Category Archives: Franchise Tax

Example: Amnesty Programs in Action

Here's an example of how tricky amnesty programs can be.

Here’s an example of how tricky amnesty programs can be.

If you saw our blog post last week, you know that there is a lot of amnesty program activity taking place right now. Although there are benefits to these types of programs, we have some objections to the way they work, including:

  1. A client fact pattern often needs to fit exactly into the state’s amnesty time window to be effective.
  2. The types of taxes considered under the amnesty can be limited and may not encompass our client’s entire picture.
  3. The rules for an amnesty program tend to be fairly rigid, not offering much leniency for either overpayments or underpayments.

Check out last week’s post for more detail. In the meantime, read on for an instance of how difficult amnesty programs can be. Continue reading

[Time Sensitive] Upcoming Amnesty Program Activity

Do you understand how amnesty programs work?

Do you understand how amnesty programs work?

We are seeing a lot of amnesty program activity taking place among the states right now. So what is an “amnesty program”? It is a specific initiative determined by a state’s legislature and governor, where delinquent taxpayers can come forward, make themselves known to the state, and file tax returns (and pay taxes) on specific taxes that the state designates through the program. An amnesty limits the taxable period covered, (e.g. all taxes due before 1/1/13), and the time period for coming forward (e.g. the taxpayer must come forward between 9/1 – 10/15/15 to be eligible).

The benefit to an amnesty program is it allows taxpayers to come forward voluntarily for back taxes. The understanding is that the taxpayer comes forward and the state will generally waive penalties and interest; it’s a method of bringing companies into compliance in a non-punitive way.

Sounds like a great idea – right? Continue reading

Focus on Washington

Is Washington the next Silicon Valley? Possibly, possibly not. Regardless, the state has a wealthy portfolio of household name companies including Amazon, Microsoft, and Starbucks. Other popular companies headquartered in Washington include T-Mobile USA, Eddie Bauer, Nordstrom, Costco Wholesale, REI, and Tully’s Coffee. Roughly 1 out of 3 people in Washington have a college degree and over 90% of Washingtonians have graduated high school. To top that all off, Seattle is considered one of the most educated cities in the nation. Over 53% of the population over the age of 25 hold a bachelor’s degree. We assume that all the coffee is the reason for a productive economy and talented workforce. This month, we decided to travel back to the west coast and put our focus on the Evergreen State! Continue reading

Focus on Florida

Winter is the coldest season of the year and we folks in the Northern Hemisphere are currently in the midst of it. Although every state in the nation experiences lower temperatures, some experience more severe winters than others. Thus, at this time of the year snowbirds flocks to warmer locations such as Florida and so will we!

 

Business Climate

Speaking of warmer locations, Miami, Tampa, and Orlando have the highest daily mean temperatures of large US cities in December, January and February. In fact, the state’s average annual temperature (70.7 degrees Fahrenheit) is ranked the highest in the nation. The weather of the “Sunshine State” contributes to the two largest industries in Florida; Tourism and Agriculture.

Continue reading

Focus on Colorado

The word colorado means “colored red” in Spanish. The Colorado River was given this name by Spanish Explorers because of the red sandstone soil in the surrounding region. The territory inherited the name after the river and eventually became the 38th state of the US. This week we focus on Colorado.

 

Business Climate

Colorado is considered the 8th largest state area wise and has a very diverse geography. From the Colorado Eastern Plains to the Rocky Mountains, the state takes full advantage of the land and much of it is favored towards the agriculture industry. In fact, over 60% of Colorado’s land  is used for agriculture. Livestock is one area of agriculture that has done especially well. Colorado has over 15,000 beef producers, 200 feedlots, and 20 USDA certified slaughter plants. Beef is the number one agricultural commodity from the state. In addition to livestock, the state is also the nation’s leader in producing beer, with nearly 150 breweries. Denver, Colorado is known as the “Napa Valley of Beer.”

The extensive geography  plays in the state’s favor also for tourism. In 2013, Colorado experienced 64.6 million travelers and visitors spent $17.3 billion. Colorado is considered the “Switzerland of America,” because of its collection of mountains that are ideal for winter sports. These mountains attract millions of tourists to flock to ski resorts and has contributed in making Colorado #1 in the nation for overnight ski visits. Asides from the winter attractions, Colorado’s outdoors is just as enjoyable in all the other seasons. In fact, this past summer the tourism industry experienced waves of visitors and the state expects to break previous tourism records. Some are skeptical though and believe it is because of the legalization of medicinal and recreational marijuana use that more and more people are flocking into the state. Regardless, Colorado’s tourism industry is doing well.

