SALT Strategies

SALT Strategies

Updates & Commentary On State & Local Tax Law

In Search of a New Jersey Gross Income Tax Treasure – Don’t Forget the Alternative Business Calculation Adjustment

Posted in Personal Income Tax

GreetingsfromNewJerseySearching for opportunities to reduce our clients’ New Jersey Gross Income Tax costs in the midst of the closing days of our 2014 tax busy season, we revisited one of New Jersey’s relatively recent legislative changes – the Alternative Business Calculation Adjustment.

The inability to offset income and losses occurring in different business categories in determining one’s New Jersey Gross Income Tax has always been an issue for individuals, trusts and estates. In 2011, the state passed legislation that lessened its impact. As a result, taxpayers may rely on the ABCA to partially offset gains from one category of gross income with losses from another category of gross income.

The ABCA and Why It May Be Worth Your Consideration

For tax years beginning on or after January 1, 2012, New Jersey Gross Income Tax taxpayers who have losses in certain business-related categories of income are permitted to take into consideration those losses to calculate an adjustment to their taxable income (“ABCA”). Taxpayers may also carry forward unused losses in those categories for a period of 20 years to calculate future adjustments. This change applies to residents, nonresidents, and estates and trusts.

The benefit of the ABCA is phased in commencing in 2012 as follows:

          2012                     10%

          2013                     20%

          2014                     30%

          2015                     40%

          2016 & after         50%

Prior to the adoption of the ABCA, New Jersey GIT tax provisions only permitted the offset of gains and loss if they were incurred in the same business category.  If a New Jersey taxpayer incurred net losses in one or more of the four income categories, those losses were not permitted to offset gross income from one or more of the other gross income categories.

The ABCA permits GIT taxpayers who have losses in one or more of the following categories to include those losses in the calculation of their ABCA to reduce their taxable income:

  • Net profits from business
  • Net gains or net income from rents, royalties, patents and copyrights
  • Distributive share of partnership income 
  • Net pro rata share of S corporation income.

 The ABCA may benefit both New Jersey resident and non-resident taxpayers.

 Don’t Rely on Tax Compliance Software To Automatically Calc the ABCA

Our experience with tax compliance software indicates that it may not automatically prepare the ABCA.  In addition, the software may not identify that the taxpayer may be eligible to use the ABCA in calculating its New Jersey GIT. 

Remember to Complete NJ-BUS-2

Taxpayers with income or losses from one or more of the four income categories are required to complete Schedule NJ-BUS-1, NEW JERSEY GROSS INCOME TAX , BUSINESS INCOME SUMMARY SCHEDULE.  In addition,  taxpayers with income and losses from one or more of the four income categories are required to complete Schedule  NJ-BUS-2,  NEW JERSEY GROSS INCOME TAX, ALTERNATIVE BUSINESS CALCULATION ADJUSTMENT. 

Revisit Your 2012 New Jersey 1040 and 1040 R

Since the ABCA was enacted effective for 2012 tax years, if you or your client incurred losses in one or more of the four business categories and a NJ-BUS-2 was not included in your 2012 New Jersey filing, you may wish to revisit this issue to determine if you have a potential opportunity for a refund as well as to determine if you have ABCA loss carry forward from 2012.

The ABCA One of New Jersey’s Somewhat Hidden Tax Treasures

As with so many states, New Jersey is a state full of “Hidden Treasures” ripe for our exploration.  The ABCA may be one of New Jersey’s not so hidden tax treasures for you and/or your clients.  For additional information check out New Jerseys official release on the Alternative Business Calculation  Adjustment.  Happy hunting!!

From Zero to 100 on the Pennsylvania BAP Highway

Posted in Sales and Use Tax

pennsylvaniaIn the midst of our busy season, we have come across a recurring issue with Pennsylvania RCT-101 Corporate Tax Reports which could lead to a tax due notice for companies with zero apportionment in the state.

