Monthly Archives: September 2013

IRS Expands Voluntary Classification Settlement Program

The joys of tax season coupled with some snow in the Northeast has really kicked March off with a bang. In an interesting move, the IRS has jumped on the aggressive employee vs. independent contractor bandwagon by expanding its voluntary classification settlement program. The states have been on a tirade in this area for the last few years, and now the Feds are expanding this program to encourage worker re-classification. Seems like a bit of hard ball “collusion” between the Fiefdoms and the Federal government if you ask me. The times, they really are a changing. Have a great month, and enjoy March Madness.

IRS Expands Voluntary Classification Settlement Program

The IRS has expanded its Voluntary Classification Settlement Program (VCSP), which allows taxpayers to achieve legal certainty by reclassifying their workers as employees for future tax periods. Several eligibility requirements have been changed to allow more employers, particularly larger ones, to apply for the VCSP. The program, which provides partial relief from federal payroll taxes for eligible employers who are treating their workers, or a class or group of workers, as independent contractors and want to treat them as employees. Businesses, tax-exempt organizations, and government entities can apply to participate in the VCSP by filing Form 8952, Application for Voluntary Classification Settlement Program, at least 60 days before they want to begin treating the workers as employees.

Under the program as expanded, employers under IRS audit (other than an employment tax audit) can qualify for the VCSP. In addition, employers allowed into the program will no longer be subject to the “special” six-year statute of limitations. Further, until June 30, 2013, the IRS is waiving the eligibility requirement that an employer must file Forms 1099 with respect to workers they are seeking to reclassify for the past three years. To be eligible for the VCSP, an employer must currently be treating workers as nonemployees and consistently have treated them as such in the past, and not be under audit on a payroll tax issue. Further, the employer cannot currently be under audit by the Department of Labor or a state agency concerning worker classification, or be challenging worker classification in court. IR-2013-23.

Delaware – Income/Franchise – New Law Deletes Imputed Capital Addback Requirement Imposed on Bank Branches

A new law was recently passed that removes language in the Bank Franchise Tax law requiring imputed capital addbacks for out-of-state banks with Delaware branches. The law is effective immediately for tax years beginning after December 31, 2012. S.B.1.

New Jersey – Corporate & Personal Income Taxes – Angel Investor Credit Enacted

An angel investor credit is allowed against the New Jersey corporation business tax (CBT) or the gross (personal) income tax for privilege periods or taxable years beginning on or after January 1, 2012. A taxpayer must apply to, and be approved by, the Economic Development Authority (EDA) to be eligible for the credit. The credit is equal to 10% of the qualified investment made by the taxpayer in a New Jersey emerging technology business up to a maximum allowed credit of $500,000 for the taxable year for each qualified investment made by the taxpayer. The amount of the credits approved by the EDA and the Director of the Division of Taxation may not exceed a cumulative total of $25,000,000 in any calendar year.A “New Jersey emerging technology business” is a company:

  • with fewer than 225 employees, of whom at least 75% are filling a position in New Jersey,
  • that is doing business, employing or owning capital or property, or maintaining an office in the state, and
  • that has qualified research expenses paid or incurred for research conducted in the state, and
  • conducts pilot scale manufacturing in the state; or
  • conducts technology commercialization in the state in the fields of advanced computing, advanced materials, biotechnology, electronic device technology, information technology, life sciences, medical device, technology, mobile communications technology, or renewable energy technology.

S.B. 581.

New York City—Personal Income Tax – Credit Enacted for General Corporation Tax Paid by S Corporations

Under recently enacted legislation, a New York City personal income tax credit is allowed to city residents for certain general corporation tax payments made by New York S corporations. The credit is available for taxable years beginning on or after January 1, 2014, and before July 1, 2015.If city taxable income is $35,000 or less, the credit is 100% of the applicable pro rata amount of tax paid. If city taxable income is more than $35,000 but less than $100,000, the credit percentage is calculated as follows: subtract from 100% a percentage determined by subtracting $35,000 from city taxable income, dividing the result by $65,000, and multiplying by 100%. If city taxable income is $100,000 or more, no credit is allowed. S.B. 2320.

