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Archive for Monika Miles

State Tax Issues Associated With Troubled Companies (Part 1)

State Tax Issues Associated With Troubled Companies (Part 1)
Corporate State Income Tax Issues Associated with Cancellation Of Debt Income

As we hear about the increase in bankruptcies and debt restructuring, corporations often assume that the state income tax treatment will mirror that of the Internal Revenue Service. This is far from the truth in many states.  In our experience, the state tax consequences are often thought of at the last minute or ignored entirely.  In fact, it is not unusual for these issues to be addressed during the preparation of the state income tax returns and are rarely analyzed in depth.  We’d rather see our clients be proactive!

Cancellation of Debt

Income from the cancellation of debt (COD) can be excluded from federal income.  This is dependent on the level of insolvency.  If a corporation has excluded COD income, they are required to reduce tax attributes (net operating losses, credits, capital loss carryovers, basis of property, passive activity loss and credits carryovers and foreign tax credits).   Federal rules dictate an ordering of the attribute reduction unless certain elections are made. To the degree you are able to consider the state consequences prior to the execution of any debt restructuring, a corporation may be able to preserve state income tax attributes.  Further, in some instances, a state income tax gain could be inadvertently generated, causing a tax liability for state purposes even when none was generated for federal tax purposes.

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The Trouble With Home Rule Jurisdictions

The Trouble With Home Rule Jurisdictions

Over the past two years following the 2018 Wayfair decision, which has allowed more than 40 states to implement economic nexus legislation, we’ve seen these laws affect retailers in sometimes unexpected ways.

Take, for example, home rule jurisdictions. In a post-Wayfair world, the tax burden they create can come as a rude awakening for retailers and legislators alike.

In an already complex online sales tax environment, where every state has its own economic nexus thresholds and requirements, home rule jurisdictions add yet another layer of complication.

What Is Home Rule Jurisdiction?

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Tax And Business Climate In State Of New Jersey

Tax And Business Climate In State Of New Jersey

Nicknamed the Garden State, New Jersey is the fourth smallest of the 50 U.S. States. It is also the 11th most populous state.

New Jersey’s most famous city, Atlantic City, is best known for its famous boardwalk. This four-mile-long promenade was constructed in 1870 and to this day remains the place where the majority of the city’s attractions are found. Among its most popular tourist spots is Steel Pier, a carnival-style amusement park that has rides for all ages, including a massive observation wheel with climate-controlled gondolas that gives riders amazing views over the city and the ocean year-round.

There are two climatic zones in the state. The south central and northeast parts of the state have a humid subtropical climate, while the northwest has a humid continental climate (microthermal), with much cooler temperatures due to higher elevation. The state receives between 2,400 and 2,800 hours of sunshine annually.

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What You Need To Know About Virtual Currency

What You Need To Know About Virtual Currency

You’re probably familiar with the common question, “Cash or card?” However, over the last decade, a newcomer has entered the race. Virtual currencies, and its subset “cryptocurrencies,” which use cryptography to validate and secure transactions, have exploded onto the scene, offering a brand-new avenue for commerce.

However, similar to the lack of consistency among economic nexus and marketplace facilitator laws, legislation concerning virtual currencies also varies wildly state to state.

A Brief History of Virtual Currency

While most people have at least heard of them at this point, there is still a great deal of confusion regarding virtual currencies, how they work and what exactly they are.

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Tax And Business Climate In Idaho

Tax And Business Climate In Idaho

Nicknamed the Gem state, Idaho is the 14th largest, the 12th least populous and the 7th least densely populated of the 50 U.S. States.

Humans may have been present in Idaho as long as 14,500 years ago. Excavations at Wilson Butte Cave near Twin Falls in 1959 revealed evidence of human activity, including arrowheads, that rank among the oldest dated artifacts in North America.

Forming part of the Pacific Northwest (and with the associated Cascadia Bioregion), Idaho is divided into several distinct geographic and climatic regions. The state’s north, relatively isolated Idaho Panhandle, is closely linked with Eastern Washington with which it shares the Pacific Time Zone- the rest of the state uses the Mountain Time Zone. The state’s south side includes the Snake River Plain which includes most of the population and agricultural land. The state is quite mountainous, containing part of the Rocky Mountains.

Business Climate

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How Covid-19 Is Impacting Wayfair Legislation

How Covid-19 Is Impacting Wayfair Legislation

In a number of ways, 2020 has been a year of unprecedented change. In the world of online sales and use tax, which has already seen significant change over the last two years, legislation is quickly being adapted to fit the ‘new normal’ that has resulted from the COVID-19 pandemic. More specifically, the fallout of the pandemic has significantly affected Wayfair-related legislation and how it is being applied.

These laws, which came about after the 2018 Wayfair ruling, have allowed over 40 states across the country to implement economic nexus and marketplace facilitation guidance. In a time when states are looking for ways to make up for lost revenue and to fill budget deficits caused by the pandemic, these laws are prime targets.