 In several instances where a return has been filed that has zero business apportionment, Pennsylvania has adjusted the apportionment to indicate 100% Pennsylvania business apportionment.  This has occurred if such returns haves been prepared with:

  1.  Zeros for both the numerators and denominators on Form RCT-101 Page 4 of 6  Section D Schedule A-1; or
  2.  Zeros for both the numerators and denominators on Form RCT-101 Page 4 of 6  Section D Schedule C-1; or
  3.  Zeros for both the numerator and denominators on Form RCT-106, Page 2, Table 1, Table 2 or Table 3.

Affected taxpayers, i.e. those who have zero Pennsylvania apportionment with any of the above,  have received notices from The Department  for additional tax based on the Department’s unilateral adjustment to the Pennsylvania business apportionment that increases the affected return’s Pennsylvania business apportionment to 100%.

In our discussions with the Department, we were unofficially informed that this adjustment from zero Pennsylvania business apportionment to 100% Pennsylvania business apportionment is being triggered as the result of the aforementioned Forms indicating zeros in the factors’ denominators, “Total” or “ Inside  and Outside PA” input areas.

It appears  that every PA RCT-101 that indicates a zero business apportionment percentage should be reviewed to ensure that the denominators,  “Total” and “ Inside  and Outside PA”  input areas indicate an appropriate positive amount  with respect to that entity AND NOT SIMPLY “0”.

Failure to represent the zero business apportionment as indicated above may result in the Department issuing a tax due notice based on 100% Pennsylvania business apportionment.

In our discussions with the Department, we were informally told that to rectify a notice for additional tax based on the above fact pattern the taxpayer may be required to  file with the Department a BOARD OF APPEALS PETITION FORM, REV-65 BA within the requisite time set forth in the Department notice for additional tax setting forth why the Department’s assessment is incorrect. 

This form may also be submitted electronically to the Department.  In order to submit this Form on line, please see the Department’s Board of Appeals Online Petition Center webpage.  This online process is very effective in that the State sends a confirmation with the appropriate time stamp within one day of submission. 

Slow And Steady Wins The Compliance Race

As an avid auto racing fan, I often hear winning race car drivers during their victory interviews say that they found that “slow and steady wins the race” and that slowing down at certain points on the race track actually resulted in their fastest laps.  Their advice may be applicable and valuable in preparing Pennsylvania corporate returns with zero business apportionment – slow down and complete your apportionment input to avoid potentially costly notices and petitions for appeal. 

Must Reads For Your Summer Leisure – New York Hits The Shore With A Wave of Sales Tax Bulletins and Advisories

Posted in Sales and Use Tax

beachEach year the joy of Summer seems to more quickly pass into the demands of the Fall.  Perhaps your summer, like mine, is a coveted time to catch up on non-technical reading.  However, last week the New York State Department of Taxation and Finance issued approximately 15 Sales Tax Technical Bulletins and several Technical Advisory Opinions that may warrant interrupting your summer easy reading and that should be on your Summer Multistate Tax Reading List as well.  To assist in your reading pleasure and efficiency, this post provides links to New York’s early August blast of sales tax technical releases .  The technical guidance addressed in these tech bulletins and advisory opinions may affect multistate taxpayers in numerous industries and warrants your attention. 

Tax Bulletins/Sales Tax

The Department issued the following Sales Tax Bulletins that provide insights, guidance and links to additional Department materials for the areas discussed:

TB-ST-107, Cartons, Containers, and Packaging Materials

TB-ST-113, Certificate of Capital Improvement - Exemption Form ST 124

TB-ST-126, College Textbooks - Exemption Form ST-121.4

TB-ST-128, Computer Software

TB-ST-190, Drop Shipments

TB-ST-193, Drugstores and Pharmacies

TB-ST-243, Exemptions for Computer System Hardware (Form ST 121.3)

TB-ST-253, Farmers and Commercial Horse Boarding Operators - Exemption Form ST-125

