The largest owner of shopping malls in the U.S., Simon Property Group, is taking on retail giant Amazon in the Indiana courtroom. Simon Property Group has filed suit against the state of Indiana in an effort to force the state to collect sales taxes from online retailers.

Leading up to the lawsuit, Simon Property Group requested that Indiana require sales tax to be collected on Amazon.com purchases within the State. Quill Corporation v. North Dakota, 112 S. Ct. 1904 (1992) established that a company must have physical presence for a sales tax collection obligation. While Amazon has a physical presence with its three distribution centers, Indiana and the Company have an agreement that exempts Amazon from collecting and remitting sales tax.

The courts will have to decide whether Amazon and other online and catalog retailers meet various states’ rules for sales and use tax collection and remittance. Meanwhile, Congressional legislators have taken up once again the issue of closing the online sales tax loophole at the federal level. Should the latest bill succeed, states will have the option of requiring online retailers to collect and remit sales tax.

Click on link to read:  Federal Bill Would Close Online Sales Tax Loophole

For questions regarding SALT issues, please contact Meredith Theiss at 720-227-0064 or mtheiss@taxops.com.

States collected over 10 percent more in taxes in the second quarter, compared to a year earlier, according to report from the Nelson A. Rockefeller Institute of Government at the State University of New York. The increase was the biggest in six years but is unlikely to be sustainable.

Tax increases have played a sizable role in state revenue growth, the Rockefeller Institute said. New or higher taxes on gasoline and other fuels, for example, added about $8 billion, or 3.5 percent, to second-quarter collections. Higher car registration and park access fees also contributed to an increase in revenue.

In many states, these temporary tax hikes will soon expire. California, North Carolina and New York all have temporary tax increases that have expired or will end this year. State sales taxes, which account for about one-third of state collections, have started to slip as well as debt-burdened consumers reduce consumption.

State and local governments have not seen similar bumps in revenue collections. Local taxing authorities rely on revenue from property taxes, which continue to decline years after housing prices turn bearish. Local property taxes fell one percent in the second quarter compared to a year earlier and are not expected to rebound soon.

For information about State and Local Taxes, please contact Meredith Theiss at 720.227.0064 or mtheiss@taxops.com.

States have been largely prevailing in a case-by-case fight against tax exemptions that taxpayers have historically enjoyed. That is until Mount Sterling, Illinois-based food distributor Dot Foods challenged the Washington Department of Revenue and won. This taxpayer-friendly win may be a step in the right direction against state over-reach for dollars.

In the milestone case of Dot Foods, Inc. v. Washington Department of Revenue (S. Ct., No. 81022-2, September 10, 2009), the Washington Supreme Court found that unambiguous statutes supported the Business and Occupation (B&O) tax exemptions in contention. The Court reaffirmed its decision on February 3, 2011 after a protest from the Department of Revenue (DOR). The DOR had contended that Dot no longer qualified for the B&O exemptions due to changes in the tax exemption statute that had previously qualified Dot’s sales because:

     1)  Dot, as an out-of-state seller, sold non-consumer products; and

     2) Dot sold consumer products that were later resold to a permanent retailer.

The court rejected the State’s contention that the exemption applied “exclusively” to consumer products sold to its direct seller’s representative. In fact, the court found that the statute does not cover the type of purchases, either consumer or non-consumer, that a direct seller’s representative must make in qualifying for the tax exemption. The court also found that the state’s statute does not pertain to downstream purchasers of products after the out-of-state seller has made its final sale to or through its direct seller’s representative. The DOR could not hold Dot responsible for taxes on sales it has nothing to do with.

As a result of the court ruling, Dot remained fully eligible for the B&O tax exemptions. Taxpayers everywhere may see a glimmer of hope that the pendulum of heavy-handed state interpretation against tax exemptions has swung too far; corrections from the court are now necessary.

If you believe that your company might qualify for these exemptions based on the Dot Foods case, please contact Meredith Theiss at 720-227-0064 or mtheiss@taxops.com.

