Utah court favors businesses in company-county tax dispute By Steven Oberbeck

The Salt Lake Tribune
First published Jun 14 2011 02:03PM
Updated Jun 14, 2011 11:29PM

The Utah Supreme Court has ruled in favor of T-Mobile USA in a property tax dispute with 15 Utah counties that dates back to 2003.

In a ruling handed down earlier this month that could have wide-ranging implications for many of the state’s employers and local governments, the state’s high court found that the “goodwill” carried on T-Mobile’s balance sheet could not be taxed under Utah law.

“Many businesses increasingly are generating goodwill on their books due to mergers and evolving accounting rules. The [Utah] Supreme Court has now made it clear that goodwill and other intangible property is not subject to taxation,” said Mark Buchi, an attorney with Holland & Hart, who along with Steven Young represented T-Mobile.

Goodwill typically appears on balance sheets after one company buys another for more than the value of its tangible assets. The difference between the purchase price and the value of the those assets is listed on the balance sheet of the surviving business as the goodwill of the acquired company.

The dispute arose in 2003 after the Utah State Tax Commission assessed T-Mobile’s taxable property. T-Mobile appealed the assessment in district court, which under Utah law serves as a tax court. And the tax court ruled that T-Mobile’s accounting goodwill was exempt from taxation.

In response to that ruling, the 15 Utah counties where T-Mobile had operations appealed the district court’s decision. At stake was several millions of dollars in potential tax revenue for county treasuries and for many companies’ bottom lines. The counties contended that the company’s goodwill was taxable based on the “unitary business principle,” Buchi said.

That concept relies on the contention that two interrelated, physical assets create an enhanced value through synergy, Buchi said. “The counties claimed that T-Mobile’s goodwill enhanced the value of the tangible property, and therefore, was not tax-exempt.”

Utah’s high court disagreed.

It noted that corporations operating in Utah are taxed based upon their “taxable income,” which is defined as income from tangible or intangible property located in the state.

“Because goodwill is property and because Utah’s corporate income tax imposes a tax on the income derived from all property, including both tangible and intangible property, the income derived from goodwill is already being taxed,” the Utah Supreme Court said in its ruling.

steve@sltrib.com Twitter: OberbeckBiz

Thoughts on Graduation, June 10, 2011

“The ladder of success is best climbed by stepping on the rungs of opportunity.” – Ayn Rand

In my role as an adjunct professor of accounting at Stevens Henager College in Salt Lake City, which traces its roots back to 1891, I had the opportunity to participate in the school’s 2011 graduation exercises. Though my role on Friday evening was small, that isn’t important as this night is reserved for this year’s graduates. The school only confers about five or six business degree from an Associate of Applied Science degree in two disciplines to a Bachelor of Science in three disciplines as well as an MBA.

I didn’t have a large number of my former students graduate on this night. But for me it isn’t about the sheer numbers of graduates but about the lives of the students I was able to influence who will be entering our profession. Most of these graduates aren’t 22 year olds; in fact there are more over 30 or even 35 than there are between the ages of 18-22. Many are single parents, some are even grandparents.

Like many, I sometimes wear my heart on my sleeve. This is particularly true on nights like this. Whether it was during the presentation of the colors by the US Marine Corps color guard, or singing the national anthem, or watching with pride as these students accept the degrees that have just been conferred upon them to allow them to go out into the world and earn a living so that they can provide food and shelter for their families. It doesn’t matter if I have never met that student. Some I have had in my classes, others I know but have not had them in a class and still others I have never met. These students could very well be those who Ayn Rand was referring to when she spoke of climbing the ladder of success.

This year’s commencement address was given by a respected member of the accounting community and former Utah Lieutenant Governor, Val Oveson. Unfortunately, because of my proximity to the podium on stage even with a microphone I heard very little of his speech.

South Carolina Enacts Nexus Safe Harbor Law With Notice Requirements

South Carolina Enacts Nexus Safe Harbor Law With Notice Requirements By Marlia Berg Posted Today at 5:58 pm on The SALT Minds part of the CCH Community at community.cchgroup.com

Looks like Amazon will have its distribution facility in South Carolina after all, as Gov. Nikki Haley has allowed S.B. 36 to become law without her signature. The bill gives Amazon.com a five-year nexus safe harbor for sales and use tax purposes in exchange for the Internet retail giant building and operating a distribution facility near Cayce in Lexington County. The provisions are a little different from the provisions in H.B. 3488 discussed in a previous post that were defeated by the Legislature earlier this year.

