Big Changes with Texas Certificates

Are You A Rancher/Farmer in Texas or Do You Have A Rancher/Farmer Customer?  If so, the Texas Sales Tax Law Has Changed for You.

Do you sell to farmers or ranchers in Texas? Then a new law in Texas applies to you. Starting in January, 2012, you’ll have to collect a new certificate from them with their new Comptroller-issued exemption number.

The Comptroller is currently working on the application for a registration number. A farmer/rancher in Texas enjoys a very broad-ranging exemption and until now, there was no need to register. You just buy an exempt item at Home Depot or Lowes or Tractor Supply and sign a statement that you're a rancher and no tax is charged. Now, any store who sells to a rancher will need to collect and manage a new certificate.

Certificate Management Just Got Harder

Many of our clients are experiencing increased sales tax audit liabilities because of missing resale and other exemption certificates. This is an area that states are targeting with laser-like focus. Exemption certificates have always been a problem in most sales tax audits, but as long as you had something on file that you “accepted in good faith”, or if you came up with the missing certificate, the auditors would usually give you a pass. If the item was clearly exempt, they were pretty lenient about the certificates. But states are getting very aggressive; focusing on the technicalities to the extreme. The item may clearly be for resale or exempt like these agricultural items, but it you don’t have the right form completely filled out and signed with a valid id number and the right date, they will tax you all day long til the cows come home. It’s easy, low-hanging fruit.
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Is an iTune Taxable in California?

How About in Other States?

Back in 2008, we wrote that the CA legislature was contemplating a change to its sales tax statutes to tax downloaded software. As it turned out, they didn’t change the law after all and electronically downloaded music and other digital goods in CA remained exempt from sales/use taxation. Meanwhile, a song purchased on a CD has always been taxable in CA. That may seem a bit unfair. If you buy a song on iTunes and download it to your iPod, you owe no tax in CA, but that same song on a CD is taxable in CA.

This may seem arbitrary and capricious, but there is a reasonable explanation for the different tax treatment.

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OH SALT Update

Commercial Activities Tax (CAT), Sales & Use Tax, VDAs & Amnesty

By Michael J. Fleming

The State of Ohio and its state and local tax (SALT) policies are currently generating a variety of questions from our clients as well as with others we are speaking with. Since OH is generating so much attention we thought it might be beneficial to share with our readers the subjects that are most frequently arising and provide you with some information as well as our thoughts.

These subjects include OH’s requirement that companies register, file and remit use tax, and the State’s push to go after the 380,000 business who don’t have use tax accounts. We will also take a look at the OH sales tax amnesty that forgives not only all principle and interest but all back sales taxes as well. Finally, we will take a look at the CAT and how you can have nexus without a physical presence.
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Don't Miss this New Twist to the Washington Tax Amnesty

You might be able to get part of the tax WAIVED along with the penalty and interest

We’ve been beating the drum on the amnesty in Washington for some time. We don’t like to beat the drum too long and loud, but in this case, we feel compelled to call your attention to the opportunity, lest you miss out.

The State is NOT Meeting Their Projections

In December of 2010, during Senate hearings of the Washington State Tax Amnesty (SB 6892), the WA Department of Revenue Interim Director, Tremaine Smith, testified that the proposed Amnesty program was projected to generate $28.3 million. The Amnesty which subsequently passed, began on February 1, 2011 and continues through April 18, 2011, may not meet it’s projections. According to a Tri-City Herald article published 3/24/2011, “5,000 businesses in Washington have taken advantage of a new tax amnesty program and paid more than $12.6 million into the state”. Using those numbers our calculations show that more 70% of the time had elapsed yet less than 45% of the revenue had been generated.
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BIT, CIT, MBT, MGRT & SBT

