Thinking About Selling Your Accounting Practice? Get An Education Years In Advance

You have spent years building an accounting practice, and then you start dreaming about  selling your practice, and retiring. Most owners find themselves in the position of wishing they would have started planning to sell their accounting practice long before they ever did. We have had the pleasure of speaking privately with hundreds of hard-working practitioners over the years who finally find themselves ready to retire. However, once they receive an education about the process of selling their tax practice, they are stunned to discover they should have had an exit strategy in place years before…even 10 years prior to an exit.

Recognizing the need for practitioners to sell their tax practice, www.taxconnections.com has put together a special program to educate firm owners what they must put in place long before they sell their tax practice another firm. TaxConnections is committed to guiding accounting firm owners by educating them what they can do to ready themselves for the inevitable sale of their practice years in advance of an exit to retirement.

A little-known secret to owners of small tax and accounting practices is if you call big brokers about selling your practice, they are disinterested in working with you if your annual revenue is under 3M. Most of the big power brokers in the accounting profession do not have an interest in speaking with you even at 3M annual revenue and/or EBITDA. It is a good idea to understand why this happens and explain so you do not become disappointed. Our mission is taking you through the process of building and organizing your practice for sale one day. Perhaps, it will be two years from now, five years from now, 10 years from now or longer.  Tax professionals are lifelong learners, and what we teach you about building to sale journey will have a huge impact on the sale price of your tax practice one day.

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Establishing Presence: A Guide To Sales Tax Nexus Reviews

So, you’re selling a product…to customers…in all states in the US.  You’re a US company selling widgets or software or services, or you’re a foreign company selling gadgets – all destined for US customers (whether individual consumers or businesses). Business is growing, sales are increasing. Congratulations!

First next step? Determine if you need to be collecting and remitting sales tax on those sales.  Note – you probably do! And that starts with nexus.

When selling to US customers and then dealing with the many sales tax regulations in our 50 states, understanding the concept of nexus is paramount for businesses aiming to stay compliant and avoid potential penalties. Nexus, in essence, refers to the connection or presence that a business has in a particular state, which can trigger the obligation to collect and remit sales tax. However, determining whether a business has established nexus in a given jurisdiction requires a comprehensive assessment known as a nexus review.

What Is A Nexus Review?

A nexus review involves a thorough examination of various factors, including a business’s physical presence, economic activities, and digital footprint, to determine whether it has crossed the threshold to trigger sales tax obligations in the state, or states, in which it operates. This process is essential for businesses to assess their compliance status accurately and identify potential areas of risk. By understanding the intricacies of nexus reviews, businesses can proactively manage their sales tax responsibilities and navigate the complexities of multi-state taxation with confidence.

Let’s unpack that here – understanding economic nexus, physical presence, the review process and how to evaluate your business’s nexus requirements. Here’s a breakdown:

  1. Understanding Economic Nexus & Physical Presence (whichever comes first)
    • Economic nexus, triggered by certain criteria, defines a business’s virtual presence in a state, necessitating sales tax compliance even without physical presence.
  2. The Nexus Review Process
    • A step-by-step evaluation of a business’s activities and transactions to determine sales tax obligations, ensuring accurate compliance assessment.
  3. Nexus Across Different States
    • Variations in state laws necessitate a nuanced understanding of nexus criteria, with some states following Multistate Tax Commission (MTC) guidelines.

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Are You Aware California Politicians Want To Increase Gas Tax By Two Dollars Per Gallon?

According to Carl DiMaio, Chairman at Reform California and running for the Candidate, CA State Legislature  in November 2024, he wants to fight the $2.00 tax per gallon  of gasoline.

Californians already pay the highest gas prices in the nation, but state politicians are imposing new costs that will spike our gas tax to $2 per gallon! Here’s what you need to know – and how you can help BLOCK this tax hike!

First, I want you to know that we do NOT have to just accept this latest massive gas tax hike!

Reform California is waging a “Gas Tax Repeal and Rebate” campaign – and it all hinges on forming our Reform CA Caucus in the state legislature and passing the California Taxpayer Protection Initiative THIS NOVEMBER!

But we can’t wage this fight alone – your help is needed in this fight ASAP!

Second, because the liberal media in California refuses to cover this story, we need to spread the truth ASAP to voters on what is happening with their gas prices!

Each year Reform California releases a full calculation of the REAL gas tax we’re paying for each gallon we pump. As broken down below, the current tax is $1.43 per gallon – but new mandates will spike it to two dollars.

That’s because the CA Air Resources Board (appointed by state politicians) is imposing a costly new fuel standard that will spike the cost by an additional 52 cents by 2026 – and we also see a new yet-to-be-determined oil/gas penalty tax from the CA Energy Commission.

  • STATE EXCISE TAX: 59.6 cents (automatically increases July 1 each year)
  • CAP AND TRADE TAX: 28 cents
  • SALES TAX: 12 cents
  • CARB REGULATION COSTS: 23 cents (today), increases to 75 cents (2026)
  • UNDERGROUND STORAGE REGULATION COSTS: 2 cents
  • FEDERAL EXCISE COSTS: 18.4 cents
  • OIL/GAS PENALTY TAX: TBD

TOTAL PER GALLON CA GAS TAX: $1.43 today, $1.95 by 2026

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Explaining Nexus Threshold By State

Understanding the intricate web of sales tax nexus thresholds is key for businesses navigating the complexities of state taxation laws. As the digital age continues to reshape traditional business models, the concept of nexus—the connection between a business and a taxing jurisdiction—has become a focal point in determining tax obligations. Nexus can be created by physical presence (i.e.; employees or contractors in a state, an office, or inventory) or economic .

The table below aims to shed light on the diverse nexus thresholds established by individual states across the United States when determining economic nexus for sales tax. Each state presents its own set of criteria that trigger nexus for sales, income, and other tax purposes. By delineating these thresholds, businesses can proactively strategize their operations to ensure compliance and mitigate potential liabilities.

As a business operating in one, or many, of these states, its truly vital that you have clear knowledge of their tax regulations and nexus thresholds.

Things can get a little messy in these matters, so consult the below table, consider your individual fact pattern and then come to Miles Consulting  – we’ll help you understand your unique tax challenges, whatever state you’re in. Our professionals can help with sales tax compliance (filing returns when and where you need to), retroactive remediation, merger and acquisition due diligence, and audit support, among others.

We start most conversations with clients by talking about nexus because that determination is the starting point of a relationship with a state and its taxing authority. Once nexus is established, a company has an obligation to then determine if its products and services sold to customers in that state are subject to sales tax, whether there are relevant exemptions, and then their requirements to file sales tax returns. Nexus is just the first step in the process of becoming compliant.

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Alert: Advisors To Clients Who Have Created Family Limited Partnerships

We wanted to share with you a topic discussed at last week’s live Q&A session, which was held during one of this spring’s Fundamentals of Flow-Through® Partnership, LLC & S Corporation Tax Seminars. FYI: As noted below, there are two more spring programs coming up shortly!

Many of us are advisors to clients who have created family limited partnerships (“FLPs,” generally formed as LLCs), which hold marketable securities and often have been used to make “discounted” gifts to family members. Presumably, when such an FLP has been formed, the investment company rules of §721(b) have been properly navigated to avoid gain recognition on the contribution of any appreciated securities to the FLP. Very generally, gain will be recognized on the contribution of appreciated property to a partnership when, post-contribution, more than 80% of the value of the partnership’s assets consists of stock and securities (even if non-marketable) and the contributor obtains “diversification.”

What sometimes has been overlooked is that the rule is NOT that a contribution of stock or securities to an investment company can be taxable, rather a contribution of any property to an investment company where the contributor obtains diversification is taxable to the contributor. For example, assume there is an FLP that holds exclusively stock and securities with a value of $1.8 million, which FLP is owned by non-grantor trusts created for family members. Parent decides to contribute to the FLP a parcel of appreciated real estate (held in a single-member LLC) having a value of $200,000 in exchange for a 10% FLP interest with a view to making gifts of the 10% FLP interest at a later date. This contribution will be taxable to the parent, because (1) post-contribution the FLP is an investment company by virtue of more than 80% of its assets consisting of stock and securities, and (2) parent has obtained diversification by reason of “exchanging” 100% ownership of the real estate for a 10% interest in the real estate and a 10% interest in the stock and securities owned by the FLP.

It is easy to avoid this trap. Just form a new FLP (that is a recognized entity) and make gifts to the same trusts that had received gifts of interests in the securities FLP. The cost of a new and virtually identical FLP agreement should not be too costly, and the cost of filing an additional partnership tax return likely is relatively small.

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Reform California Unveils Plan To Repeal New “Flat Fee” Utility Surcharge

California politicians are imposing a new “flat fee” on your utility bill that you have to pay regardless of whether you use any energy that month and the rate will now be based on your income! Reform California opposes the charge and calls it an illegal tax and a violation of privacy.

Californians are still suffering under the highest utility rates in the country, and many can barely afford to pay their bills.

Now California Democrat politicians want to impose a new “flat fee” surcharge on all utility bills based on each household’s income for the year.

That means many households will pay an additional flat charge of $24.15 per month to subsidize “lower income households” who would pay a lesser fee of between $6 and $12 a month.

Politicians claim these fees would pay for installing and maintaining the equipment necessary to transmit electricity to homes, but Reform California Chairman Carl DeMaio notes that those charges are already part of the electricity rates — and that the proposal is an excuse for a new tax.

“By imposing a flat fee that varies based on household income, California politicians are turning utility bills into tax bills,” said DeMaio.

The fixed rates are required under Assembly Bill 205 (AB 205), which was signed by Governor Gavin Newsom (D) in 2022. The bill states that “the commission may authorize fixed charges [for utilities] … The fixed charge shall be established on an income-graduated basis.”

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Progressive Tax Could Cost Nearly $1800 A Year In Home Equity To Illinois Homeowners If Voters Approve The Increase

According to the Illinois Policy Organization…

Gov. J.B. Pritzker promises his $3.7 billion “fair tax” would only hit those making over $250,000, but it also threatens to cost more than 3.2 million Illinois homeowners an average of $1,800 a year in home equity.

If voters approve the state income tax increase, it could eventually cause Illinois’ home price appreciation rate to fall by 34.8% (see Appendix), if the state has the same experience as the last state to enact a progressive income tax: Connecticut in 1996. If the median homeowner, with a home value of $203,400, were planning on selling their house in 10 years, a progressive income tax would cost them $17,937 in foregone equity. The average annual cost of the progressive tax for these homeowners would be nearly $1,800 in home equity.

Because lower home prices are a hidden cost that will impact homeowners at all income levels, it is disingenuous for proponents of the progressive tax to claim it will only affect the rich. Less housing wealth will be a concern even if state lawmakers could be trusted not to abuse their new taxing powers to spread tax hikes to the middle class or retirees, as Connecticut also did.

INTRODUCTION

Lawmakers are asking voters to approve a $3.7 billion income tax increase on Nov. 3, promising the tax increase will only harm those making more than $250,000. However, the financial damage would also spread to Illinois’ 3.2 million homeowners. The 2011 state income tax hike previously reduced housing prices in Illinois, according to the Harvard Joint Center for Housing Studies, which added a caveat because housing prices were already declining prior to the tax hike. The same study found the 2007 Washington, D.C., income tax cuts led to a significant increase in housing prices.

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Thinking About Selling Or Merging Your Tax Advisory Practice?

We have been approached many times over the years for a solution for small firm business owners who want to sell their practice and need a succession plan. We now have a solution for you and your clients who have been loyal to you over many years of professional services advisory.

Are you working on a succession plan so you can retire comfortably from your tax practice? Have big brokers told you that your practice is too small for them? TaxConnections search services provides a solution for you to transition your practice and your clients to qualified  buyers. TaxConnections has a team of advisors to help you in setting up a succession plan to sell and transition your practice to qualified industry professionals so you can retire.

Small professional services business owners are faced with many challenges today that they have never experienced before in running a tax and accounting practice. Operating a practice is more expensive today with increased costs for website development, cloud services, secured document management software, time and expense software, tax return software, practice management software, payroll software,  human resources software, monthly office rent, numerous insurances, IT support, computers and laptops, phones, remote software, sales and marketing team, employee salaries, 401K Plan Administration Fees, and much more.

Are you also feeling the pressure of increasing costs of the technology you now need to operate your practice efficiently today? The truth is many small firm owners are being financially squeezed with these increased costs and time-consuming activities of learning multiple new software implementations. Do you realize the software you now purchase will have an impact on your sale? The firm that acquires a practice may be able to adopt it or must start from scratch and use their own. This takes more time for the acquisition of your business.  Would you like to know what software implementations are best for the future sale of your firm? We are conducting due diligence for you well in advance of your firm being acquired, which greatly increases your value. TaxConnections will position you and your small practice for sale within the next 12-24 months.

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Texas Sales Tax Exemptions | Sales-for-Resale

The Texas Tax Code provides that, as a general matter, Texas sales and use tax are imposed on sales of “tangible personal property” or “taxable services.” [1] However, various exemptions apply to these items to provide relief to taxpayers where public policy dictates it should be given.  One of the more common exemptions is the “sale-for-resale” exemption.  Broadly speaking, the sale-for-resale exemption provides that the purchase of a taxable item can be exempt from Texas sales and use tax if the purchaser intends to resell the item as, or as part of, another taxable transaction.

Complexities may arise in determining whether a sale-for-resale has occurred.  Additionally, another layer of issues exists with respect to proving the exempt nature of a transaction.

The Sale-for-Resale Exemption

Texas Tax Code 151.302(a) provides that the “sale for resale” of a taxable item is exempted from Texas sales and use tax. [2] The phrase “sale for resale,” in turn, is defined to include several different transactions.  Most commonly, a “sale for resale” means a sale of:

“…tangible personal property or a taxable service to a purchaser who acquires the property or service for the purpose of reselling it as a taxable item as defined by Section 151.010 in the United States of America or a possession or territory of the United States of America or in the United Mexican States in the normal course of business in the form or condition in which it is acquired or as an attachment to or integral part of other tangible personal property or taxable service…” [3]

Or…

“…a taxable service performed on tangible personal property that is held for sale by the purchaser of the taxable service…” [4]

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Taxes In Texas: Coin Operated Machines

Today the topic is taxation and coin-operated claw machines that are amusement games from which the player tries to pick up a toy with the claw and drop it in the chute. I’m not sure these are all coin-operated today as some likely only take folding money and some might take your credit or debit card.

ruling from the Texas Comptroller of April 24, 2024 caught my attention. There are all types of taxes and one in Texas is the coin-operated machine tax! It defines the machine and like many taxes, has at least one exemption that then creates added complexity to define that exception. Here the exception is for “amusement machines designed exclusively for a child.” This means a “machine that can only be used for skill or pleasure by a child under 12 years of age.”

Well, what does exclusively mean and how does one really know if a machine is for ages 11 and below rather than ages 12 and more? Well, in a 2002 ruling, the comptroller defined “exclusively” as a machine “designed such that no person other than a child can use the machine.” Also, “it doesn’t matter if an immature adult or older child actually uses the machine” because it is the design that is relevant and the kind of prize a player can win is not relevant.  That seems odd, what if the prize is a pack of cigarettes?

I’m sure the Texas comptroller must have better things to do than determine if a coin-operated machine is for kids age 11 and under rather than for immature adults or for anyone.

Ok, this is a bad way to draft a tax rule. At least two problems here. Coin-operated is too limiting if that means actual coins are dropped into a machine as these machines will certainly get converted to Apple Pay or debit/credit card tap as fewer people carry real money around. And there is no need for any exception here (I think that is true for most taxes – exceptions should be avoided).  If there is some need to provide relief to certain machine operators, find another way such as have them apply for a grant based on financial need (I’d say an income tax credit but Texas doesn’t have a personal income tax).

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What Is Streamlined Sales Tax And How Can it Help My Business?

Streamlined Sales Tax (SST) is an initiative that aims to simplify and standardize the collection and remittance of sales tax across different states. It was first implemented in 2005 and has since been adopted by 24 states. The initiative aims to make it easier for businesses to comply with sales tax laws, reduce administrative costs, and create a level playing field for retailers across different states.

What Are the Benefits of Streamlined Sales Tax?

One of the main benefits of SST is uniform definition of products and services across the states. Additionally, SST provides businesses access to free tax administration software, which can help automate tax calculations, filings, and remittances.

Current List of Full Member Participating States

 

Arkansas Kansas Nebraska North Dakota South Dakota West Virginia
Georgia Kentucky Nevada Ohio Utah Wisconsin
Indiana Michigan New Jersey Oklahoma Vermont Wyoming
Iowa Minnesota North Carolina Rhode Island Washington Tennessee*

*Associate Member State 

For more information about registering for the SST program, contact us today. We are your Trusted Tax Advisor.

Have a question? Contact Dan Thompson, Thompson Tax Team.

ALERT: Register Today For Tax Partnership Webinar On Thursday May 16th (Free Webinar By Partnership Experts)

This coming Thursday, on May 16th at Noon CDT, please join Tax Forum for a Complimentary Webinar:

Avoiding Costly Mistakes: Four Essential Tax Concepts

 For the Business Attorney or CPA And EAs

Even smaller matters might have big traps and significant tax implications – leading to unexpected tax liabilities for your clients and potential malpractice claims for the professionals.

During this one-hour webinar, the Tax Forum team of Chuck LevunMichael Cohen and Scott Miller will provide a top-level look at …

  • Converting an existing S corporation to an LLC on a tax-free basis to obtain “charging order” protection
  • Simple business structuring to circumvent the $10k deduction limitation for the portion of state and local income taxes attributable to partnership/LLC and S corporation income
  • How not to cause your client to be one of the estimated 500k+ LLCs that incorrectly thought it was going to be taxed as an S corporation but, because of certain language contained in its operating agreement, is not an S corporation
  • Personal goodwill and the C corporation business sale – identifying situations in which double tax can be avoided

Any one of these could make the difference between you being a hero or creating a significant problem for your clients.

This webinar is geared for business attorneys and CPAs who handle matters (even on a limited basis) involving closely held businesses and smaller mid-market companies.

Please bring your questions, as the presentation will include a live Q&A session.

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