Combined reporting in the District of Columbia (DC) is now effective as of September 14, 2011 with the enactment of the Budget Support Act. The retroactive change requires combined reporting for tax years beginning on or after December 31, 2010. The Budget Support Act also includes a change to the apportionment methodology. DC will now apportion income based on a three-factor approach with double-weighted sales. This change is consistent with other states’ apportionment methodologies that place an emphasis on the sales factor.

Taxpayers that have been making estimated tax payments throughout the year may need to pay a larger than expected amount at year-end for the newly enacted combined reporting requirement and apportionment change. For example, if a combined group’s taxable year begins on January 1, 2011, the first, second and third “catch up” payments are due on December 15, 2011 together with the fourth quarter payment under combined reporting.

Among other changes, the Budget Support Act permanently set the District’s sales and use tax rate at 6.0 percent. It had been scheduled to revert to 5.75 percent next year. DC also adopted the provisions of the “Main Street Fairness” Act (see the previous blog on the Main Street Fairness Act at http://www.taxops.com/blog/state-issues/sales-tax-nexus-issues-move-onto-the-federal-stage).

For questions, please contact Meredith Theiss at 720-227-0064 and mtheiss@taxops.com.

The standoff between Amazon.com and the state of California over a requirement to collect sales taxes appears to be coming to an end. The Seattle-based ecommerce giant has reportedly agreed to abandon a referendum initiative to strike down the state’s tax collection requirement in exchange for a one-year reprieve from collecting certain sales taxes. Amazon had launched a $5 million ballot referendum this past summer to overturn the state law. The referendum was to be placed on the ballot giving voters a chance to repeal the law.

According to Reuters, Amazon had refused to collect taxes from its customers in California since the law was passed in June. Instead, it quickly followed through with threats to drop about 25,000 affiliate partners in California that provided links on their Web sites to Amazon in exchange for a cut of the sales revenue. The California law holds in-state affiliates – website owners who collect a cut of the sales generated by referring links – subject to a tax nexus in the state, regardless of whether these affiliates actually have a physical operation or permanent employees based in the state. By terminating the affiliate program, Amazon severed the statutory trigger for the sales tax collection requirement.

Under terms of the deal, Amazon agreed to abandon the ballot referendum campaign and begin collecting sales tax on orders made by its California shoppers next September.

For questions concerning taxable nexus, please contact Meredith Theiss at 720-227-0064 or mtheiss@taxops.com.

Businesses across the nation are receiving notification of special assessments or an increase in Unemployment Insurance (UI) rates this year to cover interest payments to the U.S. government. These interest payments are due on federal loans taken by states borrowing to fund unemployment insurance benefit payments. According to the U.S. Department of Labor (USDOL), over 30 states have borrowed funds to pay unemployment benefits and now must pay interest on those loans beginning Oct. 1, 2011. USDOL estimates interest payments from these states will collectively amount to $1.4 billion in fiscal year 2011 and $2.2 billion in 2012.

Unemployment’s rapid climb in recent years left many state trust funds severely depleted to levels that could not be supported by standard UI revenues. In Connecticut, for example, UI benefit payments have exceeded UI tax revenues since 2007, leading to the insolvency of the fund in 2009. To continue paying benefits to unemployed workers as required by law, Connecticut began borrowing heavily in excess of over $800 million from the U.S. Department of Labor (DOL) through midyear 2011.

The DOL wants that money back now, with interest. Beginning January 1, 2011, UI borrowings were subject to interest payments. Federal law prohibits states from using unemployment contributions to pay interest charges on debt. As a result, cash-strapped states are now billing employers to cover the interest payments.

In late May, the state of Colorado began notifying employers of a special assessment to be billed in July and due within 30 days of the billing date. Arkansas chose instead to increase the UI tax on employers by 0.2 percent, effective the 2nd quarter 2011. Based on borrowings of just over $800 million, Connecticut’s special assessment is estimated at $30 million for 2011, and has been billed to employers at a rate of $1.70 per $1,000 of taxable payroll, or a maximum of $25.50 for each employee.

Employers can expect to be subject to additional special assessments or UI rate adjustments over the next several years to pay back the interest costs on the balance of UI loans. The criteria for employers that are subject to interest repayment varies by state. In some cases, non-profits and self-insured employers, such as municipalities, are excluded.

