Which Activities Create State Tax Issues?

Which Activities Create State Tax Issues?

Multi-State Tax Consulting

 

In this day and age, nearly every company conducts business across state lines. Are you aware of all the additional taxes and fees you may be liable for?

We assist companies with state sales tax and income tax matters. As companies expand their operations and send salespeople across the country, or sell to consumers in other states via the internet, they create into nexus (or taxable presence) and have to think about filing in other states. That’s where Miles Consulting Group comes in.

We help companies answer questions on multi-state tax compliance:

  • Where do you have nexus creating activities?
  • What are the rules? What are next steps?
  • When was nexus created? When should you begin filing?
  • How much retroactive exposure has been created? Can we help you reduce it?

As state tax rules change, we help our clients address these questions by bridging the gap between your business and complex state tax laws.

We are often asked these three questions:

  1.  Why Is A Nexus Review Important?
  2.  Which Activities Cause State Tax Issues?
  3. Multi-State Tax Consulting

Read More

Written by

Flow-Through And Closely Held Business Education: Register Now For Tax Forum With Early Bird Discount

Flow-Through And Closely Held Business Education: Register Now For Tax Forum With Early Bird Discount

Last week, the Supreme Court issued its long-awaited opinion in Connelly v. United States (No. 23-146) on whether a corporation’s obligation to apply the amount of proceeds from corporate-owned life insurance to fund a mandatory redemption of stock on the death of a shareholder reduces the value of the corporate assets (i.e., offsets the insurance proceeds received by the corporation) when valuing the stock in the estate of the deceased shareholder. In a resounding taxpayer defeat by unanimous opinion, the Supreme Court said “no” and resolved a split between the Eighth Circuit in Connelly v. United States, 70 F.4d 412 (2023), and the Eleventh Circuit in Estate of Blount v. Commissioner, 87 TCM 1303 (2004), aff’d in part and rev’d in part, 428 F.3d 1338 (2005).

This fall’s Tax Planning Forum programs will discuss Connelly and a workaround that easily can be implemented in many closely held business situations by using a partnership to own the insurance, rather than the corporation, and thereby not increase the value of a decedent’s stock for estate tax valuation purposes by the corporation’s receipt of insurance proceeds. We will discuss how the partnership should be structured to meet the goals of the shareholders, which mirrors what would have occurred from an economic perspective had the policy been owned by the corporation. We also will delve into how to transfer insurance policies out of a corporation and avoid the impact of the §101(a)(2) transfer-for-value rules that can cause taxation of the life insurance proceeds, if those rules are not carefully navigated.

Register for a Tax Forum program by July 31, 2024 and enjoy the Early Bird discount. Connelly and many other flow-through planning transactions will be discussed in detail at our 2024 Tax Forum programs that begin this fall, and we expect spirited discussion during our live Q&A sessions. As a reminder, the early-bird discount for registration ends on July 31, 2024, so register now.

Written by

Citizens Against Government Waste: The Prime Cut Series (#8)

Citizens Against Government Waste: The Prime Cut Series (#8)

End the Essential Air Service (EAS)
1-Year Savings: $200 million
5-Year Savings: $700 million

The EAS was created in 1978 after airline deregulation in an effort to retain air service in smaller communities. Intended to sunset after a decade, the EAS is now in year 44 of operation. Today, it provides subsidies to 175 rural communities in 32 states and Puerto Rico. Most designated cities are subsidized for more than $100 per passenger. Over time, what was intended to be a temporary program has morphed into a funnel for subsidies to support largely empty flights that otherwise would never leave the ground.

According to a March 21, 2022 Forbes article, eligibility is largely based on those cities where service was provided in 1978: “As a result, tiny Ogdensburg, NY with 10,000 people and Massena, NY with 12,000 people get subsidies. Yet nearby Watertown, NY, with over 25,000 people, gets no subsidies today. People in Watertown must drive the just over one-hour trip to Syracuse, NY for their flights while the much smaller subsidized cities can board at their local airport on the taxpayer’s dime.” Centers of population have changed over time, but EAS eligibility has not. According to a September 19, 2009, Los Angeles Times article, EAS “spends as much as thousands per passenger in remote areas” and “provides service to areas with fewer than 30 passengers a day.” Among the most absurd recipients of EAS subsidies is an airport in Johnstown, Pennsylvania, tirelessly defended by the late Rep. John Murtha (D-Pa.), from which just 18 flights leave each week. Johnstown is only two hours east of Pittsburgh International Airport by car. Indeed, a 2015 study from West Virginia University found “strong evidence that subsidies are higher in districts having congressional representation on the House Transportation Committee.”

Read More

Written by

IRS Form 5472 – Who Must File It?

IRS Form 5472 – Who Must File it?

Form 5472 is a crucial document for certain foreign-owned U.S. corporations and foreign corporations engaged in a U.S. trade or business. This form is used to report transactions between these corporations and their foreign or domestic related parties. The importance of Form 5472 lies in its role in maintaining compliance with U.S. tax laws and regulations. This article provides a comprehensive overview of Form 5472, its requirements, and related penalties.

WHO MUST FILE FORM 5472?
  1. 25% Foreign-Owned U.S. Corporations: Any U.S. corporation with at least 25% foreign ownership must file Form 5472. This includes direct and indirect ownership by a foreign person or entity.
  2. Foreign Corporations Engaged in U.S. Trade or Business: Foreign corporations involved in any U.S. trade or business activities must also file Form 5472 if they engage in reportable transactions with a related party or a domestic related party.
  3. Disregarded Entities: Foreign-owned U.S. disregarded entities (DEs) are also subject to these filing requirements, even if they do not have an income tax return filing obligation.
KEY DEFINITIONS
  1. 25% Foreign Shareholder: A foreign person who owns at least 25% of the total voting power or value of a U.S. corporation’s stock.
  2. Related Party: Includes any direct or indirect 25% foreign shareholder and other entities related through ownership or control.
  3. Reportable Transactions: Include any transactions involving the exchange of money or property between the reporting corporation and a related party. This encompasses sales, leases, royalties, and other monetary and non-monetary exchanges.

Read More

Written by

IRS Issues First Draft of Cryptocurrency Reporting Form

IRS Issues First Draft of Cryptocurrency Reporting Form

The IRS appears to be on the verge of changing the way digital asset (i.e., cryptocurrency) transactions are reported for federal tax purposes.  On April 19, 2024, the IRS issued its first draft of Form 1099-DA, the intended form for reporting the sale or exchange of digital assets.  As noted in the preamble to Form 1099-DA, the current draft reflects the notice of proposed rulemaking that appeared in the federal register on 8/29/23 [1], and is subject to change based on comments to those proposed rules.

For taxpayers engaging in sales or exchanges of digital assets, Form 1099-DA would be issued to the IRS by an applicable broker, and would include several items of information related to the taxpayer and the digital assets at issue.  Notable items of reported information include the following:

  • The name and type of broker used for the transaction;
  • The type, amount, and digital address of the digital assets at issue;
  • The date and time of acquisition or disposition of the digital assets; and
  • Whether the transaction resulted in a gain or loss, and the nature thereof (e., ordinary, short-term, or long-term).
    Read More
Written by

Does Economic Nexus Last Forever? What You Need To Know About Trailing Nexus

Does Economic Nexus Last Forever? What You Need To Know About Trailing Nexus

The June 2018 U.S. Supreme Court ruling in South Dakota v. Wayfair, Inc. reshaped the landscape of sales tax obligations across the United States, ushering in the era of economic nexus. This landmark decision overturned the previous requirement of physical presence for establishing nexus, opening the door for states to enact economic nexus legislation. Alongside this shift, a new focus on the concept of trailing nexus emerged, presenting a continuation of tax obligations even after a business no longer meets the nexus criteria.

In this article, we’ll define economic nexus and trailing nexus, and how the two may dictate your tax obligations regarding the states in which you operate. Here’s what we’ll cover:

  1. Understanding Economic Nexus and Thresholds: Discusses economic nexus thresholds and varying state regulations.
  2. What Is Trailing Nexus? Defines trailing nexus.
  3. Examples of Trailing Nexus Policies: Explores examples of trailing nexus policies by state.
  4. Practical Considerations for Businesses: Discusses tips on how to handle trailing nexus in your state.

Not what you’re looking for? Let’s talk. Reach out to us at info@milesconsultinggroup.com.

1. Understanding Economic Nexus and Thresholds

Read More

Written by

Proposed California Assembly Bill 2586 Will Direct University Of California System To Begin Hiring Illegal Immigrants At Taxpayers Expense

Proposed California Assembly Bill 2586 Will Direct University Of California System To Begin Hiring Illegal Immigrants At Taxpayers Expense

Reform California Chairman Carl DeMaio is blasting an assembly in the California State Legislature are proposing that will direct the University of California system to begin hiring illegal immigrants for taxpayer-funded state jobs.

“I have seen a lot of outrageous proposals from California politicians, bending over backwards to make it easier for illegal immigrants to get in and to get taxpayer benefits. But this one absolutely tops the list of insane ideas,” DeMaio told Fox News Digital.

If passed, Assembly Bill 2586 would provide state government jobs at taxpayers’ expense for illegal immigrants. DeMaio said specifically, it mandates that illegal immigrants with no U.S. work authorization should be given access to apply for and take jobs provided through taxpayer-funded universities run by the state government.

“By passing a law to mandate that illegal immigrants be hired for taxpayer-funded jobs in state government, California politicians are not only making our border crisis worse, they are openly violating federal employment laws that prohibit the hiring of illegal immigrants!” DeMaio said.

DeMaio said the bill is instructing the largest state government agency in California, the University of California system, the colleges and universities, to hire illegal immigrants, which violates federal employment law.

Read More

Written by

Treasury FY 2025 Green Book Proposes To Essentially Eliminate Written Supervisory Approval For Penalties

Treasury FY 2025 Green Book Proposes to Essentially Eliminate Written Supervisory Approval for Penalties

International information return penalties are often thought of as primarily affecting rich people or multinational corporations with significant overseas assets. This is not true. Taxpayers – many of whom are lower- and middle-income individuals, small and midsize business owners, and immigrants – face significant and potentially life-changing penalties, even when they voluntarily comply, for failing to meet obscure and complex foreign information reporting requirements.

As I have discussed in prior blogs and my Annual Report to Congress, these penalties overwhelmingly impact lower- and middle-income individuals and small and midsize businesses who voluntarily come forward. For example, the IRS assesses 71 percent of individual IRC § 6038 penalties against lower- and middle-income taxpayers (those reporting under $400,000 in income). Likewise, it assesses 83 percent of systemic business IRC §§ 6038 and 6038A penalties against small and midsize businesses. These penalties can be huge. For instance, in the foreign gift context, the average penalty for 2018-2021 was more than $235,000 for taxpayers who reported $400,000 or less in income. Many of these penalties bear no relation to any underlying taxable income or liability.

Courts continue to litigate whether IRC § 6038(b) gives the IRS the authority to assess foreign information penalties and whether it can take administrative collection actions against taxpayers. These issues will take time to resolve with finality. (See Farhy v. Commissioner (Tax Court opinion and D.C. Circuit Court of Appeals opinion) and Mukhi v. Commissioner).

The IRS and Congress can and should act now to fix the unfair, draconian penalty regime taxpayers experience with these international information returns. I continue to advocate for the IRS and Congress to apply these penalties in a fair manner by providing taxpayers their rights prior to assessment of the penalties.

What Is the Problem?

Read More

Written by

New York Governor Hochul Forced To Delay Proposed $15.00 Per Vehicle Toll Tax On Taxpayers Entering Manhattan

New York Governor Hochul Forced To Delay Proposed $15.00 Per Vehicle Toll Tax On Taxpayers Entering Manhattan

According to an article on the ABC Newswire:

Governor Kathy Hochul enraged environmentalists and public transit advocates — but delighted suburban commuters — by putting the brakes on a plan to battle New York City’s traffic by imposing high tolls on Manhattan drivers.

On Thursday, she was scrambling to get support for her proposal to hike a business tax as a way of replacing the $1 billion per year the tolls had been expected to raise for New York’s ailing subway system.

The governor’s behind-the-scenes effort to get legislative approval for the tax hike came a day after she unexpectedly upended the “congestion pricing” toll, a program that was in the works for years and had been scheduled to launch June 30.

Drivers entering Manhattan south of 60th Street would have had to pay tolls of around $15, depending on vehicle type, on top of tolls for entering the same area via certain bridges and tunnels.

According to The City Of New York Independent Budget Office, this toll tax on taxpayers entering New York by vehicle would gather another 1 Billion in tax revenue from taxpayers entering the city.

Governor Hochul’s announcement to delay congestion pricing just weeks before implementation without any clear alternatives—after five years of direct financial and infrastructure planning and investments—will present a challenge to the MTA in their ability to maintain and improve the transit system that New York City’s economy relies on.

New Yorkers Or Anyone Driving A Vehicle Into New York: What do you think?

Written by

A Few Key Concepts In Arbitration Agreements And Disputes

A Few Key Concepts In Arbitration Agreements And Disputes
Introduction

“Arbitration is a creature of contract.” This does not mean that arbitration is a fictional creation or some other-worldly lifeform. But the phrase is shadowy in that it doesn’t convey much useful information. Notwithstanding, it is perhaps the single most repeated phrase found across legal opinions and scholarly articles concerning arbitration.

Many lay people and even legal practitioners fail to perceive arbitration’s contours, perhaps in part because of the use of unilluminating phrases like the above. Specifically, although contracts provide the basis for arbitration, several layers of mandatory or default norms apply in arbitration. At times, arbitrating parties find this surprising. These norms are embodied in statutes, judge-made case law, and the rules of arbitral forums—in addition to contractual commitments. For this reason, dwelling on arbitration’s status as a “creature from the contract lagoon” has limited utility.

To ensure parties adequately consider the implications and consequences of agreements to arbitrate, they must understand the relevant legal background. Further, a nuanced understanding of arbitration can be necessary to successfully evaluate and undertake a dispute. In many respects, dispute resolution through arbitration is much like litigation. In others, there are important differences. This blog introduces key concepts and conveys useful information concerning arbitration to an unfamiliar reader. I intend, in a follow up piece, to discuss and demonstrate practical consequences and applications of at least some of these concepts.

Discussion

Here it goes:

  1. Arbitration is a Creature of Contract.
    Read More
Written by

Property Taxes On The Rise In BozeAngeles And The U.S.

Property Taxes On The Rise In BozeAngeles And The U.S.

The rural piece of land in Montana that Art Mangels, a retired potato farmer, has lived in for 10 years boasts breathtaking views of snowy peaks, banks of the Big Hole River and acres of grasslands full of wildlife. But in recent months, the land has also come with a hefty property tax bill that is now 35 percent higher compared to 2022.

The spike is one of the consequences of Montana’s Wuhan coronavirus pandemic real estate boom that has transformed the city of Bozeman into what Mangels calls “Bozeangeles.”

The pandemic real estate boom is also felt in nearby Beaverhead County, where cows far outnumber people. The fallout is also threatening to cross from personal into political.

Like other longtime residents, Mangels is frustrated with Montana’s legislature and politicians. He explained that while the real estate boom has been beneficial for the BozeAngeleans, who were able to buy up “a lot of acreage, a lot of big ranches,” farmers and retired farmers like him, are “getting penalized for it.”

Mangel, who runs fishing cabin rentals, is disillusioned because farmers have contributed greatly to the economy for decades. (Related: Farmer protests erupt across Europe over GREEN POLICIES that demand the obliteration of food production.)

Four years after the pandemic, remote workers moved to cheaper housing with beautiful scenery across the Mountain West, long-time residents have paid the cost with tax hikes driven by the sudden growth in property tax values.

Read More

Written by

Section 174 Explained

Section 174 Explained
What is Section 174?

Section 174 of the Internal Revenue Code now defines the treatment of Specified Research or Experimental (SRE) expenditures. Section 174 was amended by the Tax Cuts and Jobs Act of 2017 to require amortization of SRE expenditures paid or incurred for tax years beginning after December 31st, 2021. Section 174 now requires taxpayers to amortize SRE expenditures over five years for domestic research or over fifteen years for foreign research. Both direct and indirect SRE expenditures must be amortized under Section 174.

What is Amortization?

Under Section 174, amortization refers to spreading SRE expenditures over specific periods instead of deducting the entire amount of the expenditures in the year they were incurred. Amortizing the expenditures over several years will cause an immediate increase in a company’s short-term income tax liability. This short-term tax liability increase is something that companies are looking to mitigate.

Is There a Difference Between Section 174 and Section 41 (R&D Tax Credit)?

YES! Section 174 and 41 are NOT the same thing.

Section 174 includes a company’s direct SRE expenditures, which can include payroll, supplies, and patent costs. Section 174 also encompasses a company’s indirect SRE expenditures, such rent, utilities, overhead, and other items in a cause-and-effect relationship with the direct SRE expenditures.

Read More

Written by
« Older Entries   Recent Entries »