The SALT Shaker

Sales Tax on Rental Properties

Florida is known for white sandy beaches, warm sunny weather and..… no income taxes for individuals.  However, many individuals have discovered there is a “sales” tax on renting their Florida beach condos.  The state of Florida  is using information from the federal income tax return to locate individuals that own rental properties in Florida.  The state will mail an assessment notice based on the address and activity on the Federal tax schedule E.

Keep this in mind for individuals that report Florida rental activity on their individual income tax returns.  The tax only applies in specific circumstances and the KatzAbosch SALT Group can help evaluate any potential tax obligations.

 Please contact the KatzAbosch SALT Group if you want to reduce potential audit assessments.

The SALT Shaker is prepared by Andy Bareham, Chair of the KatzAbosch SALT Group

The SALT Shaker

Sales/Use Tax on CPA Firm Services

Currently in Maryland 12 specific services are subject to sales/use tax.  A bill has been proposed that would greatly expand the number of services subject to tax.  Two of these new services – cited below – will directly impact our practice:

11-101(m)

 (19) A tax preparation service

 (30) A management, a management consulting, a public relations, or ANY other business consulting service

 Almost every year this type of legislation is presented and thus far has been defeated.  The difference this year is that the legislation is sponsored by the powerful Chair of the House Ways and Means committee. I am concerned this bill will not “die in committee” as it has done in past years.

Additionally, the Governor’s Budget contains a new sales/use tax on “digital downloads.” There is a clause in this bill which could extend this new tax to e-filing of tax returns and CPE webcasts.

The state is looking for new revenue sources and they believe one of them could be the service economy. I try to not get worried about proposed legislation because the political world is too unpredictable but this may be the year some of these things become law.  Stay tuned.

The SALT Shaker is prepared by Andy Bareham, Chair of the KatzAbosch SALT Group

The SALT Shaker

During 2011, a growing number of businesses were subjected to state tax audits. The state governments are starved for revenue and they realize the business community is a fertile source for unreported tax revenue, particularly sales/use tax.  Our experience representing clients in audits has shown that many businesses have misconceptions regarding the sales tax.  Consider the following questions with regard to your business:

• Does your business have a Maryland sales/use tax account? (If not, you are more likely to be audited by the state)
• Have you paid sales/use tax on all of your purchases of tangible property?
• Do you buy property over the Internet from out-of-state vendors?
• Do you either charge sales tax on all of your customer sales or collect an exemption certificate?
• Is your business ready for a Maryland sales tax audit?

The answers to these questions are crucial when the state of Maryland selects your business for audit.  The SALT Group at KatzAbosch is experienced at helping businesses ensure their readiness for state auditors.  We can review your records looking for compliance with state regulations and search for potential refund opportunities. Based on our recommendations, businesses are able to significantly reduce their exposure to audit assessments.

Please contact the KatzAbosch SALT Group if you want to reduce potential audit assessments.

The SALT Shaker is prepared by Andy Bareham, Chair of the KatzAbosch SALT Group

The SALT Shaker

DC tax law changes for 2011 and 2012

Businesses:

• Mandatory unitary combined reporting effective for tax years beginning on or after December 31, 2010.
• For tax year 2011 business franchise taxes apportionment is changed to property, payroll and double weighted sales, previously the law provided for equal weighted 3-factor formula.
• Minimum tax increased to $250 for corporations with gross receipts under $1 million, increased to $1000 if gross receipts greater than $1 million.

Individuals:

• An additional tax bracket of 8.95% for taxpayers with DC taxable income over $350,000 has been added, applies to estates and trusts also.
• New limitations apply to itemized deductions for DC taxable income of $200,000; deductions are to be reduced by 5% of the amount over $200,000. This doesn’t include medical, investment interest or casualty losses.
• Effective 01/01/12 employers are to remove standard deduction from withholding calculation.
• DC has repealed its exemption for the interest on out of state tax exempt bonds, effective for bonds acquired after 12/31/11. Except for bonds issued by the District of Columbia or the Metropolitan Washington Regional Airport Authority, income from state or municipal bonds acquired on or after 1/1/12 is taxable for DC income tax purposes. State or municipal bond income is not taxable in DC if: They were acquired before 01/01/12 and exempt by federal law.
• Effective 01/01/12 withholding of DC income taxes at the highest marginal rate from distributions from retirement accounts to DC residents if there is an IRS withholding requirement.
• For both individuals and franchise taxes the safe harbor requirement has been increased to 110% for 2012.