News and Views on the Alphabet Soup of MI Taxes

By Michael J. Fleming

On February 17, 2011, as part of his 2012-2013 budget, Michigan Governor, Rick Snyder announced his proposal for the elimination of the Michigan Business Tax (MBT) and for the replacement of it with a flat Corporate Income Tax (CIT) of 6%. While not surprising (it was part of his campaign platform) it is unsettling. You see, the MBT was passed in 2007 but it didn’t replace the Single Business Tax (SBT) until January 1, 2008. Tax professionals are already tasked with knowing both the SBT and MBT. They must retain a working knowledge of the SBT as the audit periods are still open and they obviously must contend with the complexities of the current MBT. Now they must grapple with the reality that they may have another tax to plan for. In theory, you could have a tax professional defending an SBT audit, filing MBT returns and at the same time be involved with tax planning for the CIT. Talk about a heavy workload and it’s not farfetched at all. While we cannot say for sure that the Governor’s CIT will pass, it does seem probable. And there seems to be growing support for the elimination of the MBT. If the MBT is eliminated it will have to be replaced by something. In the meantime, working with the SBT, MBT and it’s component parts the BIT and MGRT will be taxing enough.
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An Amnesty Worth Its SALT

A look at the B & O, Economic Nexus, Elimination of Physical Presence and Amnesty

By Michael J. Fleming

In the current economic environment, states have a tightrope to walk between balancing the need to increase revenues with the need to save and create jobs. The state of Washington probably thinks it has found a creative way to do both.

Prior to June 1, 2010 many of WA’s in-state companies that provided services were at a competitive disadvantage to out of state companies. In instituting an economic nexus standard in addition to changing the apportionment method for certain companies to “single factor receipts apportionment” WA has leveled the playing field. In fact, many WA companies with out of state sales will see their taxes go down, some substantially.

On the other hand, out-of-state companies who have never worried about the B & O before will now be subject to the WA tax, even if they don’t have a physical presence. Common sense tells us that WA will look at ways to not only make up for the tax relief they have provided their domestic companies, but also to bring in the additional revenues all states are looking for. Increased enforcement of both the B & O and the sales and use tax are two of the most logical ways to do this. Out-of-state companies who are not paying the B & O seem to be likely (and lucrative) targets. The current amnesty program is a useful tool that many taxpayers may or may not take advantage of for a multitude of reasons.
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You Missed the Tax Amnesty Express

Don’t Worry. You are probably better off with a VDA anyway!

By Michael J. Fleming

Tax Amnesty programs wax and wane in popularity depending on economic conditions. Recently with the depressed economy, Amnesty Programs seem to be all the rage. State and local jurisdictions have been announcing them at a rapid pace with some jurisdictions, like the city of Philadelphia offering one for the first time in 19 years and the state of WA offering the program apparently for the first time ever. The programs usually have short windows of opportunity and require quick action in order to take advantage of the benefits. Many states increase the sense of urgency by threatening increased enforcement actions once the amnesty period ends. A prime example is Pennsylvania, who’s Revenue Secretary, C. Daniel Hassell said, “Before Tax Amnesty ended, we promised to step up enforcement efforts against anyone who did not take advantage ... Now we’re delivering on a second promise, to hold corporate officers personally accountable for taxes their businesses owe.” It is statements like this that have caused many taxpayers who were not able to meet amnesty deadlines to worry that the states will soon be knocking at their door. If you are one of these taxpayers your worries may be over. You may be able to complete a Voluntary Disclosure Agreement (VDA) and actually be better off than if you filed for amnesty.
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Are You For or Against Amnesty?

by Andrew Johnson, CPA

Tax Amnesty Usually Means No Penalty -- Big Deal! You Still Owe the Tax!
What if I told you: You Can Get Out of the Whole Tax?

It seems like there’s constantly a tax amnesty being offered by some state somewhere. Amnesties can be a sweet deal, that is if you have the money to pay. That’s right, you’ll probably still have to pay the tax. Almost always when a state offers “amnesty” what they’re really offering is to waive the penalties (but not usually all or even some of the interest). Most companies are a little surprised to find this out until they realize what leverage the states really have. They have ways of finding you and in our experience it’s not usually IF they find you but WHEN. When they do find you and determine that you had nexus in their state but weren’t registered and filing tax returns with them, they will bring the hammer down.
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Can You Catch Nexus From Someone Else?