TB-ST- 315, Government Employee Occupancy of Hotel Rooms - Exemption Form ST-129

TB-ST-535, Live Dramatic and Musical Arts Performance – Exemption Form ST-121.9

TB-ST-665, Operators of Internet Data Centers (Web Hosting) - Exemption Form ST-121.5

TB-ST-692, Promotional Materials - Exemption Form ST-121.2

TB-ST-757, Racehorses - Exemption Form ST-126

TB-ST-890, Tractors, Trailers, Semitrailers, or Omnibuses - Exemption Form ST-121.1

Sales Tax Advisory Opinions

In addition, the Department issued several Sales Tax Advisory Opinions, TSB-A’s, in its early August release.  Of particular interest is TSB-A-14(23)S, in which the petitioner requested guidance as to  whether the transfer of tangible personal property to a New York limited liability company (LLC) in consideration for a pro rata share of interest in the LLC is subject to New York sales and use tax.  The Department in this TSB concluded that the transfer of tangible personal property to the LLC is not subject to sales and use tax.  As each TSB-A is highly fact sensitive, you may wish to review the petitioner’s specific facts in your evaluation of this TSB-A’s potential guidance value.

In addition, the Department issued the following Sales Tax TSB-A’s.  For convenience, we have included the Department’s description of each TSB-A as set forth in its August 11th announcement:

TSB-A-14(22)S, Whether sales tax is imposed on Petitioner’s receipts for the service of acting as facilitator in the acquisition from the Federal Bureau of Investigation of criminal history information about applicants for employment with a client of Petitioner.

TSB-A-14(24)S, Whether fines charged for violating parking rules and regulations are subject to sales tax in New York State.

TSB-A-14(25)S, Whether wasabi and soy seasoned almonds are subject to New York State and local sales and use taxes.

August In New York – Why We Love NY

Hopefully New York’s early August wave of sales tax technical guidance and advisory opinions will not significantly interrupt your summer fun and leisure.  Perhaps like many aspects of New York, they will just help make our summer a bit more interesting.  However, just as waves may be more intricate and powerful than first perceived, the Department’s wave of sales tax technical advice warrants careful review even during this season of leisure. 

As the ads for New York tourism  call out to us and  the NYS Fair this month in Syracuse  serves as just one example of why New York remains so attractive  to many I am  reminded of  why I LOVE NY-  it is never boring.

2014 Multistate Tax Road Trip – New Jersey Budget May Create Tax Traffic Headaches for Multistate Taxpayers

Posted in Corporate Income Tax, Nexus

trafficNew Jersey’s Fiscal 2015 Budget, signed by Governor Chris Christie on June 30, 2014, includes Assembly Bill 3486 which contains tax provisions that may increase multistate taxpayers’ New Jersey income taxes.  In addition, the bill includes “click-through” nexus provisions that may impose New Jersey sales tax nexus upon non-New Jersey entities.  This post will summarize some of the more significant portions of the bill that may result in New Jersey tax traffic headaches for multistate taxpayers.

Income Tax Concerns

A.B.3486 contains several provisions that may increase your New Jersey income taxes.

Operational versus Nonoperational Income:  Typically referred to as “business” versus “non-business” income in other states, the bill broadens New Jersey’s definition of “operational.”  Specifically, it defines “operational” income as “income from tangible and intangible property if the acquisition, management, or disposition of the property constitute an integral part of the taxpayer’s regular trade or business operations and includes investment income serving an operational function.”  Thus if any of the three factors are met, the income is deemed to be “operational” income.  Prior to the bill’s adoption, the definition of “operational” income required that all three factors had to be satisfied.  This provision is applicable to all tax years ending on or after July 1, 2014.

Net Operating Loss Adjustment for Debt Cancellation: The bill also provides for an “adjustment”, i.e. reduction, in a corporation’s New Jersey NOL, corresponding to the amount of income excluded from federal taxable income pursuant to the application of IRC Sections 108(a)(1)(A), (B), or (C).  This provision is applicable to all tax years ending on or after July 1, 2014 inclusive of any affected NOL carryover to such period.