Other:

• Sales tax rate increase on parking from 12% to 18% and packaged good liquor from 9% to 10%.
• Addition  of security services to the sales tax base.
• The sales tax rate decrease scheduled for 10/01/12 has been cancelled.

Remember the DC individual income tax only applies to residents, non-resident individuals are not subject to the individual income tax.

Please contact Amanda Pippin if you have any question regarding DC tax law.

The SALT Shaker is prepared by Amanda Pippin

The SALT Shaker

One of the difficult compliance issues facing businesses today is what are the state tax implications when employees travel to other states for work. Under what circumstances should an employer withhold multiple states’ taxes from an employee’s wages when the employee is working in multiple states?  As with most tax issues the answer is it depends.

Here are some items to consider when a client asks how to handle an employee working out-of-state.

1. There is not a uniform answer to this question.  Some states have guidance on the topic, some states say one day triggers the withholding and some states do not provide any guidance.
2. Some factors to consider are:

• -Which state is the employee working in – New York is very aggressive in this area,
• -How long is the employee working in the other state, and
• -Is there a reciprocal agreement between the two states such as between Maryland and Pennsylvania (Maryland can’t tax the wages of Pennsylvania residents earned in Maryland).

3. For clients this is a business risk decision weighing the added administrative burden of establishing new state tax filings versus the problems of getting caught by the states.  The states are becoming more sophisticated with computer data bases that can detect this type of circumstance. The risk of detection is increasing and should be considered.
4. There is a bill in Congress on this subject that would standardize the rules. “Mobile Workforce State Income Tax Simplification Act of 2011 – H.R. 1864”  In this proposed legislation Congress sets the standard of more than 30 days in a 12 month period to trigger the other state’s right to tax the wages and force withholding. This is NOT final legislation at this time.
5. As to unemployment taxes – I talked with Dennis Morton, Director of Contributions for MD Unemployment, about the Mobile Workforce issue.  He told me the employee’s wages should not be reported to other states for “temporary” work projects.  What is temporary?  Again no clear answer. He did say he thought 30 days in the other state would be temporary and the wages should continue to be reported in MD. 

Please contact Andy Bareham if you have any questions regarding client employees that work in multiple states.

The SALT Shaker is prepared by Andy Bareham

The SALT Shaker

Many states provide special access to state resources for tax practitioners in need of help with tax matters. These can be great resources for tax preparers and unlike the IRS, the states will generally talk with the preparer about a client’s circumstances without a power-of-attorney. Here is the contact information for the “local states.”

In Maryland the Tax Practitioner Hotline (410-260-7424) offers help with resolving problems, answers to questions or to confirm the dates and amounts of tax payments by clients.

The Pennsylvania Department of Revenue has created a dedicated email system for tax practitioners accessible through the online customer service center. https://revenue-pa.custhelp.com/app/home  Practitioners will have to select the “Submit a Question” tab and register to access the system. Once registered, questions can be submitted by selecting the “Submit a Question” tab again and selecting “Tax Practitioners.” The Department will respond to tax practitioner email within two business days. Practitioners can establish email threads, attach documents to email, and request a call-back from a representative, all using the practitioner email system.

The Virginia Tax Professionals Hotline at 804–367-9286 is open Monday through Friday, 8:30 a.m. to 4:30 p.m., to provide quick responses to inquiries about client accounts, or other tax questions.  For electronic filing information, early release forms, instructional materials, and special contact information, bookmark the Tax Professionals Page.  The Tax Policy Library offers a variety of information, from Tax Bulletins, to Legislative Summaries, to Rulings of the Commissioner. A great searchable resource for finding interpretations of Virginia tax law.

Delaware offers a live online chat service.  The service is available 8:30 to 4:00 Monday through Friday and can be accessed at http://portal.delaware.gov/help/taxes_0.shtml

The DC Office of Tax and Revenue has a Tax Practitioner Hotline (202-727-1435).

Please contact Andy Bareham if you need help resolving any state tax issues.