Supreme Court Grants Review in Gillette

So the Northeast gets pounded by a fun little storm called Nemo, and tax season has begun, isn’t winter fun? Now, it is quite impressive to see Connecticut step so quickly into the 21st century regarding identity theft. It usually takes the fiefdoms years upon years to catch up on issues like this. Considering all the press regarding identity and tax refund theft, it is great to see a tax department take preventative measures in this area. The real question becomes can they administer this program while causing minimal harm? I’m betting not; Let’s hope I’m wrong. Have a great February.

California – Corporate Income Tax – Supreme Court Grants Review in Gillette

The California Supreme court recently granted the Franchise Tax Board’s (“FTB”) petition for review of the California Court of Appeal’s decision in The Gillette Company, et al., v. California Franchise Tax Board (“Gillette”). In that decision, the California Court of Appeals upheld the right of the taxpayers to elect to allocate and apportion income to California using the Multistate Tax Compact (the “Compact”) as statutorily adopted in California Revenue and Taxation Code. The election at issue allowed the taxpayers to apply the Compact’s equally-weighted, three-factor apportionment formula (property, payroll and sales), while eliminating the double weighting of the sales factor applicable to most taxpayers. The Gillette Company, et al. v. California Franchise Tax Board, 2013 Cal. LEXIS 282 (Jan. 16, 2013), petition for review granted.

This case has considerable tax implications for businesses with significant California sourced revenues, and taxpayers may want to consider electing to apply the Compact methodology, both prospectively and retroactively, if the election would yield a material tax benefit.

Connecticut – Personal Income Tax – Refund Protection Program Announced

The Connecticut Department of Revenue Services (DRS) announced that it is launching a new taxpayer refund protection program to help prevent identity theft and tax fraud. Under the refund protection program, some taxpayers will be notified in writing, asked to call the DRS, and requested to provide additional identity information before refunds are issued, which may result in a small delay in receiving a refund for affected taxpayers. In addition, the DRS notes that taxpayers who do not choose direct deposit for refunds of less than $5,000 will receive their refund in the form of a debit card that can either be cashed at any VISA-affiliated bank or used to make purchases from vendors that accept VISA. News Release, Connecticut Department of Revenue Services, January 28, 2013.

Michigan – Income/Franchise Tax – Tax Provisions Amended Involving Business Losses & Sales Factor Computations

The Michigan Business Tax (MBT) was recently amended indicating that for purposes of computing a “business loss,” a taxpayer that acquires the assets of another corporation in a transaction described under Internal Revenue Code section 381(a)(1) or (2) may deduct any business loss attributable to that distributor or transferor corporation. In addition, sourcing rules for goods in transit were amended in the same legislation. The amendment stated that property stored in transit for 60 days or more prior to receipt by the purchaser or the purchaser’s designee, or in the case of a dock sale not picked up for 60 days or more, shall be deemed to have come to rest at this ultimate destination. Property stored in transit for fewer than 60 days prior to receipt by the purchaser or the purchaser’s designee, or in the case of a dock sale not picked up before 60 days, is not deemed to have come to rest at this ultimate destination. S.B. 1037.

New York – Income Tax- State Adopts Amendments to Combined Filing Regulations

The New York State Department of Taxation and Finance (the “Department”) recently adopted amendments to the combined reporting regulations applicable to general business corporations (including REITs and RICs) subject to the tax (Franchise Tax) imposed by New York Tax Law. The new regulation, Reg. Sec. 6-2.3(c), sets forth 10 steps that should be used to determine whether a combined report is required and, if so, which corporations are included in that combined report. The amended regulation changes its syntax to eliminate language that infers that all corporations must be combined regardless of whether they had substantial intercorporate transactions. Further, the new regulation adds New York S corporations and non-New York taxpayer federal S corporations to the list of corporations eliminated from combination. New York Reg. Sec. 6-2.3(c).