Taxes

Colorado has a favorable tax climate according to the State Business Tax Climate Index. Of the 50 states, it ranked 19th due to having low corporate income tax (8th lowest) and individual income tax rates (13th lowest). Both are flat rates of 4.63%. In 2014, from January to July the state collected $5,650 million in individual income tax and $716 million in corporate income tax. Continue reading

California Tax Credits for Aerospace

Background:

The U.S. Air Force is looking for a partner for their Advanced Strategic Aircraft Program, a deal worth $55 billion. They are looking to buy up to 100 stealth bombers. In the mix for this deal are Northrop Grumman Corp. and Boeing Co. conjointly with Lockheed Martin Corp. California, seeing the benefits this could provide the state, has approved bills in regards to tax credits and incentives for the corporation that the U.S. Air Force ultimately chooses to form a contract with.

Assembly Bill 2389 & Senate Bill 718:

Initially on July 10, 2014 Governor Brown approved Assembly Bill 2389, which contains two portions that can save potentially up to $420 million in tax breaks for a qualified employer. The first portion relates to the Capital Investment Incentive Program (CIIP), a program formed in 1999 to attract large manufacturing facilities by offering 15 years of property tax rebates. This was previously applicable to a broad range of manufacturers, but is being temporarily narrowed down to North American Industry Classification System (NAICS) codes 3364 (Aerospace Product and Parts Manufacturing) and 3359 (Other Electrical Equipment and Component Manufacturing).

The second portion is more specifically for the actual contract with the U.S. Air Force. It’s an aerospace income tax credit of 17.5% of qualified wages paid or incurred to qualified full-time employees.  In order for employees to be qualified they must spend 80% or more of their time working on the advanced strategic aircraft program. However, AB 2389 stated that the employer/taxpayer is a “subcontractor with regard to the manufacture of that aircraft.”

Under that definition, the only “subcontractor” that would qualify for the aerospace tax credit is Lockheed Martin since Northrop Grumman is a prime contractor. Northrop Grumman, the largest aerospace/defense employer in California, complained about favoritism and that it would put them at a disadvantage for winning the contract. However, it appeared as though the government wasn’t aware of the corporation’s interest in this deal until last minute. Consequently, Senate Bill 718 was passed on August 15, 2014. This expanded the bill to include prime contractors, thus creating a fairer playing field for both parties.  Only one of these corporations will qualify for the aerospace tax credits and it is contingent upon who receives the contract with the U.S. Air Force and if they build the bombers in California. Continue reading

Focus on Nevada

Miles Consulting continues to help clients in other states, so this week we dedicate some time to Nevada.

Business Climate:

Nevada conjures up images of bright lights, gambling, and other entertainment. But we’re blogging about state taxes! According to the 2014 State Business Tax Climate Index, Nevada ranks very favorably due to an absence of several taxes. Some of the taxes not levied include individual income tax, franchise tax, and corporate tax. Nevada also offers many credit and incentives programs that attract employers to increase their workforce. The combination of low taxes and incentives makes Nevada a hot spot for new and existing businesses. Companies like Amazon and Urban Outfitters elected to create fulfillment centers in the Northern Nevada area for these very reasons. The geographic location of Nevada is still within close proximity to California markets without the burden of a high tax structure.

Key industries within the state include manufacturing, aerospace/defense, mining, tourism, gaming, and hospitality. As of 2014, there are roughly 381,800 jobs within the tourism & gaming industry. Nevada is an ideal location for manufacturing due to its proximity to ports in California. The industry currently has over 1,800 manufacturing companies which employ over 56,000 residents of Nevada. The state-wide unemployment rate in April 2014 was 8.0% and has been decreasing due to the addition of 42,700 private sector jobs added within the first four months of 2014. Continue reading

Update on CA Competes Tax Credit

Background

As previously discussed in this blog the California Competes Tax Credit is a new income tax credit for which companies submit applications to the state detailing increased investment in California. The submissions are vetted by a five member panel. On June 19th, a committee meeting of the Go-Biz board (representing the Governor’s Office of Business and Economic Development) was held in Sacramento to approve and announce those companies receiving their share of the first $30 million in tax credit available for the fiscal year ending June 30th, 2014.  A total of 31 companies will receive a share of the $30 Million, out of almost 400 companies, who requested approximately $500M in credits.  Thus, the “winners” were truly an elite group.

