CCHGroup.com   Members   Support  

 

South Dakota will keep its tourism tax at the rate of 1.5% at least until July 1, 2013. The summertime tax on tourism businesses was scheduled to decrease to 1% on July 1 of this year but recently enacted legislation extended the period of a two-year half percent tax increase for an extra two years. The tax is imposed during the months of June, July, August, and September on gross receipts from lodging, recreational services, visitor attractions, and spectator events. According to a news release issued by TravelSD.com, South Dakota enjoyed a 10% increase in visitor spending last year, and tourism generated 20% of all state and local tax revenue in 2010.

 

 

Tax amnesty programs are often useful tools for states that need some quick cash. California lawmakers certainly know this and, since the state is a little cash-strapped at the moment, they recently enacted a new income tax "voluntary compliance initiative" (VCI) that will run from August 1 to October 31, 2011 (see S.B. 86). This VCI will provide a limited amnesty program to taxpayers that either utilized an "abusive" tax avoidance transaction (ATAT) or have unreported income from the use of an offshore financial arrangement (OFA) for tax years before 2011.


*

How It Works
*


Under the provisions of the VCI, all penalties other than the large corporate understatement penalty and the amnesty penalty will be waived for qualified participants. In addition, criminal actions may not be brought against a qualified participant, provided the participant is not the subject of an existing criminal complaint or investigation. To qualify, a taxpayer must file amended returns reporting all income from all sources during the years the taxpayer participated in an ATAT or underreported income from OFAs and pay all unpaid tax and interest. Taxpayers may not claim any refunds or credits for amounts paid under the VCI. Furthermore, deductions may not be taken for transaction costs associated with an ATAT or for transaction or other costs associated with unreported income from the use of an OFA. Taxpayers may enter into installment payment arrangements, but all outstanding liabilities associated with the VCI must be paid by June 15, 2012.


 


Taxpayers are ineligible to participate in the VCI if a criminal complaint was filed against the taxpayer and/or the taxpayer is under criminal investigation in connection with an ATAT or unreported income from the use of an OFA. No penalty assessed after July 31, 2011, may be waived or abated under the VCI program if the penalty imposed is attributable to an assessment of taxes that became final prior to July 31, 2011. In addition, a taxpayer may not claim a refund or credit with respect to any penalty paid prior to the time the taxpayer participates in the VCI.


 


In addition to any other authority to examine returns, the FTB may inquire into the facts and circumstances related to a participating taxpayer's use of ATATs or offshore financial arrangements. A taxpayer's failure to cooperate fully with such inquiries will render the waiver of penalties under the VCI program null and void and the taxpayer may be assessed any penalties that may apply.


 


<u>Other Abusive Tax Avoidance Transaction Provisions</u>

In addition to authorizing the VCI program, California lawmakers (1) increased the statute of limitations period from eight to 12 years for the FTB to issue a tax assessment for ATAT activity, applicable to notices mailed on or after August 1, 2011, with respect to proposed deficiency assessments related to an abusive tax avoidance transaction, and (2) exempted ATATs from the interest-suspension rules, applicable to notices provided, or amended returns filed, on or after January 1, 2012. Furthermore, they adopted a uniform definition of an "ATAT" that applies to the interest-based penalty, the interest-suspension rule, the 12-year statute of limitations, and the authority to issue subpoenas. Under the uniform definition, an "ATAT" means a:




-- California tax shelter;


-- reportable transaction that is not adequately disclosed;


-- listed transaction;


-- gross misstatement; or


-- transaction subject to the noneconomic substance transaction penalty.


 

Certain Minnesota taxpayers are much happier now than they were last week, since Gov. Dayton signed legislation this week that conforms the state's income tax laws to most (but not all) federal tax law changes enacted in 2010…at least for the 2010 tax year (see H.F. 79). The legislation also repeals a law enacted last year that directed the Minnesota Department of Revenue (DOR) to delay paying corporate franchise and sales tax refunds.

Conformity Provisions
While the new legislation generally conforms Minnesota law to the IRC as amended through December 31, 2010, for the 2010 tax year, it does not conform the state to the increased IRC §179 expensing amount and phaseout threshold for the 2010 and 2011 tax years, or to the extension of 50% bonus depreciation amounts to the 2010 tax year. Instead, taxpayers are still required to add back to taxable income 80% of the additional expensing or depreciation amount in the first tax year and then subtract one-fifth of the amount added back in each of the five following tax years.
 
