1, 2012 in an originally filed return was treated as a person separate from its owner or prior to December 1, 2011 in an amended return was treated as a person separate from its owner under this Act for a tax year that begins after December 31, 2007, is not required to file an amended return with its owner as a disregarded entity.

A person that is a disregarded entity for federal income tax purposes under the Internal Revenue Code that prior to January 1, 2012 in an originally filed return was treated as a person separate from its owner or prior to December 1, 2011 in an amended return was treated as a person separate from its owner under this Act for its first tax year that begins after December 31, 2009, may be treated as a person separate from its owner under this Act for its tax year that begins after December 31, 2010 and ends before January 1, 2012.

Click on SB 369 for the details.

State and Local Tax Due Diligence: Don't Restructure Without It!

Is your company considering restructuring its business?  Perhaps creating new legal entities or re-aligning its lines of business into different entities?  Changing the ownership structure of the legal entities within the commonly controlled affiliated group?  Or maybe it is considering acquiring or merging with a new business (unrelated third-party)?

Regardless of your company's situation, in each of the above mentioned scenarios, your company must perform its due diligence prior to completing any transaction or restructuring.  That due diligence should take into consideration the impact the restructuring or transaction will have on the business operations, legal obligations, insurance, finance, and tax, etc. 

In regards to the tax implications, there can be significant tax ramifications on the transaction or restructuring itself.  In addition to the federal tax impact, the state and local tax impact can be material and varied.  Some of the potential state and local taxes to take into consideration are:  income tax, gross receipts taxes, franchise taxes, sales and use taxes, property taxes and transfer taxes.

Usually the biggest concern in regards to the transaction from a state and local tax perspective are: 

1. Is there any sales tax on the sale or transfer of assets or change in ownership? 
2. Is there any transfer tax on the transfer of assets or change in ownership?

The answers to these questions depends on the state or states involved.

In addition to the above, the impact that the restructuring will have on the business' state tax nexus (taxable presence) position across the country should be reviewed and considered before making any changes.

So What?

If your company is currently considering any restructuring or acquisition, don't forget about performing state and local tax due diligence.  If the transaction ends up costing the company a significant amount of state tax dollars now or in the future, you may be asked if these issues were considered or reviewed prior to completing the transaction.

Thinking of Appealing a Virginia Tax Assessment?

According to the Virginia Tax Commissioner, the Virginia appeals division received over 500 cases each year over the last 4 years.

Over the last 12 months, the appeals division has reduced their inventory by 34%.

During 2011, appeals has closed 478 cases, and as of November 1, 2011, appeals had an inventory of 387 cases.

The main reason for the large inventory and delay in resolution of cases is disputed or incomplete facts. Incomplete facts cause the need to obtain additional information and slows down the process.

If you are thinking of appealing a Virginia Tax Assessment, a proper strategy and approach may not only ensure a more favorable and fair result, but may also decrease the delay in obtaining a resolution.

Will the Virginia Research and Development Credit Impact Your Company?

During the 2011 Session, the Virginia General Assembly passed legislation that created a refundable income tax credit for qualified research and development expenses paid or incurred during the taxable year. The credit amount is equal to

• 15 percent of the first $167,000 in Virginia qualified research and development expenses; or
• 20 percent of the first $175,000 in Virginia qualified research and development expenses if the research was conducted in conjunction with a Virginia public college or university.

The total amount tax credits allowed is $5 million. If the total amount of tax credits is less than the $5 million limit, TAX will allocate the remaining amount to the taxpayers already approved for the tax credits.

The Department of Taxation (“TAX”) is developing guidelines to carry out the provisions of this credit, including rules regarding the location where the research and development is performed, the residence or business location of the taxpayer or taxpayers conducting the research and development and the location where supplies used in the research and development are consumed.

Virginia's research and development credit draft guidelines were released 11/21/11.

The final guidelines are expected to be released 1/31/2012.

To access the guidelines and learn if your company can take advantage of the credit, go to VA R&D CREDIT.

Internet Retailers and Sales Tax: What's Next?

The sale tax on Internet retailers discussion continues. 

It is a growing issue not only for the BIG names in Internet retailing like Amazon, Overstock.com, etc., but the legislation and discussions being conducted may have a material impact on smaller businesses as well (depending on how the legislation defines "small business.") 

If you are an Internet retailer OR a manufacturer, wholesaler, brick and mortar retailer, service provider, etc. who is thinking of selling over the Internet, the legislation discussion currently going on may have an impact on your business.

For more info on current developments regarding this issue, read AccountingToday's article.