101 Ways to Celebrate the end of Tax Season……

According to Traci Wheeler at Red Moon Solutions.  Now the primary audience for these are tax practitioners rather than taxpayers, whether individual, small business or corporate. However, I think many apply to all of us. Here is a sampling:

Take a day off.

Go for a run or a ride on your bike.

Take a nap.

Take your department to lunch. (or alternatively go to lunch with a friend or co-worker)

Work in the garden/yard.

Go for a sunset stroll.

Go to a concert or play.

Go to a ball game. (the NBA is still in season, or if you are a baseball fan many minor league teams still have their home openers coming up.)

Go fishing.

Take a road trip.

Blow bubbles.

Play a round of golf.

For the complete list,  follow the link.

http://blog.redmoonsolutions.com/101-ways-to-celebrate-the-end-of-tax-season#comment-315

What do you want to do to Celebrate the end of tax season?

As for me, I will continue to run, got tickets to Man of LaMancha. Now what else can I do?

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Texas Nexus law signed into law.

After vetoing a similar provision on May 31, Texas Gov. Rick Perry, on July 19, signed a law that says a retailer is doing business in the state if it has affiliates engaged in certain activities in Texas, such as maintaining a distribution center or a warehouse. According to reports in the general press, Amazon has been threatening to close a distribution center in the state if the law passes.

Meanwhile, on July 18, the California Attorney General gave the green light to an effort backed by Amazon to gather signatures to put to the state’s voters a repeal of the sales tax nexus law signed by Gov. Brown a few weeks ago.

http://goo.gl/myXfx

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.

California and the direct sales industry (6015b retailers)

For over seven years I had the opportunity to work in the direct sales/network marketing industry as a Sales & Use Tax Manager. When I started with the company, it was six months old, had done over six million dollars in domestic revenues and was registered for sales and use tax in one state and had filed one return, even though the company had been collecting in most states at the time. By the time I left in 2004, it was a worldwide company doing over $450 million in revenue.

In some states, it had  been determined that the company’s primary product was non-taxable/exempt (a 100% juice drink marketed as a dietary supplement), in others it was clearly taxable. My charge was two fold. File returns for moneys we had collected and get registered in those states where it was determined that we had nexus. Ultimately we ended up filing in all states but Montana, Oregon, Delaware and New Hampshire.

Also to continue the process of product taxability determination. This was done primarily through talking to State Revenue Departments and following up with a letter and copy of the product label and awaiting a response on whether or not our product was taxable.

As is common in that industry, product was taxed on the MSRP rather than what the company’s independent distributors actually paid for it, which at the time was a difference of $10/1 liter bottle; $40/case of 4 bottles.  Part of the reasoning behind this was industry practice and part due to a statute California had passed at some time in the past, which upon further reading appeared to be directed directly at the direct sales industry. This is Section 6015b of the Revenue and Taxation Code. That in part reads as follows:

Revenue and Taxation Code section 6015(b) provides that the Board, for the efficient administration of the sales and use tax laws, may regard any salespersons, representatives, peddlers, or canvassers as the agents of the dealers, distributors, supervisors, or employers under whom they operate or from whom they obtain the tangible personal property sold by them, irrespective on whose behalf they are making the sales, and may regard the dealers, distributors, supervisors, or employers as the retailer. Someone from our local Board office will contact you to determine if your company should be treated as a “section 6015 retailer.” If so, you will be notified in writing by the Board that your company is a section 6015 retailer. After notification from the Board, your company becomes the retailer of all the sales made by its distributors and must report and pay tax on the sales price charged by the distributors.

(Annotation 295.1508 letter dated 1/20/93)

The company had nexus on a couple of different fronts. 1) We used a third party manufacturing firm located in California to bottle our product, so the raw product came in from its source overseas (usually by boat, but sometimes by air) to the third party vendor where it sat until processed/bottled upon which time it was sent to our distribution facility in Utah. 2) Independent distributors, which under Scripto v. Carson would give the company nexus. (many more than the ten that Scripto had in Georgia in that case)

At a future point in time, we received a letter from the Board of Equalization notifying us that yes we were considered a 6015b retailer and had to comply with its provisions.  Our exposure in California at the time was in the low six figures per month. (>$1,200,000 annually) Fortunately we had no employees or offices as it made our audit a lot smoother. (no additional assessment for errors or use tax)

Amazon could cut ties in more states over tax dispute | Reuters

Last Wednesday at the ShopSmart Shopping Summit in New York, Amazon CEO Jeff Bezos spoke about the proliferation of so called Amazon Laws, and what the company’s actions might be in the future regarding such laws as it relates to its affiliate program. The following is the Reuters article in its entirety.

