Category Archives: Income tax

State Tax Deduction Limit? California Fights Back.

What’s good for the goose….

By now many of us in California have contemplated our fate regarding how the tax reform act passed by Congress last month will likely hurt Californians as a result of the federal limit on the state and local tax deduction for individual taxpayers.

In an effort to mitigate the limit of this deduction for Californians, state lawmakers have quickly looked to alternatives.

New Tax Plan – limited deduction

For residents of California and other high tax states, a major item of concern in the tax act is the cutback of deductions for state and local taxes (SALT). Taxpayers will now be able to deduct only up to $10,000 in SALT, including property taxes.   According to this recent LA Times article, limiting the SALT deduction could affect as many as 6 million Californians. California taxpayers accounts for almost 20% of all SALT deductions, which is the highest state in the nation.  Other states with large amounts of SALT deductions include New York, New Jersey and Connecticut, perhaps not coincidentally – all “blue” states.

How to mitigate the problem?

One option proposed last week by Senate President pro Tempore Kevin de Leon (D – Los Angeles), would be to recast state and local taxes as charitable contributions, which remain fully deductible under the GOP tax act.   SB227 (known as the “Protect California Taxpayers Act”) would allow California taxpayers to make a charitable donation to a government entity, the California Excellence Fund, in the amount of their state taxes.  They would then receive a dollar for dollar tax credit on their CA tax return in the amount of the donation.  (For example, a taxpayer owing $15,000 in property taxes, might pay this amount to the Excellence Fund. The taxpayer then gets a tax credit for the entire $15,000 on their CA return. On the federal tax return, the taxpayer correctly classifies this amount as a charitable contribution, which is not limited to the $10,000 SALT rule.  So, by essentially reclassifying the property tax as a contribution, the taxpayer still gets the full deduction for the entire $15,000, rather than just $10,000 on their federal return.)

Playing Devil’s Advocate?

So, that all sounds good. But will the IRS allow it?  Will Congress?

What constitutes a charity? The Internal Revenue Service (IRS) and federal courts have ruled that government entities can qualify as charities for the purpose of the charitable deduction, even when the donor receives a full state or local tax credit in return.  California and other states already have similar programs in place. For example, CA has a College Access Fund, which grants a 50% tax credit for contributions to the Cal Grants Program, which aids low-income college students.  17 additional states use a similar model to fund private education.

While the proposal is certainly creative, and has some defendable history behind it, we recommend to be cautiously optimistic about its ultimate passage in the state and then whether Congress will find a way to shut it down by passing further clarifying legislation.

For more information regarding this act published by the San Joe Mercury News, click here.

Stay tuned for further updates!

If you have any questions, please don’t hesitate to contact us at info@milesconsultinggroup.com. We are happy to help with all of your tax needs.

 

More Amnesty on the Way!

What states are coming up with amnesty programs of their own?

Across the U.S., amnesty seems to be a popular topic these days. The Multistate Tax Commission’s (MTC) special amnesty program for marketplace retailers recently ended. And a few other states have recently announced their own amnesty programs so that they can benefit from potential increased compliance as well. Connecticut (CT), Ohio (OH) and Rhode Island (RI) are the latest states to roll out amnesty programs of their own. And we expect others to follow. The states administer amnesty programs because they want to induce companies to become compliant by waiving, or limiting penalties and interest for prior unpaid taxes.

 

Recent MTC amnesty program

Many states just took part in a special amnesty program. The MTC had negotiated this special program for online sellers using marketplace fulfillment services (such as Fulfillment by Amazon) that created nexus and thereby had sales tax and income tax obligations. Twenty five states participated, including CT and RI. To find out more about this amnesty program, click here.

This special amnesty program waived taxes in addition to interest and penalties. We’ve cautioned our clients not to expect amnesties to be that generous in the future. Most state amnesties allow taxpayers to waive penalties and some interest, but rarely the tax itself.

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FOCUS ON MICHIGAN

Tahquamenon Falls in Michigan’s eastern Upper Peninsula.

This month takes us to the Wolverine State of Michigan. The origins of this name are obscure, but may be derived from a busy trade in Wolverine furs during the 18th Century.

Its largest city, Detroit, is famed as the seat of the U.S. auto industry, which inspired Diego Riviera’s murals at the Detroit institute of Arts. Also in Detroit is Hitsville U.S.A., the original headquarters of the Motown Record Company. Michigan is home to many great musicians including The Supremes, The Temptations, Stevie Wonder, Smokey Robinson, Bob Seger, Kid Rock and Alice Cooper.

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FOCUS ON KENTUCKY

Kentucky is known for its horse races, particularly the Kentucky Derby at Churchill Downs.

This month we travel to the Bluegrass State of Kentucky. The nickname is based on the bluegrass found in many of its pastures due to its fertile soil. The state’s largest city, Louisville, is home to the Kentucky Derby, the renowned horse race held at Churchill Downs on the first Saturday in May.

The Red River Gorge is a canyon system on the Red River in east-central Kentucky. Geologically, it is part of the Pottsville Escarpment, a resistant sandstone belt of cliffs and steep sided, narrow crested valleys. The prevalence of sandstone allowed the Red River to cut a magnificent gorge through the mountains. It is a rock climber’s paradise and is some of the best natural area around!

Kentucky is a land with diverse environments and abundant resources, including the world’s longest cave system, Mammoth Cave National Park, the longest of navigable waterways and streams in the contiguous United States, and the two largest man-made lakes east of the Mississippi River.

