Monthly Archives: December 2012

DECEMBER 2012 NEWS FROM SULLIVAN & ASSOCIATES, PC

As the Northeast continues to recover from Sandy, the IRS shows that is has a heart by allowing taxpayers to take out monies from their retirement plans due to hardships. While out in California, voter approved tax increases will soon kick in. Never thought I’d see tax increases by popular vote, I guess anything is possible when your jurisdiction is in dire financial straits. Have a great December and enjoy the holidays.

IRS – Retirement Plans Can Make Loans, Hardship Distributions to Sandy Victims

The Internal Revenue Service recently announced that 401(k)s and similar employer-sponsored retirement plans can make loans and hardship distributions to victims of Hurricane Sandy and members of their families. 401(k) plan participants, employees of public schools and tax-exempt organizations with 403(b) tax-sheltered annuities, and state and local government employees with 457(b) deferred-compensation plans may be eligible to take advantage of these streamlined loan procedures and liberalized hardship distribution rules. Though IRA participants are barred from taking out loans, they may be eligible to receive distributions under liberalized procedures.

Retirement plans can provide this relief to employees and certain members of their families who live or work in the disaster area. To qualify for this relief, hardship withdrawals must be made by Feb. 1, 2013. IR-2012-93.

California – Multiple Taxes – Voters Approve Temporary Tax Rate Hikes and Mandatory Single Sales Factor Apportionment Formula

California voters approved temporary increases to the personal income tax and state sales and use tax rates and made the current elective corporation franchise and income tax single sales factor apportionment formula mandatory along with moving to market based sourcing for service revenue. Propositions 30 and 39.

Illinois – Corporate Income Tax – Sales Activities Not Protected Under P.L. 86-272

Sales activities conducted within Illinois by employees of the taxpayer with regard to insurance policies are not protected under Public Law 86-272. Illinois construes the protection of P.L. 86-272 very narrowly. Almost any activity exceeding the parameters of that statute will cause that protection to be lost. The Department of Revenue noted that the taxpayer’s employee sells insurance, which is considered “intangible” property. Activities that involve sales of other than tangible personal property (i.e., insurance) are not protected by P.L. 86-272. Accordingly, the taxpayer is liable for Illinois income tax on all of its income allocable to Illinois in accordance with the Illinois Income Tax Act. General Information Letter IT 12-0029-GIL.

Massachusetts – Sales and Use Tax – Web-Based Portal Access Taxable as Software

An internet marketing and communications company’s sales of a platform that allows clients access to a web-based portal are subject to Massachusetts sales and use tax because the object of the transaction is the use of software. The platform allows clients to send automated communications, such as appointment reminders, thank-you notes, customer review communications, and promotions, to their customers. Clients may also integrate portions of the platform on their websites or Facebook pages and access the taxpayer’s offerings on smartphones. The taxpayer also helps clients manage their online profiles by submitting their business profiles to Internet sites and contracting with third parties that engage in the business of managing online profiles. Although the taxpayer’s staff may provide some personal services in connection with these offerings, such services are inconsequential. Letter Ruling 12-13.

Massachusetts – Sales and Use Tax – Virtual Computing Offerings Taxable

A taxpayer’s sales of virtual computing offerings, including remote access, remote support, and online conferencing, are subject to Massachusetts sales and use tax because the object of the transaction in each instance is the use of computer software. Although the taxpayer may provide some personal and professional services to its customers in connection with the offerings, such services are inconsequential. Letter Ruling 12-10.

Michigan – Income/Franchise – Wireless Service Provider’s Sales Sourced Out-of-State Based on Network Location

The Michigan Court of Appeals affirmed summary judgment in favor of a regional wireless service provider used the cost of performance methodology in calculating the portion of its “sales other than sales of tangible personal property” sourced to Michigan for single business tax (SBT) purposes for the prior years at issue. In doing so, the Court agreed that the company could exclude from its SBT sales factor numerator its receipts related to “long distance calls, international long distance, enhanced features and ‘incollect’ roamer charges,” because it successfully showed that the costs to perform these services included the use of network equipment and the “manpower” to support the wireless services – which were all largely located outside Michigan for the prior years at issue. Michiana Metronet, Inc. v Department, Mich. Ct. App. (November 8, 2012).

New York – Sales and Use Tax – Rent Factor Audit Methodology Properly Determined Taxable Sales

The Division of Tax Appeals recently held that the New York Division of Taxation’s use of a rent factor audit methodology to estimate the sales and use tax due from a corporation that operated a kiosk in a mall was proper. The record established the Division’s clear and unequivocal written request for books and records of the taxpayer’s sales, as well as the taxpayer’s failure to produce such books and records. Having established the unavailability of required books and records, the Division was clearly entitled to resort to the use of indirect methods, including the use of a rent factor, to determine the taxpayer’s sales and sales tax liability. Here, the Division identified and introduced the statistical report on which its calculations were based, and it also described and responded to the taxpayer’s inquiries as to how the report was used in the audit. Ultimately, the taxpayer failed to establish that the division’s audit method was unreasonable or that the amount of tax determined by application of such method was erroneous. New Intrigue Jewelers, Inc., New York Division of Tax Appeals, Administrative Law Judge Unit, DTA No. 823770.