Intuit, makers of Quickbooks, compiled a partial list of states subject to UI interest repayment and the terms of that repayment, which is listed below. Repayment terms are subject to change so check with your state taxing authority or call Chris Becze at 720-227-0059 or cbecze@taxops.com if you have questions.

Alabama
A special assessment billed to employers.

Arkansas
A 0.2% Advanced Interest Tax imposed on employers. A new UI rate assigned effective the 2nd Quarter 2011.

Colorado
In late May, the agency began mailing employers a letter informing them about a separate Trust Fund Assessment bill to be sent in July titled the Unemployment Insurance Trust Fund Assessment Billing Statement. Payments must be paid directly to the agency within 30 days from the billing date. See http://www.colorado.gov/cs/Satellite?c=Page&childpagename=CDLE-UnempBenefits/CDLELayout&cid=1251592206521&pagename=CDLEWrapper for more information.

Connecticut
A special assessment was sent to covered employers, Aug. 1, 2011. See http://www.ctdol.state.ct.us/uitax/EmplNotices/EmplNotice1210.pdf for more information.

Delaware
A letter was sent earlier in the year notifying employers of a temporary emergency employer assessment.

Florida
A separate bill was sent to covered employers Feb. 1, 2011. See http://dor.myflorida.com/dor/taxes/pdf/ut_rates_fact_sheet.pdf for more information.

Hawaii
Increased the E&T Assessment Fund to 0.02% from 0.01%, effective Jan. 1, 2011.
Minnesota
A 2.0% Federal Loan Interest Assessment imposed upon employers as of Jan. 1, 2011.

New Jersey
A Federal Loan Interest Assessment imposed, notices sent July 2011. See http://lwd.dol.state.nj.us/labor/employer/ea/empinfo/FLINT.html for more information.

New York
An interest assessment surcharge for 2011 billed July 2011. See http://www.labor.ny.gov/ui/employerinfo/interest-assessment-surcharge.shtm for more information.

Pennsylvania
A 0.44% Interest Factor tax has been imposed on all employers except newly liable employers. The tax has been added to the Reserve Account Tax Rate and results in the Total Contribution Rate. See
http://www.portal.state.pa.us/portal/server.pt?open=514&objID=552153&mode=2#2011 for more information.

Rhode Island
A 0.3% Assessment has been imposed on all employers. The assessment is included in the Job Development Fund Tax. See http://www.uitax.ri.gov/ for more information.

South Carolina
A variable surcharge rate has been imposed on all employers.

Wisconsin
A special assessment for interest was imposed on businesses in August 2011. See http://dwd.wisconsin.gov/ui/safi/ for more information.

The Denver City Council passed an ordinance approving a temporary tax amnesty program available to almost all Denver taxpayers. The program runs for three months from October 1 to December 30, 2011, and is concurrent with the State of Colorado’s tax amnesty program. Under the program, businesses can save penalty fees and one-half the interest costs on unreported or underpaid Denver taxes for tax liabilities incurred on or before June 30, 2011. Applications for amnesty must be postmarked no later than December 30, 2011 for consideration.

Denver taxes eligible for amnesty are sales, use, and occupational privilege taxes. All other taxes, including property tax, are NOT eligible for amnesty.

Licensed and unlicensed businesses are eligible to apply for the program. Amnesty is not available for any tax period in which – prior to the start of the amnesty program – a taxpayer previously entered into an agreement to pay. In addition, taxpayers currently under audit may use the amnesty program unless they have received a final assessment notice related to the audit.

More information about Denver’s tax amnesty program can be found at http://www.denvergov.org/Portals/571/documents/Amnesty%20Flyer.pdf.

Corporate taxpayers interested in applying can submit a completed Application for Tax Amnesty with payment of the tax due plus one-half the normal interest due. The Application for Tax Amnesty can be found at
http://www.denvergov.org/Portals/571/documents/Amnesty%20Application.pdf.

Additional detailed guidelines, including an overview of the amnesty program and eligibility guidelines, can be found at
http://www.denvergov.org/Portals/571/documents/Amnesty%20Guidelines.pdf.