Is Nexus Contagious?
Are Third Parties Carriers of the Nexus Bug?

We subscribe to some of the best resources available today when it comes to state and local tax research. Chances are, whatever question you could possibly have, we can find the answer. Today, we thought it would be interesting to look at the actions of third parties and whether specific actions might cause you to have nexus in a given state. We say "might" because this article will be based on surveys conducted of state government officials and these answers come from them. You can expect them to be as aggressive as possible in asserting nexus, so take this with a grain of salt. But take it with a small grain of salt as the states seem to be successfully pushing the envelope on what's possible.

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How Far Back Can a State Go On Audit and How Long Should You Retain Your Records?

We subscribe to some of the best resources available today when it comes to state and local tax research. Chances are, whatever question you could possibly have, we can find the answer. Today, we thought it would be interesting to highlight the statute of limitations for various states and a corrollary issue of just how long you should retain your sales tax records.

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You Can Check In Any Time You Like, But Can You Ever Leave?

We subscribe to some of the best resources available today when it comes to state and local tax research. Chances are, whatever question you could possibly have, we can find the answer. Today, we want to address the issue of getting out of a state where you are currently registered but no longer have nexus. Let's talk about basic Nexus concepts first.

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Sampling in Sales Tax Audits

Top Questions on
Sales Tax Audits and Sampling

We subscribe to some of the best resources available today when it comes to state and local tax research. Chances are, whatever question you could possibly have, we can find the answer. Today, we want to address some basic questions surrounding sales tax sample audits.

Sampling Questions

Questions arise frequently around what is allowed (or mandated) when it comes to sampling. Just about every state uses sampling in conducting audits. The question is, do the states use "statistical" or "non-statistical" (or both) audit methods. Some of the non-statistical methods that states use are actually different types of block sampling methods. Some states use a time period such as a month or several months or year(s) and then project what they find in the sampled time period to the whole population of transactions in the entire audit period. Other non-statistical block methods that some states use are the voucher, invoice or check sequence methods where they choose every nth voucher, invoice or check number for the sample. The least frequently used method is the alphabetical method.

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Lila Robbins on Why You Might Want to Hire Your Own Sales Tax Manager

It May Be Time To Hire A Multistate Tax Expert
by Lila Robbins, CPA

Are You Ready for More Aggressive Audits?

With the economy on the skids, every state is feeling the financial crunch. Consumers are spending less, resulting in less sales tax revenue to the states. Getting new laws passed to raise taxes, or create new ones, on already over taxed consumers, who are also voters, is not a popular idea. Many states have decided against new taxes, and have instead opted to more aggressively pursue taxes that are due, but have not been remitted.

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Sales/Use Tax Traps in a Merger

Recently a client asked us to comment on their proposed merger plans. Mergers are always happening, so I thought it would be worth your while for us to comment on this to our friends and clients at large.

The basic facts were that, for various reasons, our client planned to simplify their corporate structure. The old structure consisted of a number of limited partnerships, limited liability companies, corporations and even a US branch of a foreign corporation. They planned to get down to just a few legal entities in the US by contributing member interests in the LLCs and merging several corporations out of existence. The question for us to comment on revolved around what would be the sales/use tax impact of such a transaction.

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What Did The Mayan Calendar Say About State Taxes in 2012?

There's no indication that Nostradamus or the Mayans predicted anything state tax wise for 2009 , but we can make predictions based on how the economy is going.

Trouble in CA

We all know that California is in deep fiscal trouble. Back in July, 2009, CA was unable to meet its bills for the second time this year and the state started issuing IOUs. In fact, as reported by CNNMoney.com at the time, some 28,750 IOUs worth $53.3 million were to have been issued initially, mainly for personal income tax refunds. CNN said this at the time: "The state's fiscal condition is disastrous. Officials passed a budget in February, but declining tax revenues have opened up a $26 billion deficit."