The new fiscal year for this credit began July 1st and the total amount of credit allocated has jumped up to $150 million!  No more than twenty percent of the credit may go to any one applicant per fiscal year. Again, twenty-five percent of the $150 million will be reserved for small business. There are multiple phases of the application evaluation which is performed by a set group of Go-Biz administrators.

The first phase is based on a formula where the amount of tax credit requested by the applicant is compared to the applicant’s proposed new full-time employee compensation and capital investment commitments. Applicants who sent letters certifying they were at risk of reducing the number of employees in California absent the credit were automatically moved to the second phase of evaluation. The remaining applicants were ordered from lowest to highest based off the compensation versus employee compensation plus capital investment ratio. Ratios within the top 200% were then moved to the second phase of evaluations as well. Continue reading

California Taxes are like the World Cup

As the soccer World Cup began this week, attracting the attention of the United States (and of course, the rest of the world), I reflected on my own childhood – watching soccer with my family. Not just any soccer, but German “Bundesliga” soccer. We cheered for FC Kaiserslautern and I also grew up following the German National Team in their quest for World Cups (3 so far). Of course, now that the United States team is also a contender, I watched with pride as both Germany and the US won their opening matches. I thought…World Cup soccer and CA tax policies have some commonalities. That might make an interesting blog.

 Upsets occur…Some winners, some losers

An upset can certainly happen in soccer. Sometimes in the blink of an eye – there’s  a lucky bounce or well directed header; sometimes a bad call by the referee, or sometimes just a crazy upset when you least expect it. On the World Cup stage, players are representing their whole country and there is a great deal of passion in both a win and a loss.

In California tax policy, we too have winners and losers, and passion on various sides of an issue. If you follow this blog, you know that our clients (and clients across the state) were dealt a huge blow last year when the Governor and state legislature decided to end the 20+ year enterprise zone program – literally in a vote that happened overnight. Almost a year later, people still ask me every day – “Why did they do away with a program that helped companies that were hiring people?” The answer, of course, is complicated – like that call in soccer as to whether the referee should pull out that red card on the player or not!

In place of the enterprise zone benefits, some new benefits have taken shape. There is the California Competes Tax Credit and the California Manufacturers’ Exemption for sales tax. The California Competes Tax Credit is for companies entering or expanding within California. A certain amount of money is allocated annually. There are myriad selection criteria and companies will have to prove their worthiness to even be considered. There will be winners…and losers. (Click here for more) The California Manufacturers’ Exemption for sales tax is an exemption for a portion of the state sales tax for companies in specific NAICS codes, placing into service qualifying machinery and equipment. It sounds straightforward, but there are nuances that will play out better for some companies than others. Not all industries qualify (some losers) and not all assets for even a qualified industry qualify (more losers), and it sunsets in 2021 (hurry up if you want to be a winner!). However, overall, we trust that it will be a good program that helps to put California on par with other states that have similar exemptions (a winner). (Click here for more) Continue reading

Focus on Texas

We’ve spent time recently blogging about changes in California.  But, Miles Consulting also helps clients in other states , so we decided to dedicate some time on those as well. This week our focus is on Texas.

Business Climate:

Texas has long been considered a state that is friendly to business.  Texas boasts that it is the state with the most exports – topping $279 Billion in 2013. It also lays claim to 52 of the Fortune 500 companies.  http://www.texaswideopenforbusiness.com/business-climate/economic-strength.php  Texas is a right to work state with low unionization, as well as low worker’s compensation rates.  Major Texas industries include petroleum and natural gas, farming, steel, banking and tourism.

Taxes:

Texas is unique because the state does not impose a personal or corporate income tax, but instead relies on sales tax, property tax, and a franchise tax.  The state’s current sales and use tax rate is 6.25%. In addition, cities, counties, special purpose districts, and transit authorities may also impose sales and use tax up to two percent for a total maximum combined rate of 8.25%.  The franchise tax (also known as the “margin” tax) applies to partnerships (general, limited and limited liability), corporations, LLCs, business trusts, professional associations, business associations, joint ventures, incorporated political committees and other legal entities. If your annualized total revenue is less than or equal to $1,080,000, or your tax due is less than $1,000, you will owe no tax. All taxable entities must file a report, even if no tax is due.   The following entities are not subject to the franchise tax:  sole proprietorships and general partnerships directly and solely owned by natural persons.   Continue reading