Frequently Asked Questions are answered at
http://www.denvergov.org/Portals/571/documents/Amnesty%20FAQs.pdf.

For additional questions, please contact Meredith Thiess at
720-227-0064 or mtheiss@taxops.com.

The R&D tax credit is among the largest and most broadly available federal and state tax credits. State competition to attract jobs has resulted in more attractive R&D credits, creating a veritable benefit bonanza for businesses. Job hungry states know that R&D fuels high-tech and manufacturing job growth. With more credits available, the thinking goes, companies can expand R&D work, generating new, typically high-tech jobs in the state.

Some states are upping the amount available for R&D credits to lure new companies state-side and keep others around.

• Take Louisiana and Minnesota, for example, which offer a refund for small businesses that haven’t even made a profit. A refund to a start-up that expects no profits in the near future is akin to cash flow that could keep a company in business through the difficult start-up phase.
• Iowa, Virginia and Arizona have refundable R&D tax credits. In some cases, though, the credits are capped.
• Although California does not have a refundable credit, the Golden state often matches the federal R&D credit. This is especially valuable in years that California does not allow for state net operating losses to be used.

When state credits are combined with federal funds, even companies with fewer than 50 employees can see tens of thousands of dollars in credits. Federal support of R&D credits is necessary to keep U.S. technological development on U.S. soil. With the size of R&D credits in the U.S. lower than a number of other developed and developing nations, the global pressure to increase R&D credits in the U.S. is growing. So too is pressure to expand the type of development eligible for R&D credit. Certain European countries, such as the U.K., are now considering tax breaks to companies that develop successful processes from general R&D work. Overall, such incentives could make the nation more attractive a place to perform R&D and keep intellectual property from straying abroad.

Healthy state and federal funding for R&D should make all businesses engaged in improving products, processes, and designs take a closer look at whether they qualify. Software, energy, pharmaceutical, environmental, and medical device companies and manufacturers are among those that can qualify.

For more information on R&D credits, call Mark Dunning at 720-227-0420 or mdunning@taxops.com.

States and local taxing authorities are offering businesses huge incentives to stay or move in rather than move on. The taxman’s impetus is job creation. If your company is thinking about moving your operations from one tax jurisdiction to another, consider the tax implications of the move first, and ways that you can use the move to improve your tax position.

Tax incentives play a key role in where a company chooses to locate and conduct business. Although online businesses benefit from the confusion around nexus, companies with a physical presence in a particular jurisdiction benefit from managing their tax burden. Tax opportunities could include negotiated tax reductions, credits, or other incentives as a condition of staying put or relocating to one place over another.

High unemployment coupled with tottering state and city budgets are giving businesses this one-off opportunity to negotiate for reduced tax obligations. In May 2011, the U.S. unemployment rate exceeded 9.0 percent, according to the U.S. Bureau of Labor Statistics. An estimated 8 million jobs have been lost during the recession.

State and local authorities are pursuing tax incentives to get people back to work. Employed people buy goods and services, own and rent homes, and keep local economies healthy. Businesses with as few as 50 employees may hold the bargaining power to extract large tax incentives in the form of reduced income, sales, and property taxes or even cash grants from taxing authorities in exchange for providing jobs.

Taxing authorities are particularly motivated to keep current employers in place and entice new employers to their area to establish training centers, manufacturing plants, and service outlets. For example, health insurance provider Cigna agreed to add at least 200 jobs in the next two years in Connecticut to earn a $50 million tax credit from a new Connecticut Department of Economic and Community Development program. Illinois provided Motorola more than $100 million in incentives over 10 years to retain is headquarters in Libertyville — employing 3,000.

Taxes are a big factor for business executives in deciding where to relocate, expand a business, or start a new business. Before signing your next lease or relocating, take some time to consider credits and deductions that may reduce your company’s tax burden and help you determine your company’s ideal location from a tax perspective.

