Jerry Donnini | TaxConnections

04 Oct 2013

States Offer Amnesty in Attempt to Collect Tax

TaxConnections Blogger John Dundon posts about accumulated adjustment accounts Each year, many states announce amnesty programs in an effort to incentivize taxpayers to pay state tax. Most programs, in one form or another, offer partial or full interest and penalty abatement if taxpayers pay back taxes owed. While the programs seem like a win for states in theory, as a state and local tax attorney, I can promise that such programs lead to problems. Auditors in the various states are told to close down improperly completed audits in an effort to get taxpayers in the amnesty program. This, in turn, leads to poorly conducted audits that must be protested and litigated. In short, state and local tax professionals in those states should be licking their chops for the bombardment of work that will likely ensue.

The most recent states to implement a version of an amnesty program are Arkansas, Connecticut, and Louisiana.

Arkansas’ amnesty program applies to franchise taxes and runs from September 1st through December 31st, 2013. In order to participate, taxpayers must submit all reports and forms and pay the computed tax to the state. If a taxpayer meets the requirement of the deal, then Arkansas will waive all interest and penalties for delinquent taxpayers.

Similarly, in Louisiana, a Tax Amnesty program went into effect on September 23rd, 2013. The Louisiana amnesty program is broader than Louisiana in that it covers most state and local taxes. Taxpayers only have until Read More

Written by Jerry Donnini | Posted in United States

01 Oct 2013

Massachusetts and Minnesota Take Step Back in Tech Taxes

A host of problems have been created from a state and local tax perspective over the last few decades relating to sales tax on technology. Aside from the Amazon issue most are aware of, there has been a multi-state tax debate as to whether certain software charges are subject to sales tax. Under the traditional sales tax view, sales of tangible personal property are subject to sales tax. However, how is software, which may or may not be delivered in tangible form, taxed? Is it tangible personal property or tax exempt intangible information? Many states have adopted laws to capture software in the taxable base while other states depend on certain aspects of the software. Recently, Minnesota and Massachusetts have tackled different aspects of sales tax on technology.

On September 24, 2013, SAP Retail Inc. v. Comm’n of Revenue was decided. In the case, the software company not only provided taxable software products but also provided implementation services. The court was asked to address whether the consulting and implementation services were separate from the sale of the software itself, or if the services were so closely connected to the software sale that they were also taxable. Despite creative arguments on the side of the state, the court determined that the services were not fabrication services because the company did not furnish the items used to create the software. Moreover, the court determined that the consulting services were an independent and unrelated transaction because one could buy the software without the service of visa versa. Therefore, at least for now, consulting and implementation software services do not appear to be taxable in Minnesota. Read More

Written by Jerry Donnini | Posted in State And Local Tax (SALT) • United States

20 Sep 2013

Judiciary Committee Releases Internet Sales Tax Principles

Reportedly relying on trade groups, taxpayers, industry, and state governments the House Judiciary Committee announced seven basic principles on remote sales tax collection. Chairman Goodlatte made the announcement to allegedly begin the discussion on the looming problem of Internet sales tax.

The seven basic principles, announced, are:

1. Tax Relief – Using the Internet should not create new or discriminatory taxes not faced in the offline world. Nor should any fresh precedent be created for other areas of interstate taxation by States.

2. Tech Neutrality – Brick & Mortar, Exclusively Online, and Brick & Click businesses should all be on equal footing. The sales tax compliance burden on online Internet sellers should not be less, but neither should it be greater than that on similarly situated offline businesses.

3. No Regulation Without Representation – Those who would bear state taxation, regulation and compliance burdens should have direct recourse to protest unfair, unwise or discriminatory rates and enforcement. Read More

Written by Jerry Donnini | Posted in Federal • Sales/Use Tax • State And Local Tax (SALT) • United States

18 Sep 2013

Online Travel Company War Still Raging in Georgia

TaxConnections Blogger Jerry Donnini posts about online travel companies Many states, including my home state of Florida, have been unbundling the online travel company mess from a tax perspective over the last few years. Like many state and local tax issues, states have been all over the map when it comes to the taxation of new technology-type transactions. In the online travel industry, companies like Orbitz, Expedia, and Hotels.com (“OTCs”) purchase rooms at a low rate and facilitate a deal with customers to rent them from the hotel. Like many businesses tend to do, the online travel company turns a profit in this transaction. The problem that has arisen is whether the state and its counties should collect tax on the price charged from the hotel to the OTC or the higher price charged from the OTC to the customer.

One of the few states that seem to have a final determination is Georgia. Georgia is one of the few states that had the issue go up the judicial ladder to its Supreme Court. Ultimately in City of Atlanta v. Hotels.com, 710 SE 2d 766 (Ga 2011), the court ruled in favor of the city and determined that the bed tax applied to the higher amount. As an aside, many states have ruled exactly the opposite and it is worth pointing out that the counties, not the states, have been the aggressors in these cases.

After remaining dormant for a few years, the Georgia Supreme Court ruled that the case was still not closed. Apparently, in the opinion, the Georgia Supreme Court ruled in a footnote that the trial court did not rule on the city’s Read More

Written by Jerry Donnini | Posted in State And Local Tax (SALT) • United States

16 Sep 2013

What Do I Do? Received Florida Sales and Use Tax Audit Notice – Part 3

Part 3: Audit Ends, What Do I Do?