For corporate taxpayers, the new law eliminates the need to recompute federal taxable income for Minnesota tax purposes for the 2010 tax year, as well as the need to add back the federal enhanced charitable contribution deduction for donated computers or to make adjustments for subpart F income. Corporate income taxpayers that have not yet filed the 2010 Form M4 should refer to the updated Form M4I, Schedule DIV, and the Corporation Franchise Tax Return (Form M4) instructions. In addition, for taxpayers that have already filed the 2010 Form M4, the DOR will review all filed returns that reported an amount on Form M4I, line 2j, 2p, 2r, 5m and/or 5q to determine if adjustments are required.
 
For individual taxpayers, the new law eliminates the need for the 2010 Schedule M1NC, as well as the need to add back the federal educator expenses and college tuition and fees deductions on line 9 of Schedule M1M for the 2010 tax year. Taxpayers who have not yet filed the 2010 Form M1 should not complete Schedule M1NC and should disregard line 9 of Schedule M1M. Taxpayers that claimed the federal educator expenses deduction and/or the college tuition and fees deduction on the federal return do not need to make any additional adjustments on the Minnesota return. Additionally, for taxpayers that have already filed the 2010 Form M1 and reported an amount on Schedule M1M, line 9, and/or included M1NC, the DOR will review these filed returns to determine if adjustments are required based on available information.
 
In either case, the DOR will make needed adjustments when possible, notify taxpayers of changes, and send any additional refunds due. Taxpayers will be notified if any further action is required by them.
 
Release of Refunds
As for the refunds, the repeal of the 2010 law permits the DOR to release $97 million in business tax refunds. Approximately 1,800 refunds have been delayed since December ($65 million in sales tax refunds and $32 million in corporate tax refunds). According to acting DOR Commissioner Dan Salomone, "[b]usinesses should begin receiving their refunds this week."

With numerous states currently facing serious budget crises, it’s not surprising that many are considering legislation to increase the cigarette tax rates. Cash-strapped states often look to increase such “sin taxes” in order to regain their economic footing while also aiming to curb rising health-care costs associated with tobacco use.

 

Flying in the face of the conventional trend, several states are actually seeking to decrease their cigarette tax rates. In New Hampshire, a bill that would cut the cigarette tax rate by 10 cents per pack (to $1.68 per pack) has already passed the House. Rhode Island has introduced legislation that would decrease the rate by a whopping $1.00 per pack (from $3.46 to $2.46 per pack). The rationale given for this strategy is that decreasing the rate will lead to increased revenue through elevated sales, although there are varying viewpoints on whether this would actually result in the desired outcome. The New York Times has further information here .</p>

 

Give a little; take a little. That may have been on the minds of the North Carolina legislators when they updated the state's IRC conformity date, but partially decoupled North Carolina income tax law from recent federal tax law changes that increased and extended the IRC §168 bonus depreciation deduction and the IRC §179 asset expense deduction (see H.B. 124).


<u>IRC Conformity</u>
The North Carolina IRC conformity date has been updated from May 1, 2010, to January 1, 2011. As a result, the state has incorporated most of the amendments made by the federal Small Business Jobs Act of 2010 (2010 Jobs Act) and the federal Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (2010 Tax Relief Act). However, any amendments made to the IRC after May 1, 2010, that increase North Carolina taxable income for the 2010 tax year do not apply until the 2011 tax year.
 

<u>Bonus Depreciation</u>
The 2010 Jobs Act extended the 50% bonus depreciation provision to property placed in service in the 2010 and 2011 tax years. The 2010 Tax Relief Act boosted the 50% bonus depreciation to 100% for property acquired and placed in service after September 8, 2010, and before January 1, 2012, and it provided 50% bonus depreciation for property placed in service during the 2012 calendar year. North Carolina, however, partially decoupled from the extension of the IRC §168(k) additional bonus depreciation and the IRC §168(n) additional bonus depreciation deduction for disaster-related property by requiring taxpayers to make an addition adjustment on their North Carolina return equal to 85% of the deduction claimed on their federal returns for 2010 through 2012, but the state will allow taxpayers who make the addition adjustment to subsequently deduct the amount added back ratably over a five-year period.

