Over the last few years, Washington has taken an interesting approach to its nexus and state tax law. Back in 2015, it adopted a click-through statute and economic nexus thresholds for businesses making sales in the state. Washington currently has a few other interesting bills up for debate, but in the meantime the Department of Revenue (DOR) enacted another piece of legislation that affects economic nexus.
The Oregon Legislature is proposing an interesting approach to state taxes. Initiative Petition 28, or IP28, is designed to raise more than $6 billion in revenue every two years for public education, health care and senior services. How? The petition would raise the state’s business tax rate by creating a gross receipts tax on C corporations of 2.5 percent on sales above $25 million.
3 Positives to IP28
There are a few positives to this approach to state taxes.
- Analysis reveals that IP28 would reduce Oregon’s revenue from personal income taxes from the highest in the country (69 percent) to 55 percent.
- Because of increased tax revenues, it’s expected that employment in Oregon’s public sector would increase.
- Despite increasing state taxes for corporations, more than 28,000 companies would remain unaffected.
As the calendar turns to autumn, we dedicate this month to Louisiana, the Pelican State. This state is a place for all ages. Louisiana is known for its soulful music, amazing food and rich heritage. The state’s multicultural background comes together in the form of festivities and lively interactions with the locals. Its annual Mardi Gras festivities and extravagant floats bring visitors from all over the world. After suffering a tragic loss in the form of Hurricane Katrina ten years ago, the state has been putting emphasis on its efforts to restore business and livelihood. Louisiana’s economic rise has been as hot as its climate.
For years, Louisiana has suffered a reputation as a challenging state in which to do business. However, Louisiana has been making significant changes. Since Gov. Jindal’s election to office in 2008, he has initiated state governmental ethic reforms and business tax cuts. Among the tax cuts is the removal of sales taxes on manufacturing machinery and equipment, natural gas and business utilities. The state also eliminated franchise tax on corporate debt and taxes on the sale of privately held business in order to persuade successful entrepreneurs to stay in the state. These changes have proved to be significant as the perception of the state is changing favorably.
A fascinating program Louisiana has is its LED Faststart program. The state partners with eligible companies to help develop their business, which in turn goes back to the community in the form of jobs and benefits to employees. Continue reading
When you started or expanding your business, what criteria did you use for selecting a location? Did you opt for a “business friendly” state? Because each state offers different taxes, fees, credits and incentives, it can be hard to know how to choose the best fit for your company.
One important idea to keep in mind is that selecting a state of incorporation for your company doesn’t only come down to taxes, fees, credits and incentives. It’s also important to think about where your business will operate and have nexus. Although “business friendly” states certainly sound appealing, they aren’t always the best choice for entrepreneurs – especially small business owners.
A good principle to keep in mind is that if your business has five or fewer shareholders it may be best to form a corporation or LLC in your home state – where you live and will be conducting business.
With that in mind, here are 6 key business formation criteria to keep in mind:
1. Initial fees. Some states require one-time formation fees for new corporations or LLCs. In some states, like Arkansas, Colorado, Oklahoma and Mississippi, this fee is as low as $50. For others, like Texas and Connecticut, it’s as high as $310-$455. Fortunately, this initial fee shouldn’t have a long-term impact on your company. Continue reading
Happy President’s Week! In light of the holiday, we thought it would be fun to chronicle the history of some relevant state tax legislation enacted and court cases decided during the terms of notable presidents. Here are three important state tax milestones with which to be familiar.
1959: Passage of Public Law 86-272
President: Dwight D. Eisenhower
Congress enacted this state tax law to protect companies selling across state lines by providing a safe harbor for income tax purposes. Although it was originally slated to be temporary, the law still prohibits a state from imposing a net income tax on an out of state corporation if the corporation’s only in-state activity is the solicitation of orders. Orders must be for tangible personal property, where orders are sent outside the state for approval and are filled from inventory stock held outside the state. If a company engages in services in the state, the protection of P.L. 86-272 is lost. Continue reading
Depending on where your business is located, you may receive a visit from a representative from the Board of Equalization, California’s tax regulator. As this article explains, the organization recently rolled out the Statewide Compliance and Outreach Program (SCOP) to find businesses that are skirting state taxes and licensing and, “Bring them into compliance.” However, despite it being originally pitched as an educational program to help answer business owners’ questions and help them comply with use, sales tax and licensing laws, the SCOP has turned into intimidating in-person visits that trigger audits on state taxes.
With more than 5,000 taxing jurisdictions in the country, complete compliance is very difficult – especially as companies expand their operations into multiple cities, counties and states. As this video explains, every company’s situation is different because state taxes are driven by various facts and circumstances beyond business location; many are dependent on the company’s industry, eligible credits and incentives and more. It’s no wonder many business owners are confused! Continue reading
Last month the Arizona Commerce Authority (“ACA”) hosted an event to watch the San Francisco 49ers take on the Arizona Cardinals at the new Levi’s Stadium in Santa Clara. Gilbert Gonzalez, Vice President of Business Attraction Northern California, of the ACA invited us to attend. While we had a great time at the game, we also got to learn more about what the ACA offers to businesses expanding or relocating into Arizona. The state offers various appealing tax credits and incentives (some very similar to what California offers, watch out Golden State!) as well as a great business climate that may just steal a few California businesses.
As our way of saying thanks, we decided to put our focus on the Grand Canyon State for this feature of the State of the Month.
The manufacturing industry in Arizona plays a pivotal role in serving other industries. The state has over 4,500 establishments and employs over 155,000 people in manufacturing. The average wage of a manufacturing position is 50% more than the average wage for any position in Arizona. In 2012, the total manufacturing output was $23.66 billion, equivalent to more than 10% of Arizona’s Real GDP.
Another key sector in Arizona’s economy is the aerospace & defense industry. This industry has over 1,200 companies including major contractors such as Raytheon Missile Systems (11,900 employees) and Honeywell Aerospace (10,100 employees). This sector represents over 150,000 jobs and contributes $15 billion to the gross state product. Continue reading
If you’ve been paying attention over the last few years, you’ve surely heard of Bitcoin, a virtual currency becoming more and more common – especially in California. But since Bitcoin is virtual and unregulated (at least at this point), there are a lot of questions surrounding the digital currency and how it relates to state tax issues.
What is bitcoin? Bitcoin is a virtual currency created in 2009. Transactions are made directly between two parties, without banks or other fees included. They can also be used anonymously, making it possible for users to buy or sell anything without it being easily traced back to them. Because bitcoins are stored in a “digital wallet” either in the cloud or on a computer, the FDIC doesn’t insure them, meaning they can be easily lost through server hacks and viruses.
What about regulation? As bitcoin has become more popular, the question of regulation has become more common. Two states – California and Colorado – are working to regulate this virtual currency due to its prevalence within their states. I would imagine more states will follow suit as bitcoin becomes more and more popular. Continue reading