EisnerAmper Blog

June 13, 2013

By John Genz, CPA; Gary Bingel, CPA; and Roger Mierzwa, CPA 

Connecticut House Bill HB 6704 was passed June 4, 2013 and includes authorization of an amnesty program to be established by the Department of Revenue Services (DRS).  The program would start September 16, 2013 and run through November 15, 2013.  The program will cover all Connecticut taxes except motor carrier road taxes and will cover any tax period ending on or before November 30, 2012.  Governor Dan Malloy’s 2014-2015 biennial budget, SB 843 introduced in January 2013, also included amnesty provisions and some amnesty revenue expectations.  Therefore if a bill gets to his desk it is assumed it will be signed.

The DRS Commissioner will have wide authority to implement the program starting with creating an amnesty application.  Some specific provisions of the amnesty program are:

1. Payment of all taxes owed for the amnesty period through November 30, 2012 must be made by November 15, 2013.
2. Civil penalties and criminal prosecution will be waived.
3. Interest on any taxes paid within the amnesty period will be 25% of the normal charge, generally 1.0% per month.
4. Some exclusions from the program exist--such as, if an audit has progressed to a closing agreement or a compromise offer has been made.  The treatment of taxpayers otherwise currently under audit is unclear
5. Failure to timely file an amnesty application or include all taxes owed for the amnesty period will cause a 25% penalty to be imposed with no possibility of waiver plus all other applicable interest and penalties on all post-amnesty payments.
6. No portion of any amnesty tax payments erroneously paid will be refunded.

Similar to other state amnesty programs, we encourage any entities with outstanding Connecticut tax liabilities to evaluate the benefits of participating in this program.

To read more about the bill, please click here.
 

June 11, 2013

By Gary Bingel, CPA and Roger Mierzwa, CPA

Purpose of Legislation
Texas desires to enhance research and development (R&D) investment within its borders.  Consequently, on May 25, 2013, the Legislature submitted HB 800 to the Governor, which would allow a company a choice between a sales tax exemption for software and equipment used for R&D or a franchise tax credit for increased Texas R&D activity.  The choice appears to be an annual election, and is effective January 1, 2014.

Sales Tax Exemption
Depreciable tangible personal property with a useful life that exceeds one year and is used directly in qualified research will be exempted from sales/use tax.  This exemption requires the taxpayer to certify that it will not claim a franchise tax credit for its R&D activity in the same period.
 
Franchise Tax Credit
HB 800 also allows a franchise tax credit for increased Texas-based qualified research expenses.  The normal 5.0% tax credit is based on the increase above 50% of the average amount of qualified research expenses incurred in Texas during the three tax periods preceding the period on which the report is based.  If the entity has no qualified research expenses in any of the three years prior to the report year, then the credit is equal to 2.5% of the qualified research expenses during that report period.

In a time when partnering with local colleges and universities appears to be more prevalent, if the taxable entity contracts with one or more public or private Texas institutions of higher education to perform the qualified research, the credit will increase to 6.25%.  The rate will be 3.125% if the entity has no qualified research expenses in any of the three years prior to the report year.

The credit is limited to 50% of the franchise tax on a combined report basis and unused credits may be carried forward for 20 consecutive reports.  Rules and forms still need to be adopted by the Comptroller.

To review HB 800, please click here.
http://www.capitol.state.tx.us/tlodocs/83R/billtext/pdf/HB00800F.pdf
 

May 14, 2013

By Gary Bingel, CPA and Roger Mierzwa, CPA 

Requirements of “Doing Business” 

The exemption from state income taxes provided by Public Law 86-272 (P.L. 86-272) for the mere solicitation of sales of tangible personal property doesn’t exempt you from having established nexus and being required to file an income tax return.  The fact that you have sales solicitation activity in the state generally means you are “doing business” in the state and thus must file an income tax return.

Filing Income and Franchise Tax Returns 

The P.L. 86-272 exclusion only applies to taxes based on income for companies that sell tangible personal property.  How do such companies claim the protection afforded by P.L. 86-272 and still fulfill their requirement to file a complete and accurate return?  The valid filing question usually comes from a nonregistered foreign corporation, LLC, or an LP that owns an interest in another pass-through.

Different Methodologies in Return Filling to Report P.L. 86-272 Income Tax Protection 

A. Complete income tax return – include statement explaining P.L. 86-272 exemption. This is the safest but most time-consuming and costly, as a full return is completed but the tax liability presented on Page One is zero or the minimum tax amount.
B. Complete income tax return – show apportionment factor numerators as positive amounts;  include statement explaining P.L. 86-272 exemption.  Complete the individual apportionment factor calculations, but show that the overall apportionment percentage is zero. 
C. Complete income tax return – show apportionment factor denominators but reflect all numerators as zero amounts; include statement explaining P.L. 86-272 exemption.  This methodology will withhold activity in the state until requested.
D. Prepare minimal return.  Prepare a zero return, which reports zero income, adjustments and apportionment, and which has a statement claiming the P.L. 86-272 exemption.

California is an outspoken state in that their April 2013 Tax News publication actually addressed their position on what constitutes a valid filing.  The Franchise Tax Board (FTB) recommends a taxpayer begin with reading FTB Publication 1050 Application and Interpretation of Public Law 86-272 to be sure their activity is protected.  California chose method B, stating: “The taxpayer should provide information on Schedule R and attach a statement explaining why the apportioning percentage and business income is zero.”

How have you successfully filed the least burdensome income tax returns while still obtaining PL 86-272 protected activity exemption?
 