California is in trouble, no doubt. But according to a study by the Pew Center on the States, so are 9 other states. It's interesting to look at what states are named and to consider what impact this will have on state taxes.

9 Other States in Trouble

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"Window of Opportunity" (Amnesty) Announced in Louisiana

It seems like these amnesties come up a lot, but in reality they don't. For example, Louisiana hasn't had an amnesty program since 2001. If you have activity in Louisiana and possible sales/use tax or income tax exposure, consider taking advantage of this opportunity. 

In fact, Louisiana is calling their amnesty program a "Window of Opportunity".  It applies to all taxes administered by the LA DOR (except motor fuel taxes). It applies to taxes that became due as of July 1, 2001, and before Jan. 1 of this year (money owed since the last tax amnesty program); taxes due prior to Jan. 1 for which the agency has issued a notice or demand for payment between July 1, 2001, and May 31 of this year; and taxes due as of July 1, 2001.

The benefits are that the DOR will waive 50% of the interest due and 100% of the penalties.

Go to this link for more details or contact us for specific questions.

So What States Have Active Amnesties in Place?

I thought it would be good to give a rundown of which states are offering amnesty programs right now and give some details from CCH on each of the programs. Many of these expire in June. Arizona's expires on June 1. Better hurry! Some of them have significant caveats associated so let the tax manager beware.

Here's the list (click on the link for additional details):

MA -- Expires 6/30/09

MD -- Expires 10/30/09

CT -- Expires 6/25/09

NJ -- Expires 6/15/09

AZ -- Expires 6/1/09

Are You an Offensive Linemen or a Quarterback?

How Do You Measure Performance?

When we talk to tax professionals in corporate America about metrics they use in measuring performance, the number of the various types of tax returns they file is usually high on the list of measurables. They usually talk about the number of people in the tax department and how they have it staffed in terms of the level of specialization. This is completely understandable. Tax people have a huge job. All these returns have to get in on time and accurately or penalties and interest is the result.

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What the Texas Legislature Hath Wrought

What the Texas Legislature Hath Wrought

We have been saying all along that we thought that Texas legislators didn't really understand what they were voting for when they enacted this new "margin tax" in Texas. Texas has alway been "business friendly". It's a major factor businesses consider when deciding to relocate to this fair state. But the special committee headed by John Sharp that conceived of this tax apparently suffered from California envy. Now Texas has the most onerous corporate income tax in the Union. The legislators who voted for this thing are already hearing it from the Taxpaxers and you can bet the noise will get louder and louder. The Comptroller's Office is charged with implementing this stinker and they seem to making a huge effort to educate the public. The office of Texas Comptroller is an elected position. How would you like to be the Comptroller responsible for implementing the worst tax ever passed by the State of Texas? Susan Combs is just the messenger, but she's getting an earful. She could turn into a hero, if she becomes the public champion of the "Let's Repeal this Tax" committee. Then the legislature would be under a huge amount of pressure. We'll see how this all develops.

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Major Defeat Dealt to States Seeking to Apportion Income Using the "Operational Function Test"

The U.S. Supreme Court issued a very interesting ruling affirming its earlier decisions related to the taxation of "unitary businesses".  (See MeadWestvaco Corp. v. Illinois Department of Revenue, U.S. Supreme Court, Dkt. 06-1413, vacating the Illinois Appellate Court, April 15, 2008).

In this case, Mead had sold Lexis-Nexis for a $1Billion gain. That gain was allocated to Ohio by Mead. Illinois audited them and took the position that the gain should have been apportioned to IL. IL made the argument at the trial court (which agreed with the State) that although the businesses weren't unitary, the asset (Lexis-Nexis) was used in an "operational function", it should be apportioned. This "operational function" concept has arisen in a couple of recent US Supreme decisions. It has apparently given the states the idea that there is no such thing as allocable income anymore because all they have to do is argue that the asset involved was used in an operation function and they can apportion it. Of course, only the extraterritorial states want to make this argument. But the Supremes in this case, say the IL court erred in their interpretation of this test. See below for their commentary:

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