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Ongoing Amnesty Program: Act Soon!

An update on the new amnesty program.

Last month, we updated our readers on an ongoing amnesty program for state taxes that is currently taking effect. As this program could be helpful to sellers utilizing fulfillment marketplaces, we wanted to provide an update on this program so qualified companies can take advantage of the potential benefits of the amnesty.

 

 

What exactly is it?

Despite certain online sellers, like Amazon, volunteering to collect tax across the U.S., many online sellers are not collecting tax in states where they may have (intentionally or inadvertently) created nexus. Amnesty programs encourage companies to become compliant in a given state. This one is a grand-scale amnesty, covering many states.

The nexus committee of the Multistate Tax Commission (MTC) approved the MTC to participate in a multistate sales tax amnesty program for third-party sellers whose only nexus with a state is the use of fulfillment services offered by third-party marketplaces. The Multistate Voluntary Disclosure Program (MVDP) provides a way for a taxpayer with a potential tax liability in multiple states, to negotiate a settlement, using a uniform procedure.

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FOCUS ON MAINE

A lighthouse in Portland, Maine.

This month we travel all the way to the northeast corner of the country to the state with the rocky coastline and maritime history of Maine, the Pine Tree State.

Maine is the northeasternmost state in the contiguous United States. It is known for its jagged rocky coastline, low, rolling mountains, heavily forested interior, picturesque waterways, and its seafood cuisine, especially clams and lobster.

During the last ice age, the receding glacier left artifacts that we find interesting today- millennia later. Much of Maine’s geomorphology was created by extended glacial activity at the end of the last ice age. Prominent glacial features include Somes sound and Bubble Rock, both part of Acadia National Park on Mount Desert Island. Carved by glaciers, Somes sound is considered to be the only fjord on the eastern seaboard and reaches depths of 175 feet. The extreme depth and deep drop-off allow large ships to navigate almost the entire length of the sound. These features also have made it attractive for boat builders, such as the prestigious Hinkley Yachts.

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AMNESTY PROGRAM DIRECTED AT FBA SELLERS

Could an Amnesty Program erase your tax burden?

There is a new scheduled amnesty program that may help businesses correct overlooked tax obligations if they have been selling products and services in other states. Many companies engage in multi-state sales through an intermediary, like Amazon, eBay and similar organizations called “fulfillment services.” The fulfillment centers place a seller’s inventory in warehouses in multiple states to expedite shipping, but in the process, create nexus for the seller in those states. As such, the sellers have an obligation to collect sales tax and pay income tax. Unfortunately, unpaid taxes may incur penalties and interest. Now there may be a short time window to correct these errors and avoid interest and penalties.

On Monday, July 31, the nexus committee of the Multistate Tax Commission (MTC) approved the MTC to participate in a multistate sales tax amnesty program for third-party sellers whose only nexus with a state is the use of fulfillment services offered by third-party marketplaces.  The MTC is an intergovernmental state tax agency working on behalf of states and taxpayers to facilitate the equitable and efficient administration of state tax laws that apply to multistate and multinational enterprises.

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FOCUS ON SOUTH DAKOTA

Mt. Rushmore in beautiful South Dakota

This month takes us to the Mount Rushmore state of South Dakota. South Dakota is the 5th least populous state in the U.S., with a population of 865,454 people in 2016. It is also the 5th least densely populated state in the country. South Dakota is in the north-central United States, and is considered part of the Midwest by the U.S. Census Bureau. It is also part of the Great Plains region, which covers most of the western two-thirds of the state. West of the Missouri River the landscape becomes more and more rugged, consisting of rolling hills, plains, ravines, and steep flat-topped hills called buttes. In the south part of the state, east of the Black Hills, lies the Badlands of South Dakota. Erosion from the Black Hills, marine skeletons that fell to the bottom of a large shallow sea that once covered the area, and volcanic material, all contribute to the geology of this area.

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IT’S ALL GREEK TO ME!- US MULTISTATE TAX & FOREIGN COMPANIES

Santorini, Greece

I just returned from an amazing vacation – a cruise of the Mediterranean.  We started in Athens, Greece; spent just a couple days there enjoying the history, and then boarded our ship.  The cruise took us to the Greek isles of Santorini and Crete, and then we sailed to Italy, the beautiful St. Tropez, France, and finally Barcelona, Spain.  We finished our vacation by sampling many, many tapas and wines in Barcelona.  About midway through our vacation, I found myself wondering – how could I do US multistate tax consulting somewhere in Europe?  I’m still working on that angle, and will certainly keep you posted.

But meanwhile, on the flip side of that equation, we’ve been engaging with several foreign companies who have US operations and find our state tax laws to be, well, challenging!  As I tell all my foreign clients – trust me, they are challenging for US companies too!  Here are some of the main things for foreign companies to think about as they begin doing business in the US.

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FOCUS ON MISSISSIPPI

A Mississippi Riverboat sailing down the Mississippi River.

This month we travel to the land of Dixie, the southern state of Mississippi. The state is heavily forested with over half of the state’s area covered by wild trees including mostly pine, as well as cottonwood, elm, hickory, oak, pecan, sweetgum and tupelo.

The Mississippi River delta region is considered home of the blues music, where this type of music is honored at the Delta Blues Museum in Clarksdale. This region is also one of the top casino destinations between Las Vegas and Atlantic City. Many well-known and diverse singers came out of Mississippi including Elvis Presley, alternative rock band 3-Doors Down, Jimmy Buffet and Opera Singer Leontyne Price.

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