Specifically, S.B. 36 provides that “owning, leasing, or utilizing a distribution facility, including a distribution facility of a third party or an affiliate, within South Carolina is not considered in determining whether the person has a physical presence in South Carolina sufficient to establish nexus with South Carolina for sales and use tax purposes.” To qualify for the safe harbor, Amazon or any other distribution facility will have to:

-place the distribution facility in service after December 31, 2010, and before January 1, 2013;

· make, or cause to be made through a third party, a capital investment of at least $125 million after December 31, 2010, and before December 31, 2013;

· create at least 2,000 full-time jobs, including a comprehensive health plan for those employees, after December 31, 2010, and before December 31, 2013; and

· after meeting the initial job requirements, maintain at least 1,500 full-time jobs until January 1, 2016.

Amazon and other retailers qualifying for the safe harbor will have to notify purchasers in a confirmation email that they may owe South Carolina use tax. The emails must include a link to the South Carolina Department of Revenue website. Also, by February 1 of every year, the retailer has to provide South Carolina purchasers with a statement of the total sales made to the purchaser during the preceding calendar year.

According to The State, Amazon’s distribution center is expected to open this fall. The State also reports that the loss in tax revenues from the exemption is initially estimated at $2.5 million yearly and that supporters say the center will generate at least $11 million annually in payroll and property taxes.

via The SALT Minds – South Carolina Enacts Nexus Safe Harbor Law With Notice Requirements.

Legal Entities – When and What Kind?

**Disclaimer: This is not to be construed as legal advice.

If you own a small business and run it as a sole proprietorship filing your taxes on a 1040 and a Schedule C, you may have at one time or another asked yourself if you should incorporate or otherwise change the business structure. Maybe it is because you need to hire one or more employees and want to manage growth, take out a business loan, any number of other factors. Perhaps you want to protect yourself from lawsuits or other liability. The question most sole proprietors have is – when and what kind. Do I form a LLC (Limited Liability Company), a Partnership, or a Corporation? What are the benefits and drawbacks of each form of entity?  A type of entity that might be right for one company might not be for another company even if that company sells the same product or service and has the same amount of revenue.

Sole Proprietorship – It is just you the owner. From a paperwork standpoint it is simpler. Taxes – just a Schedule C on the 1040 you already file. Fewer government regulations in most cases. Profits? They belong to you. But so do the negatives – things like lawsuits. All yours baby.  It is also the most common – especially in small one person businesses.

Partnership ­­­­- When two or more people join forces and pool resources, both having an ownership interest. There are multiple kinds of partnerships – general, limited, joint ventures and limited liability partnerships. If you are a sole proprietorship you are ruling this one out early unless you are bringing another owner on board. Even then until you look at your specific needs you won’t know if this is the structure for you.  From a tax perspective, you will file two returns – a 1065 partnership return (which is an information return only – all taxes are paid at the individual level) and your 1040 and Schedule C just like before you were a partnership.

Corporations – A corporation takes longer and is more expensive to set up, but has certain advantages over many other forms of legal entity. They are their own legal entity, completely separate from its owners and shareholders. There are four different types of corporations, but I will concentrate on the two most common. The C Corporation (regular or business) and S Corporation which has some of the advantages of a partnership or sole proprietorship, with advantages that regular or C Corporations have – Limited Liability. From a tax perspective, an S Corp is a flow through entity like a partnership or sole proprietorship. It can be taxed as a corporation or as a partnership. If your company is growing rapidly and you think you might want to issue stock through an IPO you may want to consider a C Corporation. But you will also have to have regular meetings of the Board of Directors and pay corporate taxes. (Form 1120 or 1120S)

Limited Liability Company (LLC) – A Limited Liability Company (LLC) is a kind of a hybrid type of entity that is designed to do what its name implies-limit owners liability. Rather than shareholders or stockholders, owners are called members. LLC’s are taxed much like an S Corporation. Owners get to choose to be taxed as a corporation or a partnership.  If you choose to file as a corporation you will file Form 1120 or 1120S, as a partnership a 1065 – assuming there are two or more members. If you are a Single Member LLC – you can choose to be a disregarded entity for tax purposes. What that means is you file a 1040 and a Schedule C.

There are other factors to consider as well of course. Management, Ownership Transition and Capitalization are some in addition to Personal Liability and Tax considerations.  Do your homework, then talk to your tax advisor and an attorney to help you determine what type of entity is going to be right for you and get the documents drawn up.

In terms of when, well that depends on you the owner. For some, choosing one of the above entities is something that you want to do before you open your doors. Others will wait until they are at least generating some revenue or hire the first employee. Others will wait even longer. There is no one size fits all right answer.