New York – Sales Tax – Collection on a Court Judgment for a Taxable Lease is Still Subject to Sales Tax

New York State Department of Taxation and Finance concluded that when a Petitioner enters into a true lease of taxable equipment, and the lessee defaults and the Petitioner eventually wins a court judgment against the lessee for a portion of the amount due under the lease, any collection of the judgment would be taxable. The Division also concluded that Petitioner’s subsequent recovery of a part of a bad debt involving a taxable sale would not be subject to sales tax if Petitioner never received any bad debt credit or refund in regard to that bad debt. TSB-A-13(3)S.

Texas – Corporate Income Tax – Telecommunications Provider not Entitled to Cost of Goods Sold (COGS) Deduction

A taxpayer could not take a cost of goods sold (COGS) deduction for Texas franchise tax purposes for costs associated with providing a service that is sold in a mixed transaction. The taxpayer sold telecommunication products such as local and long-distance telephone, Internet access, and video and requested a refund of franchise tax based on its claim of a COGS deduction.

The comptroller denied the request on the grounds that Texas franchise tax law does not authorize a taxable entity to take a COGS deduction for costs associated with providing a service that is sold in a mixed transaction. For franchise tax purposes, the telecommunication products that the taxpayer sold in 2008 were determined to be services. Decision, Hearing No. 102,735, Texas Comptroller of Public Accounts, October 24, 2012, released January 2013.

The Fiscal Cliff Bill is dubbed the American Taxpayer Relief Act of 2012 (H.R. 8)

So I guess the Mayan cliff was somewhat avoided, or was it the Fiscal Apocalypse? I lose track. I won’t get into my thoughts on our elected “leaders,” but they did come up with something that will raise some revenue, but very little happened on the expense side of the ledger. Things that make you go hmmm. It will be interesting to see how the next few rounds of this melodrama play out. Stay tuned. I hope you all enjoyed the holidays. Have a great January.

The Fiscal Cliff Bill is dubbed the American Taxpayer Relief Act of 2012 (H.R. 8).

Please find a summary of the major provisions below:

INCOME TAXES

Permanently extend most of the individual income tax relief provided in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) for unmarried taxpayers with income of $400,000 or less and married taxpayers with income of $450,000 or less.

Permanently set the top marginal tax rate at 39.6 percent (up from 35 percent in 2012) for unmarried taxpayers with income over $400,000 and married taxpayers with income over $450,000.

Permanently set the top rate on income from capital gains and qualified dividends at 20 percent (up from 15 percent in 2012) for unmarried taxpayers with income over $400,000 and married taxpayers with income over $450,000.

Increase the individual AMT exemption to $50,600 for unmarried filers and $78,750 for married filers for 2012, permanently index those exemption amounts for inflation beginning in 2013, and allow nonrefundable personal credits against the AMT.

Permanently reinstate the personal exemption phase-out (PEP) and limitation on itemized deductions (Pease) for single taxpayers with adjusted gross income (AGI) above $250,000 and joint filers with AGI over $300,000, with the thresholds indexed annually for inflation.

CORPORATE TAXES

Extend through 2013 an array of expired and expiring tax provisions such as the research and experimentation credit, the subpart F active financing exception, and the look-through rule for payments between related controlled foreign corporations.

ESTATE TAXES

Permanently set the top estate tax rate at 40 percent for estates worth more than $5 million.

PAYROLL TAXES

The new law does not extend the reduction in payroll taxes that was in effect in 2011 and 2012.

OBAMACARE TAXES

Does not reduce or delay new tax increases on earned and unearned income that were enacted under the Patient Protection and Affordable Care Act of 2010 and that took effect on January 1, 2013.

Throwback Rules for Sales to Other States and Foreign Jurisdictions Addressed

Welcome to the inaugural newsletter from Sullivan & Associates PC. This newsletter will focus mostly on state and local matters, with other tax news occasionally sprinkled in.

