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04/02/2018

More New Business and Investor Tax Rules Released

The rules to calculate how new tax laws will impact business and investors are now being publicly released.  The Treasury Department and the Internal Revenue Service have announced updated guidance is ready for businesses and investors reflecting tax changes under the Tax Cuts and Jobs Act. 

Specifically, 2018 guidance on computing business interest expense limitations as well as withholding guidance on the transfer of non-publicly traded partnership interests will be released April 16th.  More updates are also expected in the weeks ahead as the changes and effects of tax reform are being confirmed and quantified.  Accountants and tax professionals now already have access to the information in order to help taxpayers determine the best tax planning strategies. Investor Business Manager working

A preliminary news release regarding business interest expense says the new tax law imposes a limitation on deductions for business interest incurred by certain large businesses.  For most large businesses, business interest expense is limited to any business interest income plus 30 percent of the business’ adjusted taxable income.

The IRS update will list new regulations that the Treasury Department and the IRS intend to enforce, including rules addressing how the business interest expense limitation is calculated at the level of a consolidated group of corporations as well as other rules. A notice on the new guidance makes it clear that partners in partnerships and S corporation shareholders cannot interpret newly amended sections inappropriately to “double count” the business interest income of a partnership or S corporation.

The announcement says that tax reform now interprets a foreign taxpayer’s gain or loss on the sale or exchange of a partnership interest as part of the conduct of a trade or business in the U.S. if the partnership sold all of its assets.  That means there is a tax due on the sale.  New guidance imposes a withholding tax on the disposition of a partnership interest by a foreign taxpayer.

Also, tax enforcement and collections authorities announce that they intend to issue more rules and procedures soon detailing how a business or individual may qualify for withholding exemptions or reductions in the amount of withholding under this section of the new tax law.  In addition, the notice suspends secondary partnership level withholding requirements.  See also our recent blog on the effects of the new "transition tax" affecting investors.

McRuer CPAs business tax planning experts will have the latest information about IRS guidance on these more complicated new business and investor-related tax laws.   If these provisions apply to you, or if you have questions about how the new tax act may affect you please contact us to schedule a meeting to review your tax plan to make certain it is updated to best benefit from the tax reform.  Call us for your appointment at 816.741.7882 or contact us online.

03/12/2018

Identity Theft Targets Business Data

Good news. Bad news. New data shows tax-related identity theft is declining rapidly as federal and state tax and law enforcement officials seek solutions together.  Unfortunately, thieves and scammers continue to develop new schemes targeting both individuals and businesses yielding more stolen data and dollars per incident.

Identity thief eyes personal online dataA business can hardly do business without collecting and holding clients’ private and identifying information, including names and addresses, phone numbers, and email addresses.   Many businesses also collect and maintain their clients’ birth dates, credit information, Social Security numbers and more.  If a data security breach occurs, these individuals are at risk for tax-related identity theft.  Their personal information is used to file fake tax returns requesting refunds.  In other schemes, scammers posing as IRS representatives, or federal or state authorities or creditors directly demand payments for taxes that are not owed.

Businesses are warned to keep up with current scam and phishing trends as well as take the necessary steps to secure systems and fix vulnerabilities.  The Federal Trade Commission provides updated online information about securing operations against data breaches, and a new business-focused Data Breach Response Guide.

If you own a business that has been a victim of a data security breach, authorities offer three important steps to take:  notify law enforcement, notify other businesses affected (such as banks, credit issuers and major credit bureaus), and notify individuals.  If Social Security numbers have been compromised, individuals should be alerted to take steps to avoid being a tax-related identity theft victim.

The most popular way to steal from individual taxpayers uses simple data including names, phone numbers, email addresses and home addresses stolen from businesses.  With this basic information, scammers send out emails and make threatening phone calls claiming to be IRS representatives, banks or credit card companies demanding payments on overdue taxes, overdrawn accounts or bills.  They even using text messages contacting innocent victims who are tricked into sharing even more private information.  Criminals will use the IRS logo and language in letters, emails or phone calls that seem legitimate.

Specifically, tax-related identity theft uses a stolen Social Security number to file a fraudulent tax return claiming a refund.  This particular type of scam is being reduced dramatically as new, more-secure information transfers between the IRS and banks track automatic taxpayer refund deposits and checks.