April 17, 2013

By Gary Bingel, CPA and Roger Mierzwa, CPA 

Each year based on January 1 information, the Massachusetts Department of Revenue (MA DOR) issues an Annual List of Corporations Subject to Taxation in Massachusetts.  This list assists local assessors in determining which corporations are entitled to local personal property tax exemption benefits.  Due to possible inaccuracies on information gathered manually, the Commissioner moved to a mandatory on-line electronic certification submission deadline for the “Annual Certification of Entity Tax Status” for each appropriate corporation which was initially due April 1, 2013.  The MA DOR had extended this deadline to April 12, 2013. 

What if you missed that April 12 deadline?  There is a potential that your corporation, or other business entity classified as a corporation, is omitted from the Corporations Book and you may miss out of some of the corporate exemptions from the personal property tax base.  Initially, you should monitor the website to see if your entity is correctly listed. 

The list published in the DOR’s Corporations Book website is not a final binding determination and errors can be appealed by both the corporation and the local assessor within 30 days after the list is released.  Because the filing deadline was extended, you still have some time to correct the situation by filing an appeal with the Appellate Tax Board.  Also, see the WebFile for Business -- “Frequently Asked Questions” here.

April 15, 2013

By Gary Bingel, CPA and Roger Mierzwa, CPA 

                                   CORPORATE TAXPAYERS 

Metropolitan Transportation Authority Surcharge Extended
The temporary 17% Metropolitan Transportation Authority (MTA) surcharge on the Metropolitan Commuter Transportation District (MCTD) allocated New York State franchise tax liability was to expire for tax years ending before December 31, 2013.  The surcharge has been extended five years through tax years ending before December 31, 2018.

Related Party Royalty Expense Addback and Income Exclusion 

New York, like many states, wants to limit potential abuses for royalties paid to related parties without a valid business purpose.  The royalty expense addback exception requirements of Sec 208.9.(o) have been modified applicable for tax years beginning on or after January 1, 2013, as follows:  

1. The definition of a New York related party no longer is a New York specific definition but now conforms to the IRC Sec 465(b)(3) related party definition but modified so that a 50% ownership test applies.
2. One new exception to the addback allows taxpayers to avoid the addback if the related party paid significant taxes on the royalty payment in taxing jurisdictions including a state or U.S. possession where the aggregate effective tax rate (rate times apportionment) of the related party is 80% of the New York statutory rate.  However, combined return states are excluded because an offset occurs between the taxpayer and related party within the return.
3. Another new exception allows taxpayers to avoid the addback if the related party paid significant taxes on the royalty payment in a taxing jurisdiction of a country other than the U.S. subject to a U.S. treaty where the aggregate effective rate of the related party is 100% of the New York statutory rate.

Qualified New York Manufacturer Rate Reduction 

A corporate franchise tax rate reduction is phased-in over a six-year period.  The applicable rate reductions are as follow:

2013 – 9.2% reduction
2014 & 2015 – 12.3% rate reduction
2016 & 2017 – 15.4% rate reduction
2018 and thereafter – 25% rate reduction

Film Production Tax Credit 

The New York State Film Production tax credit for a “qualified film” was increased in 2010 for an annual additional amount through 2014.  This amount has now been extended through 2019 as long as production cost requirements in New York are met.  The definition of a “qualified film” such as a feature-length film, television film or television pilot has been expanded to include a “relocated television production.”  The qualified film definition continues to exclude a variety of different programs such as documentaries, sporting events or sporting programs, non-qualified commercials, music videos, reality shows, talk programs.  The Empire State Post Production tax credit has also been extended through 2019.

Note that the temporary deferral of certain tax credits ended in 2012 and in 2013 all deferred tax credits are now available for use.

                                       INDIVIDUAL TAXPAYERS 

Personal Income Tax Rates
Current personal income tax rates are extended through 2017.

Itemized Deduction LimitationThe provision reducing the amount of charitable contributions allowed from 50% to 25% for taxpayers with New York adjusted gross income (AGI) has been extended three years through 2015.

 NEW YORK BUSINESS INCUBATOR AND INNOVATION HOT                           SPOT SUPPORT ACT 

This new provision effective March 28, 2013 provides various tax benefits.  Certain tax benefits are available to entities generally in business for three years with a successful history of incubating businesses and which wish to be designated as a New York state innovation hot spot or as a New York state incubator by the Urban Development Corporation.  The goal of the applicant will be to provide services to eligible “qualified entities” in their formative stage of development.

The “qualified entities” receiving the incubation services may be a corporation, a sole proprietorship, a member of a limited liability company, partner in a partnership or a shareholder of a subchapter S corporation.  These qualified entities will receive their own specified tax benefits.
 

 April 1, 2013

By Gary Bingel, CPA, John Genz, CPA 

In 2008, New York was the first state to enact so-called “Amazon” legislation targeting on-line retailers for sales tax collection.  Amazon and Overstock challenged these provisions as facially unconstitutional but on March 28, 2013, the state’s highest court upheld the imposition of sales tax collection responsibility on internet retailers.  You can read more about this case and how it impacts nexus for e-commerce businesses here.

March 26, 2013

By Gary Bingel CPA, Paul Bleeg CPA and Gina Giordano 

A single telecommuter working from home within a state’s borders may trigger income tax nexus for out-of-state employers.  This is true even if the out-of-state employer made no sales in the state and even if the employee telecommuted only part time.  Last year’s Bloomberg BNA 2012 Survey of State Tax Departments revealed a marked trend toward this result, with 35 states agreeing that nexus would be established under these circumstances.  Perhaps not coincidentally, recent headlines have shown a trend toward employers cutting back on telecommuting or in some cases banning it outright. While state tax implications have not been directly cited as a reason for so doing, they could certainly be a consideration and arguably should be.  To read more about the telecommuting impact on state tax nexus, please click here.