I guess the fall has kicked off in the taxpayers favor. First, a New York court finally deems its inherently unfair, prejudicial, and burdensome Metropolitan Commuter Transportation Mobility Tax unconstitutional, and then three state tax amnesties commence. Not a bad month for state taxpayers. Enjoy the baseball playoffs and have a great October.

California – Corporate Income Tax – Throwback Rules for Sales to Other States and Foreign Jurisdictions Addressed

The California Franchise Tax Board (FTB) has issued a chief counsel ruling that addresses the corporation franchise and income tax apportionment formula’s sales factor throwback rules applied to sales made to purchasers located in foreign jurisdictions and other states. The FTB advises a multistate corporation based in California that it should not throw back gross receipts from sales made to purchasers in a foreign jurisdiction for purposes of determining its California sales factor numerator if there were more than $500,000 of sales transacted in the foreign jurisdiction. Similarly, gross receipts from sales of other than tangible personal property to purchasers in other states made by a member of the taxpayer’s combined reporting group would be excluded from the sales factor numerator. Chief Counsel Ruling 2012-03.

Kentucky – Amnesty Commenced on October 1st

Kentucky’s amnesty program will be held between October 1 and November 30, 2012. The amnesty program will allow individuals or businesses owing back taxes to pay without fees or penalties, and only half the interest owed will be due. The program applies to taxes owed to the Kentucky Department of Revenue for eligible tax periods ending after December 1, 2001, and prior to October 1, 2011.

Delinquent taxpayers will be receiving mailed notifications stating the known amount of back taxes and will have until November 30 to apply for amnesty and pay their overdue taxes. If taxpayers fail to take advantage of the amnesty program, penalties and interest will increase. An additional 2% interest will be charged on unpaid taxes that are eligible for amnesty. Taxpayers taking advantage of amnesty must remain current for the next three years.

New Jersey – Income Tax – Announces “Intangible Asset Nexus” Voluntary Disclosure Initiative

The Department of Revenue has announced that it will be offering a limited voluntary disclosure initiative that began on September 15, 2012, and will run through January 15, 2013 for companies that derive income from the use of intangible assets in the state but that have not filed tax returns. Under this program, companies that own intangible assets and derived income from the use of those assets in New Jersey will have the opportunity to come forward and voluntarily comply with their state corporation business tax filing requirements. The department states that it will have a limited look back period beginning after December 31, 2003, and waive all penalties except that a 5% amnesty penalty will be assessed for all returns due prior to February 1, 2009. Notice: Intangible Asset Nexus Initiative (September 18, 2012).

New York State – Payroll Tax – MTA Payroll Tax Deemed Unconstitutional

The New York Supreme Court recently issued his decision holding that the Metropolitan Commuter Transportation Mobility Tax (“MTA payroll tax”) was unconstitutional. The judge ruled that the MTA payroll tax violated the Home Rule Clause and was unconstitutional; however, he did not enjoin the Department from continuing to administer the tax. Governor Andrew Cuomo has indicated that the State will appeal the decision. Mangano v. Silver, Motion No. 013,014,015,016,017,018, Index No. 14444/10 (N.Y. Sup. Ct. Aug. 22, 2012).

New York – Sales and Use Tax – Taxability of Consulting Services Discussed

A customer’s use of the taxpayer’s directory of consultants and software to facilitate the provision of the taxpayer’s oral consultation services is not subject to New York sales tax. Also, the taxpayer’s written research reports do not constitute a taxable information service so long as the primary function of the taxpayer’s service is obtaining advice and analysis from its experts, the information provided is not derived from any common data source, and that information is not and may not be substantially incorporated into reports furnished to others. TSB-A-12(22)S.

Rhode Island – Amnesty Continues Until November 15th

Rhode Island’s Tax Amnesty program runs from September 2, 2012 through November 15, 2012 and applies to taxes due for taxable periods ending on or before December 31, 2011. The amnesty includes 2011 Rhode Island personal income tax returns, which were due April 17, 2012. The Tax Amnesty program which will allow certain taxpayers to pay the full amount of overdue taxes plus seventy-five percent of any interest due, without having to pay the remaining interest and any penalty amounts due and without being subject to any other civil or criminal penalties.