Businesses should also remember that their business identity may also be stolen.  A new type of business tax identity-theft is on the rise.  Cybercriminals are using stolen business information to file fraudulent Forms 1120 – U.S. Corporate Income Tax Returns to capture corporate income tax refunds.  They often obtain this private business information through the business’s website and by hacking into documents stored on unsecured computers.

Taxpayers, businesses and tax professionals should remain alert and ask more questions before sharing information.  If you have questions about tax-related identity theft as an individual or business, please contact one of our tax preparation specialists at McRuer CPAs

01/17/2018

Online Sales Tax Debate Advances to Supreme Court

Interent Sales TaxThe U.S. Supreme Court has agreed to hear a case that may change the standard for how sales taxes are applied to online purchases.  In the case of South Dakota v. Wayfair Inc., the state will argue that all online sellers should be required to collect state sales taxes from South Dakota customers. It is one of only a few states that imposes taxes on all finished goods and services.  The case could set a precedent affecting all states and the District of Columbia.

Since 1992, a Supreme Court ruling (Quill v. North Dakota) has prevented states from collecting any sales tax from internet-related retail purchases unless the seller had a physical presence in the state where the sale transaction was conducted.  The case finding was based upon the idea that states should not interfere with interstate commerce.

The Tax Foundation’s Joe Bishop-Henchman writes that local businesses and states argue that they are unfairly losing revenues to retailers outside their jurisdiction.  He explains, “Traditional brick-and-mortar retailers that have to collect sales taxes feel they’re at a competitive disadvantage, and states are potentially losing out on billions of dollars in revenue annually.” 

On the other side of the issue, online retailers argue that each state may have different sales tax collection mandates that are often confusing, inefficiency in tracking collections, and expensive to comply with.

In this case, South Dakota is one of nearly two dozen states who are working together under the Streamlined Sales and Use Tax Agreement.  It is a voluntary governing board working to simplify and standardize sales tax rules.  At McRuer CPAs we have been helping clients navigate these issues since the advent of internet sales.  Unfortunately, their resolutions often reflect the one size fits all sales and use tax law requirements adopted years ago for a different time.

Arguments in the South Dakota v. Wayfair Inc. case are now set to be heard in April and may provide clarity on the constitutional limits of state taxing authorities and the scope and reach of the physical presence rule. 

03/25/2016

Internet Sales Tax Still on the Burner

The use of the Internet can no longer be taxed, but the debate over taxing what is purchased over the Internet remains heated and unsettled.

The Permanent Internet Tax Freedom Act, signed into law in February, permanently bans any state and local taxes on Internet access. The measure also prohibits taxes on Internet-related digital goods and services, thereby ending nearly 20 debate and moratorium extensions on the matter.

Seven states that had been allowed to temporarily charge an access tax due to a grandfather clause must now phase out those taxes by 2020. The states include Hawaii, New Mexico, North Dakota, Ohio, South Dakota, Texas and Wisconsin.

Sales tax calculatorSupporters of the new law say it will guarantee Americans will never have to pay taxes on the service that connects them to the Internet. Federal Communications Commissioner Ajit Pai has put it this way, “Americans need and want the certainty that the digital world will be spared the taxman.”

While Internet connection and operation services can no longer be charged access taxes, most states continue to push for a variety of sales taxes on Internet purchases. Arguments are that the taxes will protect brick-and-mortar businesses from unfair competition. The most recent legislation on this sales taxes issue is called the Marketplace Fairness Act.

The Marketplace Fairness Act would enable states to not only collect sales taxes on Internet purchases but to also impose taxes specifically on remote retailers who have no physical presence in their state. The act requires states to adopt simplified sales tax laws.

As debate has dragged on for years, technology has improved, making it much easier to track online purchases across state lines and then assess and collect sales taxes. Dozens of states are seeking to impose sales taxes on Internet purchases made within their borders. This would subject an online purchase to the same state and local taxes a product or service would have been charged at a local store. Some states are debating proposals that would tax third-party delivery services, targeting major online retailers who use regional shipping centers with massive inventories.