By Dhanya Skariachan

NEW YORK | Wed May 11, 2011 5:13pm EDT

Reuters – Amazon.com could cut its partnership with affiliates in more U.S. states that require the online retailer to collect sales tax, Chief Executive Jeff Bezos said on Wednesday.

The comments from the world’s largest online retailer come less than a month after brick-and-mortar rival Best Buy expressed optimism about potential online taxation reforms that would expand the collection of sales taxes on items bought over the Internet. Many traditional chains such as Best Buy and Sears have openly voiced their concerns about online-only retailers like Amazon getting an unfair advantage by not having to collect sales tax in states where it does not have a corporate presence. Lawmakers in states — many facing huge budget deficits — have also argued that Amazon has a duty to collect tax because its “affiliates,” or independent Web operators which are paid a fee when they drive traffic to Amazon that results in a sale, operate in the state. Amazon has already announced plans to cancel its affiliate program in Illinois in response to the state’s new law to target online retailers that have affiliates in the state.Texas is considering taxing online sales and California, which already passed legislation that was vetoed, is considering another bill. Last October, Amazon also got a $269 million bill for uncollected sales taxes from the state of Texas.”We will continue to drop states who pass those affiliate laws, from the affiliate program,” Bezos said at the ShopSmart Shopping Summit in New York on Wednesday.”In the U.S., the constitution prohibits states from interfering in interstate commerce,” Bezos said, citing a U.S. Supreme Court case decades ago that clarified that “mail order” companies could not be required to collect sales tax in states where they did not have “nexus.”Bezos said the issue highlighted the need to simplify the existing sales tax system.”The sales tax collection is very complicated,” Bezos said. “The right place to fix this is with federal legislation.

via Amazon could cut ties in more states over tax dispute | Reuters.

Sales & Use Tax – a Q and A – affiliates and the Amazon Law

Q: What is an affiliate?

A:  In a business context, there are two general definitions. The first and one that for the present discussion I am not going to be as concerned with is a company that is related to another company, oftentimes as a subsidiary or “sister” company.

For this discussion, we will be more concerned about the second as it is common in the online marketing world. In this context, affiliate has more often been used to denote a business arrangement between two companies in which one (the affiliate) is paid a cut of a sale by the seller in exchange for putting advertisements or links for a product on his or her website. (Two companies with large affiliate programs are amazon.com and overstock.com)

Q: I have heard something about a court case involving Amazon.com and Overstock.com and the State of New York. What is that about?

A: In 2008, the state of New York in an attempt to bolster sales tax collections, primarily from out of state companies like Amazon and Overstock, by essentially doing an “end run” around the Commerce Clause of the US Constitution (which gives the U. S. Congress sole power to regulate interstate commerce and prohibits certain state actions, such as applying duties (taxes), that interfere with trade among the states),  by instituting a law that says that if a company has affiliates that put a link on a website to the seller’s website and that link generates more than $10,000 in sales for the seller during the four previous calendar quarters ending February, May, August and November that a “substantial nexus” is created and therefore the seller must register and collect.

This is believed by many (including this author) to be in violation of the Commerce Clause and the US Supreme Court decision Quill Corp. v. North Dakota, where Quill, a mail order seller of office supplies and equipment had no employees or offices in the state and shipped using the US Postal Service and common carrier, had only a few floppy disks of a licensed software program in the state so customers could check inventory and order essentially “online”. Something the US Supreme Court called “insignificant or non-existent“. The state of North Dakota attempted to impose a use tax collection responsibility on Quill, which was deemed unconstitutional by the court. The court in Quill said that a state cannot require this collection unless it has “substantial nexus” with the taxing state which Quill did not have.

The Amazon LLC and Overstock.com, Inc. v. Dept of Taxation cases are still in the court system with the law having been upheld by the New York Appellate Court, and could ultimately end up in front of the U.S. Supreme Court. In recent similar cases, the court has chosen not to hear those cases. In recent months, several other states have instituted similar laws. In all states that have, both companies have discontinued their affiliate programs.

Share your thoughts on this topic with me.

Sales Tax Nexus – a Q and A

Today’s post is a little different than the last one – partly in format as well as topic. It will also be part of a series.  I decided to address a topic that is something many small business owners have questions about. That doesn’t mean it isn’t relevant to larger businesses as well though. In some cases, it is the larger small business to medium sized business that may have the most issues with it.   Nexus, particularly for Sales Tax is the topic I want to discuss today. I have set it up in a Question/Answer format with questions that are frequently asked by small business owners.

Q: What is Nexus and why as a small business owner should I care?

A: In its simplest terms, Nexus when applied to business means that the business has a presence within the state that would require the business to pay income tax and collect and remit sales and use tax as well as other taxes. Another way to say it would be that nexus describes a level of business activity within a state. That level varies from state to state and even tax to tax to some degree. This article will talk about two taxes primarily. The sales tax and the income tax.

Q: How I do I know if I have nexus and can I have nexus for sales tax & not income tax?

A:  Nexus determination is somewhat different for income tax and sales tax.

For Income tax, in general, nexus is created if the entity derives income from sources within the state, owns or leases property in the state, employs personnel in activities that exceed the level of “mere solicitation”, or has capital or property in the state. These requirements will vary from state to state.

For Sales tax nexus is defined more loosely. Some examples of things that will trigger nexus for sales tax are:  A physical location within the state; resident employees and in some cases this extends to independent contractors as well. (see US Supreme Court: Scripto, Inc. v. Carson: S.Ct. 362 U.S. 207 (1960)); if the business has property (including intangible assets such as Trademarks, Copyrights, and Patents) and employees who regularly solicit within the state.

In the past, a physical presence has been required.  Over the last few years however, nexus has also been invoked in relation to affiliates. (we will talk more about affiliates at another time) Overall, the issue of nexus is very complex and can change with the facts of each case.

Q: I have heard of something called Use tax. What is it and how do I know if I owe it?

A: The use tax is a complimentary tax to the sales tax. In terms of rate, it is usually but not always the same rate as the Sales tax. It is assessed on items that are purchased “tax free” such as mail order and internet purchases that cross state lines where no sales tax is paid.

An example would be is if I am in Utah, buy something online from a company in Florida, I won’t pay sales tax unless that company has a physical presence in Utah that would require them to collect and remit the Utah tax. As the purchaser, I am liable for the tax and am supposed to report and remit the tax on my income tax return. If I live in the Salt Lake City area where the tax rate is 6.85%, that means that on a $1000 sale, I owe $68.50.

What is Ethical Behavior?

What is ethical behavior? Is it based in religion or is it based only in the secular world? Let’s look at some definitions from various sources and then go from there.

Dictionary.com defines ethics as:  a system of moral principles: the ethics of a culture. The rules of conduct recognized in respect to a particular class of human actions or a particular group, culture, profession etc.: medical ethics; Christian ethics, etc.

So according to the dictionary, ethics are not necessarily based in religion but can be based there. Certainly different faiths, whether one is Jewish, Christian or Islam or some other faith there are beliefs in moral principles that could be considered ethical behavior.

Black’s Law Dictionary defines ethics as “a consensus of expert opinion as to the necessity of professional standards.” They (Black’s) also defines ethics in terms of behavior and guidelines among the members of a profession/professional organization and their duties towards one another, clients and the public.

This would be a definition that we are all familiar with in our professional lives. But is there more to it than that? Let’s look at what others throughout history have said.

Aristotle defined ethics as “practical wisdom”. Why practical? Because it involves an action (behavior) – both at the individual and societal/corporate level.  Aristotle also believed that ethics related to what should or should not be done with regard to the things are good or bad for an individual. He also said “we are not studying in order to know what virtue is, but to become good, for otherwise there would be no profit in it.” In other words, we have to “practice” it for lack of a better term. It requires action on our part.

What comes to your mind when you hear the word or think of ‘ethics’? Is it a just list of rules that one must follow in ones professional life? Is it a set of principles – moral or otherwise that you believe in? Is it being fair and honest with others, either personally or professionally? Is it simply following the letter of the law? Does doing that make one ethical? In my opinion, one can be within the law and not act ethically.  Does/should your personal definition of ethics go beyond that just acting within the law? I think it is a combination of all of these and more.

To use a term that is often used in the tax and legal worlds, is there a bright line test that one can use to determine what is and is not acceptable ethical behavior? Do words like integrity, moral obligation, individual and corporate responsibility, truth come to your mind when you think of ethics?  Do ethics apply at the individual level only? In addition to its application to individuals, does it apply to organizations and groups such as cultures, societies, professions, corporations, among others?

Many professional organizations postulate ethical codes for their members – professional journalists, CPA’s, Attorneys, Engineers, Medical Professionals, Human Resources professionals to name just a few that I found. Other examples are government related. Two examples of these are a Taxpayer Bill of Rights and Fairness in Tax Administration. Still another is one that is one that members of Federal, State and Local legislative bodies must follow.

Many companies (including governments) have what could be considered ethical codes, which are typically called a “Code of Conduct” for their employees.

The Institute for Professionals in Taxation (IPT) has established the following Code of Ethics to govern the conduct of its members in connection with the performance of their professional duties as tax professionals and as members of IPT.

As tax professionals, the members of IPT have an obligation for the competence and integrity of their work and conduct.

Each member of IPT is bound by this Code of Ethics and agrees to report to the Committee on Professional Ethics any violation of the Code known to such member.

An IPT member having supervisory responsibility for other tax professionals should make those subordinates aware of this Code of Ethics and instruct them to adhere to its provisions.

The Committee on Professional Ethics, and in the event of an appeal, the Board of Governors, interprets the provisions of this Code in rendering opinions and in conducting investigations and hearings pursuant to regulations and procedures established by the Board.

CANONS

  1. IT IS UNETHICAL to engage in any conduct that discredits IPT, its membership, or the tax profession.
  2. IT IS UNETHICAL to engage in any activity that results in a conviction of any crime committed in connection with the member’s involvement in a tax matter.
  3. IT IS UNETHICAL to operate beyond the boundaries of an agreed relationship with an employer or client.
  4. IT IS UNETHICAL for a member of IPT to state or imply that such member represents a person that the member does not represent, or to file any document on behalf of such person without authorization.
  5. IT IS UNETHICAL to disclose confidential employer or client documents or information except with the consent of the employer or client or as required by law.
  6. IT IS UNETHICAL to offer or give anything of value to a public official to induce that official to take any action with respect to a tax matter.
  7. IT IS UNETHICAL to offer or give anything of material value to an individual in an employment, advisory or representative relationship with a business to induce that individual to recommend the purchase of goods or services by the business, and IT IS UNETHICAL for such individuals to receive such value.
  8. IT IS UNETHICAL to pay, retain, or accept a share of a fee or other monetary compensation for the referral of a person to another for the provision of tax services in which the recipient of such compensation does not participate, unless advance notice is given to the person for whom such services are to be performed. The amount of the compensation for the referral need not be disclosed unless requested by the person for whom the services are to be performed.
  9. IT IS UNETHICAL to solicit a tax assignment by assuring a specific result or to solicit, assign, accept or perform a tax assignment that is conditioned upon producing a preconceived opinion or conclusion.
  10. IT IS UNETHICAL to initiate or pursue an appeal, protest, refund claim or other action on behalf of a taxpayer for which there is known to be no basis in fact or law. When the basis is unknown, the determination of whether a basis in fact or law exists must be made as soon as reasonably possible.
  11. IT IS UNETHICAL for a member, in the performance of a tax assignment, to fail to exercise independent judgment in advising and representing a client.
  12. IT IS UNETHICAL in the performance of a tax assignment to knowingly furnish or knowingly rely upon inaccurate, deceitful or misleading information, or to knowingly withhold information which lawfully should be revealed.
  13. IT IS UNETHICAL to prepare or use in any manner, for any purpose, a resume or statement of professional qualifications that is misleading or false.
  14. IT IS UNETHICAL in promoting a tax practice or soliciting tax assignments to make misleading or false representations.
  15. IT IS UNETHICAL to use client listings or references without specific authorization.
  16. IT IS UNETHICAL to state or imply IPT authorization, endorsement or approval of any business, product or service.
  17. IT IS UNETHICAL in any representation of fact to IPT, in a membership application, renewal form, or otherwise, to knowingly furnish inaccurate, deceitful, or misleading information, or to knowingly withhold material information.
  18. IT IS UNETHICAL for a member having supervisory responsibility for another tax professional to knowingly authorize, direct, permit or ratify any subordinate’s act or omission that is declared unethical by this Code, regardless whether the subordinate is a member of IPT.
  19. IT IS UNETHICAL to represent a client if such representation would be, or would risk being, adverse to the interests of another client unless each affected client gives informed written consent to such representation
  20. IT IS UNETHICAL to have, acquire, or seek a personal interest in a matter that is adverse to the interests of a client or employer.

[The above was adopted by the Board of Governors on September 28, 1976, and amended on April 28, 1991, November 9, 2002, March 6, 2004, and November 2, 2008 (the November 2, 2008 changes became effective January 1, 2009).]

I recently had the opportunity to be a judge for the Utah State Competition for FBLA/PBL. (business students – high school and college respectively)

The topic?  Business Ethics and Social Media.

How does all this relate to Social Media? (Facebook, Twitter, LinkedIn, and other social media – including blogs like this one) Do we treat present day social media differently than media of the past (print & broadcast)? If so, what rule changes do we make? What is Ethical Behavior in that context? I don’t have any better handle on it than I did before that day.

What is your opinion on what is and is not ethical behavior? Any and all comments are welcome, I would love to hear your viewpoints.