SEPTEMBER 2013 NEWS FROM SULLIVAN & ASSOCIATES, PC

Well the summer of 2013 is over, and it was quite an eventful one. The IRS has taken a h2 stance in favor of full equality for same sex marriage from a tax perspective. The Service’s response to the recent Supreme Court decision was lightning fast, by IRS standards. In an unrelated note, the New York Amazon law has been appealed to the US Supreme Court, it will be interesting to see if the court has the courage to hear it. Further, Connecticut commences it Tax Amnesty on September 16. 2013. Keep an eye out for Tax Amnesty “Offers” from the Connecticut Department of Revenue, they may appear to be olive branches, but they could have some hidden thorns. Enjoy your September.

Federal Personal Income Tax – Treasury and IRS Announce That All Legal Same-Sex Marriages Will Be Recognized For Federal Tax Purposes

The U.S. Department of the Treasury and the Internal Revenue Service (IRS) recently ruled that same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage. The ruling implements federal tax aspects of the June 26 Supreme Court decision invalidating a key provision of the 1996 Defense of Marriage Act. IR-2013-72.

Connecticut – All Taxes – Amnesty Program Starts September 16th

Connecticut recently passed a law that requires the establishment of a tax amnesty program for persons owing any tax for any taxable period ending on or before November 30, 2012. This tax amnesty program will be conducted during the period from September 16, 2013 to November 15, 2013. If qualifying participants pay their tax and interest due in full on or before November 15, 2013, 75% of the interest due shall be forgiven and any related civil penalties will be waived.

Qualifying persons that fail to participate in this amnesty program (i.e., persons owing any tax for a qualifying taxable period for which a tax return was required by law to be filed with the department and for which no return has been previously filed by such persons, and such persons fail to file a timely amnesty application under this program with respect to such taxable period) are subject to a non-waivable penalty equal to 25% of the tax owed for qualifying taxable period(s). H.B. 6704.

For assistance, click here – http://thesullivanlaw.com/connecticut-tax-amnesty

Illinois – Corporate Income Tax – Composite Return, and Nonresident Withholding Changes Enacted

Effective for taxable years beginning after 2014, nonresident S corporation shareholders, members of pass-through entities classified as partnerships for federal purposes, trust beneficiaries, and certain insurance underwriters are no longer permitted to file composite income and replacement tax returns. Pass-through entities computing the amount of income tax to withhold on behalf of nonresident owners are also required to include nonbusiness income and distributable credits effective for taxable years beginning after 2014. P.A. 98-0478 (H.B. 3157).

New Jersey – Corporate Income Tax – Carriage of Passengers Does Not Create Nexu

s

A new law provides that beginning on or after January 1, 2013, a foreign corporation is not considered to be doing business in New Jersey for purposes of the corporation business tax by operating a motor vehicle or motorbus over public highways or public places in the state for the carriage of passengers in transit from a location outside the state to a destination in the state and for the carriage of those passengers in transit from a location in the state to a location outside the state. Ch. 98 (A.B. 1887).

New York – Sales and Use Tax – U.S. Supreme Court Asked to Review Constitutionality of Click-Through Nexus Provision

Online retailers who sold their products solely through the Internet have asked the U.S. Supreme Court to review a ruling by the New York Court of Appeals which held that they failed to demonstrate that a statutory provision that required out-of-state Internet retailers with no physical presence in New York to collect New York sales and use taxes was facially unconstitutional under either the Commerce Clause or the Due Process Clause. Overstock.com, LLC v. New York State Department of Taxation and Finance, U.S. Supreme Court, Dkt. 13-252, petition for certiorari filed August 22, 2013; Amazon.com LLC v. New York State Department of Taxation and Finance, U.S. Supreme Court, Dkt. 13-259, petition for certiorari filed August 23, 2013.