While purchasing tax-free products online provides an immediate cost savings for consumers, supporters of online taxes say the long-term effects of tax-free purchases are painful and deep. They argue that sales taxes generally range between 5 to 10 percent. Local businesses must impose and collect them from customers, so they suffer a 5 to10 percent price disadvantage to Internet retailers who are not required to collect sales taxes. The effects on business range from suffering lower profits to being forced out of business. Internet sales tax proponents say it’s not about supporting taxes in general, but rather about ensuring local job and business growth.

Currently, there is no uniform way to confirm the quantity and scope of tax-free online sales, which makes it difficult to accurately predict sales tax revenues for local and state budget planning. Meanwhile, the ban on Internet access and use taxes will cost states that are currently imposing some type of user fee an estimated $561 million annually. It’s expected that these states will step up their push for sales taxes to make up the difference, but there’s no agreement on the most effective tax rate.

Those who oppose online sales taxes say it’s all about grabbing more tax revenues to facilitate bigger government. They claim taxes charged on out-of-state purchases force those companies to collect taxes without representation. There is also concern that the federal government would enact a law compelling all states to collect a set rate rather than allowing each state to determine its own tax formula.

Some economists add that competition provides the best products at the best prices. They point out that the Internet and sophisticated transportation networks now allow for better consumer choices than ever before and that business is growing. They say sales taxes on those choices would be like an artificial and unnecessary price increase that would affect jobs and economies negatively.

02/24/2014

Internet Sales Face New Tax Debate

Retailers report online sales were up 8% for the week of Valentine’s Day compared to 2013. More than a third of the internet-based purchases were made through mobile devices tallying up a total of nearly $14 Billion in online consumer spending for the romance-based holiday.  Upcoming debates will reveal how state and local authorities would ‘love’ to tax online revenue flow to compensate for declining income and real estate tax revenues.

Internet-Sales-TaxIn the next few weeks, heated debate is expected on the proposed Marketplace Fairness Act which gives states the authority to collect sales taxes and use taxes from remote online retailers. The legislation attempts to simplify state sales tax rules to make collections easier and more uniform.

Americans are using the internet to buy and sell products and services at an explosive rate.  Surveys show the top reasons they buy online include the ability to select from a wide variety of items, discounted pricing, free shipping and, in many cases, no sales tax.  Officials are targeting large Internet retailers who currently escape state and local sales taxes.  

Right now, retailers with no physical presence in a state (such as a store, office, warehouse or sales representative) are not required to collect sales tax for an internet-based sale to a consumer in that state.  Proposed legislation targets remote sales made by retailers with annual gross receipts exceeding $1 million.

Brick-and-mortar businesses pay property and income taxes that the online or remote-selling counterparts may not pay.  Their business associations support requiring sales tax collections for all online sales and other taxes on profits made by online retailers.  Amazon.com and Overstock.com are just a few of the large retailers that have been lobbying against the tax increases, saying, if they must pay a tax on their bottom line income, they will have to pass it on to consumers.  

The issue of collecting Internet taxes is complex. Retailers and taxing authorities disagree about who is responsible for collecting taxes.  Should states themselves collect both sales taxes on purchases and income taxes on retailers with headquarters or warehouses in their jurisdiction?  Are Internet service providers responsible for collecting taxes? Is the Internet itself to be considered a product or a service; and then what kind of taxes apply?

States and municipalities are lobbying with renewed intensity for the chance to collect Internet sales and use taxes arguing they are losing billions of dollars in badly needed revenues.  Opponents claim the benefits of the Internet contribute to economic growth and productivity that already boosts revenues.  They also say gearing up intermediary taxing authorities to collect and manage the new taxes would be too costly and ripe for corruption.

Meanwhile, since 1998, the Internet Tax Freedom Act has banned federal, state and local governments from imposing internet-only taxes such as taxing the bandwidth you use, the volume of data used (or bit use), and email usage.  It also prevents the imposition of multiple or layers of taxes on e-commerce.  It does not prevent the taxation of the sale of goods through the Internet.

When it was enacted, the legislation grandfathered existing taxes in ten states that were mostly access, franchise and telecommunications taxes, as the potential of the Internet sales base was not yet clearly understood.  The law has been extended three times, but is set to expire this October which could open another window for imposing new taxes.

In Kansas, an attempt last year to revise the out-of-state Internet sales tax law died in committee.  In Missouri, the physical-presence rule applies and has been a hotly debated matter.

For now, the national debate is gearing up again with lawmakers expected to call for a vote on the matter this Spring.

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