 

<u>Asset Expense Deduction</u>
North Carolina also partially decoupled from the increase and extension of the IRC §179 asset expense deduction for the 2010 and 2011 tax years. Prior to the enactment of the 2010 Jobs Act, the deduction limit was $250,000 and the investment limit was $800,000 for both federal and North Carolina income tax purposes. The expensing limits were scheduled to revert to their prior levels in 2011. Amendments made by the 2010 Jobs Act and the 2010 Tax Relief Act did the following:

 




 



    1. expanded the investment limits from $800,000 to $2 million for the 2010 tax year and from $200,000 to $2 million for the 2011 tax year;


 



    1. expanded the deduction limit from $25,000 to $125,000 for the 2012 tax year;


 



    1. expanded the investment limit from $200,000 to $500,000 for the 2012 tax year; and


 



    1. broadened the definition of "qualified property" to include certain real property investments for the 2010 and 2011 tax years.


For North Carolina income tax purposes, the 2010 deduction and investment limits of $250,000 and $800,000 are maintained for the 2010 and 2011 tax years. However, taxpayers must add back 85% of the additional expensing taken under federal law in 2010 and 2011 on their North Carolina return. The state will allow taxpayers to deduct 20% of the addback amount over the succeeding five years. North Carolina will conform to the expensing limits of $125,000/$500,000 for the 2012 tax year and also conforms to the expansion of the definition of "qualified property" to include certain real property investments for the 2010 and 2011 tax years.

Beginning in 2012, vendors and persons who make direct payments of Wyoming sales and use taxes will be allowed a credit if they pay their taxes by the 15

day of the month that the taxes are due. While Wyoming sales and use taxes are normally due by the last day of the month following the month when they were collected, [H.B. 147 | http://legisweb.state.wy.us/2011/Enroll/HB0147.pdf] will allow vendors and direct payers who pay tax by the 15th a credit equal to 1.95% of the first $6,250 of tax due and 1% of any tax due in excess of $6,250. The credit is intended to compensate vendors and direct payers for expenses incurred for the accounting and reporting of taxes. According to a fiscal note for the bill, the state assumes that approximately 95% of all vendors will take advantage of the credit.

 


 

At least there's a cure for one of Kentucky's IRC conformity ailments. As a result of federal legislation enacted in 2010, parents may now provide health care coverage for an adult child up to the age of 27, even if the child is not a "dependent" for income tax purposes, and pay for this coverage using pre-tax dollars. Since Kentucky's IRC conformity date is still set at December 31, 2006, employees who have adult children that qualify for health insurance under the new federal law were not going to be able to receive the same treatment for Kentucky income tax purposes. However, to avoid additional conformity headaches, Kentucky expanded its personal income tax exclusion for health care insurance payments to include costs for the coverage of adult children under age 27 (see H.B. 255).


 


Without this change, employers were going to have treat the amount paid for medical coverage for adult children as being paid with post-tax dollars for Kentucky income tax purposes. As a result, an adjustment would have been required for this difference between federal and Kentucky wages on the employee's W-2. Fortunately, the expansion of the health insurance deduction avoids this additional administrative burden.

 

 

March 10 was a busy day for “Amazon” bills  in the states.


 


Illinois Gov. Pat Quinn finally acted on the “click-through” nexus bill that has been on his desk since early January. He signed the bill, making Illinois the fourth state with this type of Amazon law in effect. Interestingly, unlike the versions in New York, North Carolina and Rhode Island, the Illinois law does not create a presumption of nexus. It flats out says that a retailer that satisfies the criteria is doing business in Illinois for sales tax purposes. This may open a new path for a legal challenge.


 


Meanwhile, South Dakota Gov. Dennis Daugaard signed his state’s versions of Amazon laws on the same day as Gov. Quinn. The South Dakota laws include affiliate nexus provisions and a requirement that non-collecting retailers notify buyers of their use tax obligations.


 


Also on March 10, the Arkansas Senate and the Vermont House both passed click-through nexus bills. The Arkansas bill, which was only introduced on March 2, also includes affiliate nexus provisions.