Partnerships And New Jersey Non-Resident Partners:   As a result of A.B. 3486, nonresident partners must file a New Jersey tax return that reports income subject to tax in New Jersey in order to be eligible to apply the tax paid by the partnership which is credited to the nonresident partner’s partnership account against its tax liability.  In addition, A.B. 3486 indicates that a partnership cannot “claim a refund of payments credited to any of its nonresident partners.”  This provision is applicable to all tax years ending on or after July 1, 2014.

Each of these provisions may pose complex issues to multistate taxpayers that warrant further analysis.

Sales Tax Concerns: “Click-Through” Nexus Alert

The bill also expands New Jersey’s sales tax nexus by adopting a “click-through” nexus provision.  Pursuant to New Jersey’s new sales tax nexus provision a  “person making sales of tangible personal property, specified digital products, or services taxable under the “Sales and Use Tax Act,” P.L.1966, c. 30 (C.54:32B-1 et seq.) shall be presumed to be soliciting business through an independent contractor or other representative” if:

  • The person making sales enters into an agreement with an independent contractor having physical presence in this State or other representative having physical presence in this State;
  • The agreement calls for a commission or other consideration, under which the independent contractor or representative directly or indirectly refers potential customers, whether by a link on an Internet website or otherwise, and;
  • The cumulative gross receipts from sales to customers in this State who were referred by all independent contractors or representatives that have this type of an agreement with the person making sales are in excess of $10,000 during the preceding four quarterly periods ending on the last day of March, June, September, and December.

The presumption set forth by this provision “may be rebutted by proof that the independent contractor or rep with whom the person making sales has an agreement did not engage in any solicitation in the State on behalf of the person that would satisfy the nexus requirements of the United States Constitution during the four quarterly periods in question. Nothing in this subparagraph shall be construed to narrow the scope of the terms independent contractor or other representative for purposes of any other provision of the ‘Sales and Use Tax Act,’ P.L.1966, c. 30 (C.54:32B-1 et seq.).”

New Jersey’s “click-through” nexus provision applies to sales, transactions involving taxable services rendered and uses occurring on or after July 1, 2014.

 Takeaway Tax Traffic Alert – Be Prepared To Stop

I hope our summary of the significant tax provisions of A.B. 3486 provides a “tax traffic” alert of the potential New Jersey income and sales tax concerns that may affect multistate taxpayers.  As I always slow down and heed the messages on those highly effective electronic signs that now guide travelers along the New Jersey Turnpike, multistate taxpayers and their tax advisors would be well advised to be “prepared to stop” and fully review A.B. 3486  provisions for potential ramifications to their New Jersey income tax and sales tax nexus.

 

2014 Multistate Tax Road Trip – Detour – New York Issues Nonresident Audit Guidelines with Comments on Gaied Decision

Posted in Personal Income Tax, Property and Other State/Local Tax Issues

As I was finalizing some research addressing a New York nonresident issue, I was pleasantly surprised to discover that the State of New York Department of Taxation and Finance just issued its 2014 Nonresident Audit Guidelines. It appears that these revised guidelines incorporate the State’s view of the ramifications arising from the  recent New York State Court of Appeals  decision, In the Matter of John Gaied, Appellant, v New York State Tax Appeals Tribunal et al., Respondents .

In the Gaied court decision, the New York Court of Appeals significantly limited what is considered a permanent place of abode with respect to a statutory residence for New York State personal income tax purposes.  The 2014 Guidelines on page 54 presents the NYS Department of Taxation and Finance’s initial formal guidance on how the department views the ramifications of the Gaied decision.

The Audit Guidelines, as well as a review of the Gaied decision, provide valuable insights for tax advisors who may have clients that are presently under  residency exams by New York State, as well as those seeking to provide guidance to clients that may meet the criteria of a statutory resident.