1. Select tax-friendly locals based on listed tax rates

• Certain states are more tax-friendly for businesses than others. The five best state tax systems can be found in South Dakota, Texas, Nevada, Wyoming and Washington. None of these states have personal income tax or corporate income tax rates. Among the worst states in the union to do business are California, Maine, Iowa, New York, New Jersey, and Minnesota.

• Certain counties within states are more tax-friendly for business than others. From a sales tax perspective in Colorado, for example, the county portion of the sales tax rates in Arapahoe, Jefferson, and Adams counties are among the lowest in the state.

2. Negotiate tax incentives

If you are serious about moving your operation from one jurisdiction to another, try negotiating with tax authorities where you are and where you might want to be to take advantage of the best tax situation for the location you end up choosing.  Tax incentives can be in the form of reductions to income, sales, or property taxes through a reduction in the tax base, tax rate or both.  Additionally, a state or local jurisdiction could offer certain types of tax credits as incentives to relocate in their area.  For companies that are unable to take credits directly against income tax, some types of credits are allowed to offset employment taxes instead or to even be refundable.  Typically, it is best to begin the process of negotiation early. Call us at TaxOps to discuss potential incentives and best negotiation approach before you make a move. 

3. Understand targeted revenue pockets

When it comes to state finances, cash-strapped states are digging deeper to find new pockets of revenue to bridge ever-widening budget gaps. Along with the usual targets – sales, use, and income taxes – states are reportedly considering tapping into a wider array of potential revenue streams that could include:

• Retirement income
• Unclaimed life insurance policies
• VoIP service taxes
• Gambling and liquor sales
• Estate taxes
• Corporate license plate taxes
• Electric vehicle taxes
• Private aircraft taxes
• Unemployment taxes

4. Be aware of claw-back provisions

Some jurisdictions have been aggressive in including and enforcing claw-back provisions in agreed upon tax incentive packages.  These can result in a loss of some or all of the originally agreed upon benefits if the relocating company does not uphold its end of the agreement in terms of investment or jobs created.

For more information on best U.S. states and counties to conduct business from a tax perspective, please contact Meredith Thiess at 720-227-0064 or mtheiss@taxops.com.

Capital Hill has entered state terrain in an effort to settle the decade-old heated battle between states and online retailers over the collection of sales taxes on online purchases. Depending on your viewpoint, this is either government gone amuck or action that is way overdue.

Legislation known as the Main Street Fairness Act was reintroduced in the U.S. Senate that would require Internet-only retailers to add sales taxes to customers’ bills, just like brick-and-mortar competitors. Each member state under the Streamlined Sales and Use Tax Agreement would be authorized to require all qualifying sellers to collect and remit sales and use taxes with respect to remote sales across the country. It also would require state-approved Streamlined Sales and Use Tax Agreements to meet a lengthy list of simplification requirements to ease administrative burdens for sellers; and exempt small businesses from collecting sales taxes. The bill would compensate retailers for the startup administrative costs associated with collecting sales taxes; and treat all retailers equally regarding sales tax collection.

The bill aims to address a 1992 U.S. Supreme Court decision that requires physical presence in a customer’s state for the collection of sales taxes from mail-order activity. Taxpayers are currently required to report sales that they have not paid tax on; in Colorado a Consumer Use Tax is due on those sales. However, few consumers actually file and pay. The bill would release consumers from existing remittance obligations. It would also help states and localities collect billions in taxes, helping to bridge budget gaps.

Support for a simplified state tax collection system is growing. Among the supporters of simplification are Amazon.com and Sears Roebuck & Co. Simplification is also supported by the National Governors’ Association, the National Conference on State Legislatures, the Governing Board of the Streamlined Sales and Use Tax Agreement, the National Retail Federation, the International Council of Shopping Centers, the Retail Industry Leaders Association, the National Association of Real Estate Investment Trusts, and the National Association of College Stores. Whether that support extends to the Main Street Fairness Act is yet to be seen.

For more information, see links to previous blogs on nexus issues, including:

Michigan Replaces its Controversial Tax Regime
States Take in More Revenue While Cities Take in Less
Nexus Issues Take on More Prominence for Businesses

Or contact Meredith Thiess at 720-227-0064 or mtheiss@taxops.com.