 


Texas

, which already has its own click-through nexus billpending in the Legislature, had  two additional bills introduced. One would establish sales and use tax nexus for certain remote sellers, including sellers that use a website on a server in Texas to sell digital goods, and sellers that hold a substantial ownership interest in certain persons conducting business in Texas. Conversely, another new bill in Texas would preclude or limit certain activities in the state by retailers from establishing nexus for sales and use tax purposes.</span></p>

 

 



 

 

The Arizona Supreme Court has decided in <font color="#800080">City of Peoria et al. v. Brink's Home Security, Inc.</font>  that Brink's home monitoring services are interstate telecommunications, rather than intrastate communications, because the company's alarm system transmissions go from Arizona to Texas and back to Arizona, instead of staying in Arizona. Arizona municipalities are specifically prohibited from taxing interstate telecommunications, so if Brink's home security services are deemed interstate telecommunications, the cities cannot impose tax on them. However, the supreme court left the door open to the cities' taxes, so to speak, when it declined to rule on whether the services were taxable as monitoring services. The cities' codes expressly list "monitoring services" among the "telecommunication services" subject to municipal taxes. The cities argue that their taxes are assessed on the monitoring services, rather than the telecommunications, which they characterize as merely incidental to the services. The case has been remanded to the court of appeals for further consideration of this issue.<!<o:p>><!</o:p>>



 


 


 

 

American Greetings Corp. recently announced that its headquarters (and 2,000 HQ employees) will remain in Ohio. Now, thanks to a new job retention tax credit, other businesses thinking about relocating to another state may end up staying in Ohio too.


 


On March 7, Gov. John Kasich signed legislation (H.B. 58) authorizing a new refundable tax credit aimed at preventing certain companies from leaving Ohio. To qualify for the credit, a company must (1) have at least 1,000 employees, (2) agree to make $25 million in capital improvements over three consecutive years, and (3) have received a written offer in 2010 from another state to leave Ohio and relocate to that state. In addition, the Tax Credit Authority must receive a recommendation to grant the credit to an eligible business from the Director of Development, Director of Budget and Management, the Tax Commissioner, and the Superintendent of Insurance (in the case of an insurance company) before July 1, 2011. The credit is also limited to $8 million in any calendar year, and municipal corporations are authorized to provide a similar refundable job retention credit against the municipal income tax.


 


<u>IRC Conformity</u>

The new legislation also adopts the federal IRC as amended through March 7, 2011 (previously December 15, 2010) for income tax purposes. This brings Ohio into conformity with the federal Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which became law on December 17, 2010. Businesses that already filed an Ohio Corporation Franchise Tax report may want to amend their Ohio return if they are impacted by this change.

 

New Jersey has enacted a tax on branch businesses of branch captive insurance companies in lieu of the state's gross insurance premiums tax. (Ch. 25 (A.B. 2360), Laws 2011) The tax equals 0.38% of the first $20 million, 0.285% of the next $20 million, 0.19% of the next $20 million, and 0.072% of each dollar thereafter on the direct premiums collected or contracted for on policies or contracts of insurance written by the captive insurance company during the year. Deductions are allowed for amounts paid to policyholders as return premiums, including dividends on unabsorbed premiums or premium deposits returned or credited to policyholders. The tax will not apply to considerations received for annuity contracts.


Alternatively, a tax is imposed equal to 0.214% on the first $20 million of assumed reinsurance premium, 0.143% on the next $20 million, 0.048% on the next $20 million, and 0.024% of each dollar thereafter. No tax applies in connection with the receipt of assets in exchange for the assumption of loss reserves and other liabilities of another insurer under common ownership and control if the transaction is part of a plan to discontinue the operations of the other insurer, and if the intent of the parties to the transaction is to renew or maintain the business with the captive insurance company.


Finally, the annual minimum aggregate tax to be paid by a captive insurance company is $7,500, and the annual maximum aggregate tax is $200,000. Both taxes are due by March 1 of each year along with an annual return. Two or more captive insurance companies under common ownership and control will be taxed as though they were a single captive insurance company.

 

Filter Blog

By author: By date:
By tag: