Bonus tax proposals – the government’s solution to recouping some of its taxpayer aid by levying heavy taxes on big company bonuses, seems to be going nowhere, fast. Based on a slew of discussions in Congressional committees and the legal ramifications associated with this kind of tax, the government may need to look elsewhere for solutions.

According to an article on CNNMoney.com, two separate proposals from Rep. Peter Welch and Rep. Dennis Kucinich, two Democratic members of the House Oversight Committee would tax bank bonuses at a rate of 50 percent or more. Last week, two senators, Barbara Boxer and Jim Webb, jointly proposed the “Taxpayer Fairness Act.”  This legislation would enact a one-time, 50 percent tax on employee bonuses above $400,000 at firms that accepted $5 billion or more in bailout money.

Recently, Goldman Sachs and JPMorgan Chase each awarded their CEOs bonuses in restricted stock and options – instead of cash – as a way to tie employee pay to company performance and play down the public’s concern over outsized compensation packages.

Who knew horses could cause such a sales tax quandary? In a recent case in Texas, a taxpayer who cared for abused horses was denied an agricultural exemption.

Buy Adobe Software
Adobe Creative Suite 3
Adobe CS4 Master Collection
Adobe Dreamweaver CS3
Adobe Dreamweaver CS4
Adobe Photoshop CS3 Extended
Adobe Photoshop CS4 Extended
AutoCAD 2009 32 bit
Autodesk AutoCAD 2010
Adobe Master Collection CS4 MAC
Adobe Font Folio 11
Adobe software

On her 25-acre ranch in which she also produced grass for feeding the horses, the taxpayer purchased an all-terrain vehicle (ATV) used exclusively to help complete the tasks associated with taking care of the horses. She paid sales tax on the purchase of the ATV, but later obtained from the seller an Assignment of Right to Refund (Form 00-985) and requested a refund of the sales tax. The Texas Comptroller of Public Accounts denied the refund.

According to the Hearing summary, “the taxpayer claimed she was entitled to the agricultural exemption under Tax Code Section 151.316 (a)(7) and Rule 3.296 (a)(5) because the ATV was used exclusively in caring for the horses. The taxpayer showed that her land was designated for special agricultural appraisal for property tax purposes by her local appraisal district. The Property Tax Code defines agricultural use to include producing crops for animal feed or raising or keeping livestock. See Tex. Tax Code Ann. Sec. 23.51(2).”

As noted in the decision, however, the agricultural sales tax exemption “is not triggered by qualifying for the special appraisal.”

Tax Code Section 151.316(a)(7) exempts “machinery and equipment exclusively used or employed on a farm or ranch in the building or maintaining of roads or water facilities or in the production of: food for human consumption; grass; feed for animal life; or other agricultural products to be sold in the regular course of business.” Section 151.316 (c)(1), states that a “‘farm or ranch’ includes one or more tracts of land used, in whole or in part, in the production of crops, livestock, or other agricultural products held for sale in the regular course of business.” [Emphasis added.]

The Comptroller determined that because the taxpayer did not sell horses or any other agricultural product, her ATV purchase did not satisfy the requirements of the agricultural equipment exemption set out in Tax Code Section 151.316(a). The Comptroller upheld the denial of the sales tax refund.

New Jersey is proposing to make it more difficult for taxpayers to receive sales tax refunds. What do I mean?

Under a proposed amendment, (N.J. A.C. 18:2-5.8, 42 NJR 56, 1/4/10), the New Jersey Division of Taxation would require taxpayers to submit “sufficient documentation” to allow the division to determine the rationale or basis for the refund to verify the amount of the refund before interest on an overpayment begins to accrue.

What Is “Sufficient Documentation”?

Not sure, but the proposed amendment states a taxpayer must attach documentation to the refund claim form indicating the basis for such claim. You cannot just say that “documentation is available upon request.”

In some cases, a taxpayer may need to include copies of each invoice where tax was incorrectly charged, and proof of payment of the entire invoice amount.

No More “Protective Refund Claims”?

The proposal would also not allow taxpayers to file protective refund claims. According to the New Jersey Division of Taxation, there is no statutory authority that requires the Division to allow protective refund claims.

If you have any questions or would like assistance with the filing of a New Jersey sales tax refund claim, please contact me at brian.strahle@bakertilly.com.
 
Brian Strahle is State and Local Tax Practice Leader at Baker Tilly Virchow Krause, LLP, in addition to being the Founder and Author of LeverageSALT, the State and Local Tax Blog at http://www.leveragestateandlocaltax.com/

In recent years, we have seen a steady increase in the sale of digital products, including music, movies, video games and books. Obviously, as sales of products in digital form increase, the sale of the same in tangible form – CDs, DVDs and paper books – decreases.

Because we received MP3 players for the holiday and loaded up on music, recent figures indicate that the week after Christmas 2009 recorded the largest one-week sales of music downloads ever. Amazon’s Kindle eBook device remained a hot seller this past year as well, driving the sale of downloaded books to all-time highs.

As the sale of digital downloads increase, the resulting reduction in the sale of tangible products has far reaching implications for the state tax coffers and already-strained state budgets.

Currently, states can tax digital downloads under one of two approaches:
1. The state applies existing law and definitions to apply the tax. Included in this approach are Alabama, Arizona, Colorado, Indiana, Louisiana, Maine, New Mexico, Texas, Utah and West Virginia.
2. The state passed legislation explicitly applying sales tax to digital downloads. States passing specific legislation include Idaho, Kentucky, Nebraska, New Jersey, South Dakota, Tennessee, Vermont, Washington and Wisconsin.

Only North Dakota and Washington, D.C. have laws that expressly exempt the sale of digital downloads from sales tax.

Most notably missing from these lists are several of the largest states in terms of population, including California, Florida, Illinois, New Jersey, New York and Pennsylvania. However, these states and many others continue to face large budget deficits. The opportunity to add digital downloads to the tax base is likely to be given serious consideration by the various legislative bodies.

The Streamlined Sales Tax Project (SSTP), which includes 20 states as full members, recently spent significant time addressing the issue of digital downloads, mainly from the standpoint of trying to determine how to “define” them. Even though member states still have to pass legislation specifically addressing the taxation of digital downloads, they will walk away with a uniform definition.

As more and more consumers purchase goods and services over the Internet, state tax bases continue to erode, and the state of the economy continues to take a toll on state budgets, we will likely see many more states pass legislation to assess sales tax on digital downloads.

Pat McCown, CPA, is a partner in the State and Local Tax (SALT) practice for Lane Gorman Trubitt, LLP in Dallas, Texas. He has more than 15 years’ experience in multi-state tax planning, audit representation, refunds and consulting. His client includes manufacturing, oil and gas, transportation, high-tech, healthcare and telecom industries. Contact him at 214.461.1416 or pmccown@lgt-cpa.com.

While we’re busy changing light bulbs and discovering more and more renewable energy sources, sales tax issues related to green energy recently hit New York State.

The case, as Bob Dylan once sang, is “blowin’ in the wind.” It involved BP Wind Energy North America, who wanted to know whether construction and installation of a commercial wind farm on leased premises was considered a capital improvement and subject to sales tax.

The Commissioner of the New York State Department of Taxation and Finance concluded that “installations of BP’s equipment on leased property, pursuant to the terms of its lease agreement, do not constitute a capital improvement to the leased premises. However, the assembly and installation of its wind generation equipment used directly and predominantly in the generation of electricity for sale may nonetheless qualify for exemption from sales tax pursuant to the provisions of sections 1115(a)(12), 1105(c)(3) and 1105-B of the Tax Law.”

However, the opinion states, “Purchases and leases of construction tools and equipment for use by Petitioner, its contractors, or subcontractors in constructing and erecting the facility are subject to sales tax.”

Ever wondered what to do with all those American Express points?

According to an article on CNNMoney.com, customers can use their rewards points to pay their federal income taxes. While this sounds like a great idea, it comes with a small caveat: It takes 200 points to pay $1 in taxes. So, for example, a customer would have to charge $1 million on his or her card just to pay a $5,000 tax bill.

Outrageous? Yes. Logical? Well … yes. There are customers who charge sums this high on their cards. I have a friend, for example, who was responsible for booking his law firm’s retreat in Arizona at a posh Scottsdale resort. Instead of asking for a company check to cover the bill, he charged the $150,000+ bill to his corporate American Express card. The firm’s “perk” for employees was that they got to keep their accumulated points.

While his situation is a whole lot less than $1 million in charges, it’s easy to see how high sums could become a reality. The best part of this, in my mind, is the marketing savvy once again demonstrated by American Express. According to the story, the company wanted to give card members a “practical use” for their rewards points.

Now that’s a card I won’t leave home without.

About the author: For more than 20 years, Scott H. Cytron, ABC, has worked with CPAs and accountants, providing public relations, marketing and communications services. He is a frequent contributor to industry publications covering professional services industries, including accounting, healthcare, legal, financial planning, collections and debt, and high-tech. Scott tweets, blogs, and has pages on Facebook and LinkedIn. Contact him at scott@cytronandcompany.com.

Texas shares a similar problem other states have as well. Based on somewhat unexpected population growth over last several decades, a single zip code no longer represents just one city. Many cities have, in fact, zip codes that represent the city and outside areas.

Susan Combs, Texas Comptroller of Public Accounts, included this quote in the October 2009 report on sales tax computation:

“Because many cities in Texas share a common ZIP code and many ZIP codes encompass an area both inside and outside a taxing jurisdiction, we do not recommend using them as a method of reporting local sales and use tax.”

To provide a workable solution, Texas has a Tax Rate Locator on its Web site, enabling users to enter a specific address to determine the taxing jurisdiction(s) at that address.

SpeedTax offers a similar, free service for real-time calculations that are mapped to any U.S. address, the SpeedTax Sales Tax Calculator. This service determines rates at the rooftop level, and splits out the total rate by taxing jurisdiction (state, county, municipality, special districts).

Like it or not, the outlook for sales tax revenues for 2010 continues to be less than desired, according to an article on WSJ.com.

According to the Census Bureau, sales tax revenues for third quarter 2009 fell 9 percent to $70 billion compared to the same period in 2008, while income tax revenues fell 12 percent in the same period. Sales and income tax revenues make up about half of state and local tax revenue.

“We expect continued weakness well into 2010, if not further,” says Lucy Dadayan, an analyst at the Rockefeller Institute of Government at the State University of New York. A full report published by the Rockefeller Institute is available for download.

In state-by-state news, 22 states – including Connecticut, Illinois and Oregon – saw third-quarter revenues decline more than 10 percent. Several states depending on revenues from the energy industry had decreases in tax revenue, including Wyoming, Texas and Oklahoma. Only three states – Nevada, New Hampshire and Rhode Island –had quarterly increases.

California hopes to collect $631 million in use tax revenue from service businesses over the next three years, according to a recent Los Angeles Times article by Cyndia Zwahlen.

“The use tax was added so out-of-state vendors not subject to California’s sales tax didn’t have a price advantage over in-state retailers who did have to pay the tax.”

While the use tax laws have been in effect since the 1930’s, it’s only recently that California’s Board of Equalization (BOE) has made a concerted enforcement effort. In addition – and this is indicative of California’s financial fix – laws have changed so that service businesses such as legal and accounting firms, Lasik eye surgery centers and child care companies that bring in more than $100,000 in annual revenue can be included in the use tax enforcement efforts.

BOE has sent out 164,000 letters to small businesses to date.

“The tax board is looking for out-of-state purchases, especially of expensive equipment, fixtures or software that might be subject to the levy, known as ‘use tax.’”

Businesses receiving a letter from BOE are required to register with the tax board. Then — and here’s the education part — they must report and pay use taxes dating back three years, or show why they’re exempt from the tax. These taxes are due by April 15, 2010.  If a business does not respond to the letter, BOE will, by February, register them automatically.

The end of the calendar year always signals a bunch of “best of” lists with eye-catching witticisms. I like these kinds of lists because they sum up, in just a few words, what
we accomplished, how we fell short and what we can look forward to for the following year.

That’s why PC Mag’s “Best of the Decade” list caught my eye. Is it really the end of a decade? Yes, and no. Just like a newborn is “0” years old when born, we really won’t enter the new decade until 2011. Regardless, any way you slice it, it’s still hard to believe 10 years have gone by since Y2K!

In addition to the personal references we all share with technology, the list on PC Mag is, of course, also important to the business marketplace and even to the accounting profession. As more and more of the profession’s clients realize their increased capabilities through technology, the firms and companies who serve these clients (and customers) also must realize the benefits technology brings to the table – and use these to their fullest extent.

I won’t reveal my source, but a Louisiana accountant told me the other day that, if they had their druthers, most others in his professional group would still be on DOS… and that “1-2-3” thing.

While amusing at the time, it got me thinking. Is it the profession’s responsibility to educate itself about technology, or should we rely on technology providers to do this for us?

In this day and age, if you are going to deliver tax services to your clients, you had better understand the role technology plays in delivering these services. With technology ranging from cloud computing to the virtual office and remote access, we just can’t get away from technology. Yet, we must use technology in efficient ways, not just for the sake of displaying the latest bells and whistles.

We must be vigilant in absorbing innovations. We must ask others to explain the most complex configurations to us. We must take the initiative to do this as a group – not wait for others to come along and explain it to us first.

In 2010, let’s work hard to meet our clients’ expectations with regard to efficient uses of technology, while trying to stay one step ahead of them.

There’s an app for that, isn’t there?

About the author: For more than 20 years, Scott H. Cytron, ABC, has worked with CPAs and accountants, providing public relations, marketing and communications services. He is a frequent contributor to industry publications covering professional services industries, including accounting, healthcare, legal, financial planning, collections and debt, and high-tech. Scott tweets, has pages on Facebook and LinkedIn. Contact him at scott@cytronandcompany.com.