 

2014 Multistate Tax Road Trip – Setting Out On The Dynamic Highway Known As State Tax Nexus – Some Basics For the Nexus Entrance Ramp Discussion

Posted in Corporate Income Tax, Nexus

 

As we launch our 2014 Multistate Tax Road Trip, we will stop periodically at areas that despite their familiarity still warrant our time and attention.  Today, we will visit with the concept of nexus.  Even in 2014, state tax nexus continues to be a lightning rod for discussion, controversy and concern.  Let’s begin our journey with a brief pit stop at corporate income tax nexus.

State Tax Nexus

Before a state can subject an entity that has derived income from interstate commerce to one or more of its taxes, the state must establish that the company has “nexus.”  In general, state tax “nexus” is the minimum level of contact or activity within a state necessary for a state, city or locality to constitutionally subject an entity to that state, city or locality’s tax provisions and potentially taxation.

In theory, each state may independently adopt state tax “nexus” or “doing business” provisions that define the level of activity or connection that is necessary to establish nexus for the respective state’s taxes.  However, every state’s nexus provisions as well as each state’s application of their provisions must comport with the limitations as set forth by the U.S. Constitution, i.e. in the Commerce and Due Process Clauses, as interpreted by the U.S. Supreme Court decisions and federal statutes that define nexus.

Nexus – The Type of State Tax Matters 

Subject to the limitations mentioned above, states may have established specific state nexus thresholds for different state taxes; i.e. net income, franchise taxes based net worth or capital, gross receipts or sales taxes.  During our road trip, we will discuss the historic as well as the recent state tax income and sales tax nexus issues facing multistate taxpayers.

Corporate Income Tax Nexus – Some Context

Historically, corporate income tax nexus provisions typically required that the out-of-state corporation derive revenue from sources within the state and that the out-of-state corporation have some physical presence in the state.  Recently, states began to adopt ever increasingly aggressive nexus provisions – factor based and economic based corporate income tax nexus provisions.  

As businesses began to generate revenue from interstate commerce without having physical presence in remote states, state corporate income tax nexus provisions evolved by eliminating the physical presence requirement from their corporate income tax “doing business” and nexus provisions

In general, factor based state tax nexus provisions define the level of contact with the state necessary to subject a remote corporation to the state’s tax provisions based on the remote corporation’s receipts, payroll or property in the state.

Economic based state tax nexus provisions define sufficient contact with the state based only on the remote corporation’s receipts determined to be sourced to the state pursuant to the state’s revenue apportionment/allocation provisions.

Therefore, a corporation may be deemed to have sufficient nexus in a state that applies an economic nexus standard without having any physical presence or activities in the state. 

Public Law 86-272  may provide out-of-state entities (whose state activities are limited to the mere solicitation of orders for the sale of tangible personal property that are accepted and shipped from outside the state) with potential immunity from being subject to state taxes based on or measured by net income. 

In general, if a corporation’s activities in a state are limited to those permitted under P.L. 86-272, state factor based and economic based state corporation under the law.

However, as revenue streams broaden beyond those exclusively derived from the sale of tangible personal property, the potential protection afforded by P.L. 86-272 may become increasingly limited.

In addition, the application of such factor based and economic based nexus provisions may have significant state tax ramifications in states that have also adopted mandatory combined filing requirements for entities that are determined to be members of a unitary group.  

The Take Away – Don’t Rely On Same As Last Year {“SALY”} Assumptions

Now more than ever, states’ increasing dependence upon  factor based and economic based nexus standards demand that multistate businesses continuously monitor their activities, vendor relationships and related party transactions.   Relying on SALY nexus analysis in determining your corporate income tax nexus may have significant and costly state tax ramifications.

Our next post will explore the inter-play of factor based and economic based nexus provisions with the corporate income tax nexus benchmark, Public Law -86-272.  There may be some good news for businesses – recent court decisions appear to signal reluctance by certain state courts to accept factor based or economic based corporate income tax nexus provisions without some additional connection to the state by the out-of-state taxpayer. 

 

 

State Tax Consulting – Our 2014 Multistate Tax Road Trip: Itinerary and Rules of the Road

Posted in Nexus, Sales and Use Tax

car.saltThe unofficial start of summer 2014 is upon us with the celebration of Memorial Day this weekend. Summer, with its beautiful long days,  is the perfect season for exploration .  For the past 25 years summer  has meant one thing to me: Road Trip!

Road trips have always given me an opportunity to refresh my spirit, visit new places, re-visit past favorite spots and gain new perspectives on things I believed I knew. So I thought this would be an appropriate time for an (albeit virtual) Multistate Tax Road Trip.

In order to have an enjoyable Road Trip, it pays to be familiar with the Rules of the Road.  This post will provide a list of key multistate tax materials, administrative websites and seminal legislation, along with links to those key multistate tax materials.  These materials, or “The Rules of the Road,” will assist and guide our trip.  In future posts, one or more these reference materials will be explored and analyzed.

Our Itinerary

Our Road Trip will visit the numerous multistate tax “must see” hot spots such as nexus and new income sourcing trends.  In addition, we will have Road Trip stops that will highlight some of the dynamic recent state tax legislation pronouncements and guidance facing taxpayers in 2014.

Finally, we will revisit some old favorites, such as combined filing and procedural matters, seeking new points of interest in these well discussed topics.  Our hope is that this Multistate Tax Road Trip will introduce you to new state tax areas of interest as well provide new perspectives on state tax issues with which you’re already familiar.

As briefly outlined last week, our Multistate Tax Road Trip’s itinerary will touch on topics that stretch to the following outer-bank topics of the current Multistate tax landscape:

  • Economic and Factor Based Nexus
  • Market Place Fairness Act and Remote Seller Nexus
  • Customer-Based Sourcing Provisions
  • Flow-through Entity Apportionment Issues
  • Mandatory Combined Filing
  • The Relevance of “Joyce” States
  • Pay to Play Provisions

True to experience, some of the most enjoyable and memorable moments of any road trip are those that are unplanned – so feel free to offer points of interest that you would like us to visit.

Rules of the Road

Through numerous Multistate tax issue explorations, I have looked to one or more of the following for guidance and direction:

  • P.L. 86-272                                      Public Law 86-272
  • UDITPA                                            Uniform Division of Income for Tax Purposes Act
  • COST                                                 Council on State Taxation
  • MTC                                                   Multistate Tax Commission
  • MTC COMPACT                              The Multistate Tax Compact
  • MTC MEMBER STATES\              Multistate Tax Compact Member States
  • SSUTA                                                Streamlined Sales and Use Tax Agreement
  • SSTGB                                                Streamline Sales Tax Governing Board, Inc.
  • SSUTA MEMBER STATES            Streamline Sales Tax Member States – Map Format
  • SSTUA MEMBER STATE LIST    SSUTA Member State List
  • FTA                                                     Federation of Tax Administrators
  • FTA REGIONS

 

1. SEATA (Southeastern Regional Conference)

2. MSATA (Midwestern States Association of Tax Administrators)

3. WSATA (Western Regional Conference)

4. NESTOA (Northeast Regional Conference)

 

In addition, along our Road Trip we will keep the following approaching Federal legislation in our mirrors:

  • MFA  Marketplace Fairness Act of 2013
  • MFA PRINTER FRIENDLY  MFA in printer friendly format
  • MSWTFA  H.R. 4085: Multi-State Worker Tax Fairness Act of 2014
  • MOBILE WORKFORCE 2013 H.R. 1129: Mobile Workforce State Income Tax Simplification Act of 2013

A Memorial Day Thought Before We Embark

Before we head into this summer season I wish to remember and note what this holiday weekend is all about.  As I look forward to extra time with family and friends this Memorial Day, I wish to earnestly take this opportunity to offer my deepest thanks and prayers for all of those courageous  men and women and their families whose ultimate sacrifice secured the freedom and liberty I am able to enjoy in our great country.   May I never forget how blessed I am to have been born in a country with patriots of such selfless bravery.