A daunting reality sets in for many Florida taxpayers when the audit report is issued. To say the majority of Florida taxpayers under a Florida sales tax audit have a meltdown is an understatement. Many taxpayers and other Florida tax professionals believe that this is the end of the road for their journey to a sizeable tax bill. However, this is when our job as Florida tax attorneys really begins.

Upon the completion of a Florida tax audit, the Department of Revenue issues a notice of proposed assessment (“NOPA”). The NOPA is an important document for two reasons. First, it signals that the Florida sales tax auditor is done with the file at the local office and has sent it to Tallahassee. More importantly, if the Taxpayer or the Florida state tax professional does not know what to do, the NOPA means the company better act fast!

Pursuant to Florida law and the NOPA itself, the assessment becomes final in 60 days if it is not contested. This means that the Taxpayer or its CPA or attorney has two months to file a protest with Tallahassee. For those of you Read More

Written by Jerry Donnini | Posted in Sales/Use Tax • State And Local Tax (SALT) • United States

13 Sep 2013

Illinois Responds to Prior Tobacco Tax Court Ruling

What is meant by a “cigarette” in Illinois? This question has been circulating through the tax community since December 2012. In August, 2013, it was reported that Illinois officially changed the definition of a “cigarette” and a “little cigar” for purposes of the Illinois tobacco tax regime. This is a major victory for tobacco products manufacturers and tobacco distributors in the state of Illinois.

As a starting point, Cigar Association of America v. Hamer, Cook County, 12 L 51033 was decided in December, 2012. That case was centered on a trade association arguing that Illinois’ definition of a cigarette was constitutionally invalid because it was too vague. In Illinois, a cigarette was defined as any roll containing tobacco that is suitable for smoking or if it met two of the following criteria: Read More

Written by Jerry Donnini | Posted in North America • Sales/Use Tax

12 Sep 2013

What Do I Do? Received Florida Sales and Use Tax Audit Notice – Part 2

Part 2 Common Pitfalls

There are several issues that often surface during the audit. Many of the issues that surface are that the client does not have records, the client does not have a complete or updated QuickBooks or accounting software file, or the client has collected and remitted the incorrect amount of tax.

The most common issue we face is the situation in which the Florida taxpayer does not have adequate records to do a complete audit. Based on many of our clients, Florida is an extremely dangerous place to live. Until I became a Florida sales and use tax attorney, I was not aware of the high number of floods, fires, earthquakes, tsunamis and other natural disasters that destroy all of a business’s records. On a serious note, many taxpayers believe that not having any records is the best way to escape tax liability. However, generally the opposite is true. The more records that are available, generally, the more we can do to explain discrepancies that arise during the audit. Therefore, we recommend that a Taxpayer does its very best to salvage as many records as possible for review even if they are extremely damaged due to mother nature. Read More

Written by Jerry Donnini | Posted in Sales/Use Tax • United States

11 Sep 2013

What Do I Do? Received Florida Sales and Use Tax Audit Notice

It’s a grim and nerve-racking day for many when they receive the infamous DR-840, Notice of Intent to Audit Books and Records, from our friends at the Florida Department of Revenue. Many Florida taxpayers often ask themselves, “Why me?” Or, “What did my company do wrong in order to receive this notice?” The answer to both of these questions is obtainable from the Florida sales and use tax auditor by simply asking them. In many situations, the company is audited because its exempt sales ratio is out of the average range for similar companies in its industry. Other companies are flagged for audit because the sales reported on their twelve monthly sales and use tax returns do not correspond to the gross sales reported on their federal income tax return. Many other companies are flagged purely at random.

While the reason may be for a variety of reasons, once the notice is received, the reason for its reception is virtually irrelevant. The more relevant inquiry should be, what should we do next? Ideally, it makes sense for many Florida businesses to hire a law firm or a CPA firm versed in Florida sales and use taxes. This is true even if the company has immaculate records and nothing to hide in connection with a Florida sales and use tax audit. Hiring a professional that is experienced in handling a Florida Sales and Use tax audit is an excellent way to walk you or your client through the audit process. In addition, having a Florida sales and use tax professional is invaluable in helping your company or your client’s company organize the information in a presentable manner that will help keep a sales tax assessment to a minimum. Read More

Written by Jerry Donnini | Posted in Corporate • Sales/Use Tax • State And Local Tax (SALT) • United States

10 Sep 2013

Amazon Takes on New York in SCOTUS

Over the past year or so, click through or affiliate nexus has dominated the sales and use tax professional community. Contrary to popular belief this is not a new a “new” tax. Rather, the issue really boils down to whether certain online companies can be forced to collect sales and use tax in states in which they have no physical presence. In March 2013, New York’s highest court ruled that a state can make a law that required an online retailer to collect tax in a state in which it does not have any traditional physical presence. This click through nexus applies if a company pays commission for the in-state company’s website for generating sales for the online retailer. There were actually two such cases, against Amazon and Overstock. Both companies believe that this ruling runs contrary to the Dormant Commerce Clause of the United States Constitution and prior United States Supreme Court rulings. Therefore, on August 23, 2013, both Amazon and Overstock filed a petition to ask the United States Supreme Court to hear the case.

While technology has changed the way we live and do business, the Supreme Court of the United States (SCOTUS) has not heard a case since 1992. This has lead to difficult planning for businesses and state and local tax professionals since the invention of the internet. We get calls almost daily dealing with nexus related issues and what a company should be doing in this era of uncertainty. Read More

Written by Jerry Donnini | Posted in Federal • Sales/Use Tax • State And Local Tax (SALT) • United States