On behalf of the State and Local team at MWE, we wish everyone a restful and fun-filled summer.  And starting next week, we invite you to join us on our summer sojourn through Multistate tax destinations.

 

 

 

 

 

 

 

 

 

 


States Orchestrating Intricate Tax Opus that Can Eventually Ensnare Most Multistate Taxpayers

Posted in Nexus

It’s often the case that we get so caught up in our daily work that we neglect to step back and fully discern the magnitude of a developing situation.  After drafting the past several posts, I realized that a disconcerting pattern was being composed in front of my eyes – one that warrants all multistate taxpayers’ immediate attention. 

Here is the tune that’s been playing in my head: It is not one or two state taxing authority initiatives or pieces of legislation that are going after multistate taxpayers.  It is a concerto of intricately orchestrated strategies that will at some point affect virtually every multistate taxpayer.

Today, I’ll focus on the state tax melody that is playing out to address the states’ increasing revenue demands.  

Troubling Tax “Notes”

After reviewing the New York State 2014-15 Budget provisions, one cannot help but sense a common theme developing among states with large state budgets and high tax revenue demands.  For example, the similarities between New York and California corporate tax provisions come to mind.  The theme is based on an extensive array of initiatives focusing on broadening their revenue base. 

The following reflects some of the common state tax themes that sound troubling “Tax Notes” for multistate taxpayers;

  • Remote Seller Sales Tax Nexus Provisions
  • Economic or Factor Based Net Income Tax Nexus Provisions
  • Market Based Receipt Sourcing Provisions for Receipts Earned from Services or Intangibles
  • Mandatory Combined Filing For Corporate and Flow Through Taxpayers
  • “Pay to Play” State Tax Procedural Provisions

Each of the above pose disconcerting state tax ramifications for multistate taxpayers. However, it appears that an ever increasing number of states are combining the adoption and implementation of one or more of the above to compose a complex paradigm designed to increase state taxes for all multistate taxpayers.

Take Away: Don’t Rely On “Vinyl” State Tax Advice In the Digital Age

The dynamic symphony of today’s multistate tax requires your advisor to be a “Tax Aficionado.”  In upcoming posts, with a focus on the above, we will attempt to arrange the cacophony of disconcerting state tax notes into a melodic composition to shed light on potential state tax issues that may increase your multistate tax.

States’ Record High Tax Years Beat the Miami Heat To Three-Peat Heaven – What That Could Mean for Multistate Taxpayers

Posted in Corporate Income Tax, Nexus, Personal Income Tax, Sales and Use Tax

Miami-Heat-WallpaperAccording to the U.S. Census Bureau, state government tax coffers are overflowing. They rose for the third consecutive year to $846.2 billion in 2013, with total state tax revenues increasing by 6.1% over the year before.

It’s a safe bet to say states are pleased with their progress and will use every tool in their playbook to ensure that future years are just as rewarding. Which means multistate taxpayers should be prepared to face more intense efforts by the states to squeeze additional revenue from them in 2014 and beyond.

A recent article in Bloomberg  highlighting the States’ record tax collections cites the Census Bureau report and  Donald Boyd , a senior fellow at the Albany, New York-based Nelson A. Rockefeller Institute of Government , who said that  the figures “reflect higher income-tax collections resulting from strong financial markets and an incentive for taxpayers to take profits before higher federal tax rates began.”

Unlike the New York Knicks’ lackluster results this year,  New York’s  tax revenue  for 2013 not only continues to increase but as Crain’s noted recently, despite the economy, New York’s tax revenue “outpaces that of rival states.” (Perhaps Albany can provide some insights to the Knicks to give them the boost they need to outpace their own rivals.)

Is States’ Tax Revenue Three Peat Attributable to Our Economy Improving?

Whether the states’ three year increase in total tax revenues culminating in a second straight tax revenue record is attributable to an improving economy and acceleration of income may be subject to debate.  However, our experience is that the states continue to develop and implement new strategies to increase taxes from businesses and their owners.

One may expect that the states will proceed with several of the following strategic initiatives with the goal of notching additional record breaking tax years ahead:

  • “New Taxpayer” and nexus initiatives.  In addition to state specific “New Taxpayer” and nexus initiatives, the Multistate Tax Commission has an ongoing Nexus Program including a Nexus Committee that meets regularly each year to facilitate the nexus initiatives of its member states.  We are aware of at least one state  that now includes a MTC Nexus Questionnaire as part of the State’s information or document request.
  • State Expansion of Transactions Subject to Sales & Use Tax especially in the area of services and digital products.
  • Increased Reliance and Importance  of  “Desk Audits.” For additional information regarding New York State’s “Desk Audit” and perhaps a predictor of New York’s increasing reliance on “Desk Audits,” New York recently revised its  Publication 130-D dedicated to desk audits.
  • Adoption of new tax legislation that will enhance the states’ ability to subject out of state taxpayers to their taxing regimes and to source additional income to their state from multistate taxpayers.

Many of you may have already experienced one or more of the above.  However, what is new is that the States appear to be implementing several or all of these techniques as part of a more sophisticated and integrated ongoing approach.

Multistate Taxpayers Should “Be Prepared

More now than perhaps ever in recent memory should multistate taxpayers heed the advice and guidance of the Boy Scouts of America – BE PREPARED.  Multistate taxpayers should not rely on past state exam experiences or even successes.  Multistate taxpayers should seek out their tax advisors to discuss their current as well future business operations in this new ever increasingly dynamic and demanding state tax environment.

 

A Company Jet Could Send Your State Taxes Soaring

Posted in Nexus

AA037342Got a company jet ready to fly you anywhere at a moment’s notice? The benefits of such a perk are significant. But did you know that leasing or owning a company jet could increase your state taxes?  While there is plenty of guidance on the most tax efficient way to acquire or initiate the lease of a jet, the potential state tax consequences of operating a company jet are equally important and demand foresight and planning.  Use of the company jet by affiliated or related company employees may expand the potential state tax issues to entities beyond the one that owns or leases the company jet.

Nexus Turbulence

The leasing or ownership of a company jet may create sales and/or income tax nexus in remote states for the company, its affiliates and/or its owners.  Where a company hangars its jet may cause the entity that owns or leases the jet to establish sales tax and possibly income tax nexus in one or more states.  In addition, if the company jet is owned or leased by a single member limited liability company that is disregarded for Federal and state income tax purposes, the owner of the SMLLC may have income tax nexus in additional states arising from the lease or ownership of the company jet. 

Nexus turbulence may worsen if the company, in its attempt to defray some of the jet’s costs, leased the jet to third parties.  The third party usage of the jet may result in the jet’s presence in numerous states in which the company does not  currently have nexus.  This may have disastrous sales tax nexus  consequences especially in states that have adopted aggressive long arm sales tax nexus provisions.  In addition, the unexpected use and presence of a company asset in states in which the company may have carefully limited its activities to those protected under Public Law 86-272 may result in the company having activities beyond those protected by the law in numerous states.

Equally important, private plane flight plan information may be requested by state taxing authorities to help state tax authorities with nexus and residency exams.

A Company Jet Requires A Careful Tax Flight Plan

As part of any pre-flight checklist, a careful and thorough flight plan is a prerequisite to takeoff.  So, too, should a comprehensive tax flight plan that addresses the myriad state tax consequences be prepared prior to owning or leasing a company jet.