Economic Nexus During the Pandemic

As mentioned above, the last two years have seen dramatic change for online sales tax due to the Wayfair ruling. Only two states with a general sales tax have yet to implement some sort of Wayfair-related legislation. However, the pandemic may finally push lawmakers to pull the trigger.

As shared in this article from Avalara, Florida lawmakers introduced an economic nexus bill in August 2019, which progressed through the rest of the year and beginning of 2020, but died in appropriations in March 2020. However, the economic fallout of COVID-19 in Florida, which relies heavily on sales tax collected by in-state businesses, may yet cause lawmakers to change their tune.
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Taxability Of SaaS In Arizona, District Of Columbia, Iowa, Mississippi, Rhode Island And Tennessee

Taxability Of SaaS In Arizona, District Of Columbia, Iowa, Mississippi, Rhode Island And Tennessee

We recently posted an article about the challenges of SaaS taxability and discussed the reasons why SaaS is a particularly sticky subject, tax-wise.

While there are a number of reasons for it, the complexity largely boils down to irregularities in SaaS definitions between states, little uniformity when it comes to SaaS tax legislation and complication brought about by the very nature of the product (is it a “software” or a “service?”). Economic nexus adds an additional layer of difficulty.

Now, we’d like to give you an in depth look at SaaS taxability in 6 more states.

1. Taxability of SaaS in Arizona
Economic Nexus Provisions: Yes

As of 2020, remote companies that make $150,000 in gross sales of tangible personal property or services will trigger Arizona’s economic nexus. Sales made through a marketplace are not included. Starting January 1, 2021, the threshold will lower to $100,000.

SaaS and Cloud Computing Tax Rules: Taxable
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Business And Tax Climate In Virginia

Business And Tax Climate In Virginia

For this month, let’s take a virtual trip to the Mid-Atlantic region of the United States. Commonly known as “The Old Dominion” or “Mother of Presidents”, Virginia was one of the original 13 colonies in the American Revolution and has a vast and storied history. Four of the first five U.S. Presidents were born here, which represents a Virginia Dynasty in national politics. From battles to speeches, to social movements, this land has witnessed to the value of the country. The climate and geography of the state are shaped by the Blue Ridge Mountains and the Chesapeake Bay, providing habitat for much of its flora and fauna.

Business Climate

Virginia’s land is known as the most diverse in the nation because its terrain and climate plays a big role in determining the nature of agriculture and industries in the state. Agriculture and forestry are the largest private industries in Virginia, having a total economic impact of over $91 billion. Many Virginia commodities and products rank in the top 10 among all U.S. states.

One of largest cable service providers, Xfinity by Comcast is based in Virginia, promoting the state as a leading data center market in the U.S. The state is committed to technology and innovation with pushing new boundaries in cloud computing and cybersecurity.

Virginia has been an exceptional location choice for many businesses and rated as top 10 attractive places to expand and grow. Home to the 3rd largest port on the East Coast, Virginia serves a world-class transportation and logistics center. The rapid growth in the population has fueled the real estate market in the state and thus have much more resiliency than many housing markets across the country as a result of COVID-19.
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The Challenges Of SaaS Taxability And Why You Should Care

The Challenges Of SaaS Taxability And Why You Should Care

Even without considering the ramifications of the 2018 Wayfair decision, the taxability of software-as-a-service (SaaS) products is complicated. With Wayfair thrown in, it just gets worse.

But why is it so complicated? More importantly, how are SaaS companies supposed to be able to comply with tax laws when they can barely keep on top of them?

A large portion of it comes down to irregularities in SaaS definitions between states, in addition to little uniformity when it comes to SaaS tax legislation. The very nature of the product (is it “software” or “service”) adds to complexity. Over 20 states now assess sales tax on the SaaS revenue stream, but for different reasons.

Why Are SaaS Taxes So Complicated?
In addition to occasionally differing definitions, the laws built on top of those definitions are also different state to state. For example, in New York, all canned or prewritten computer software is considered tangible personal property, and is thus taxable. In others, like Nevada, SaaS is taxable, but only when used for business purposes. Texas classifies SaaS as information services and assesses tax on 80% of the cost (rather than 100%).
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Are Your Remote Employees Creating Nexus?

Are Your Remote Employees Creating Nexus?

In a recent blog, we discussed how the 2018 South Dakota v. Wayfair decision has been significantly impactful in altering the sales and use tax implications in majority of the states. As our readers know, the term “nexus” indicates the amount of contact necessary by a company in order to be obligated to collect sales tax in a state. In order to impose a tax obligation, nexus must be created – either by physical presence (for instance, employees, contractors, an office, or inventory in the state) or because of economic nexus, which measures the minimum amount of sales revenue or transaction volume that creates nexus and differs from state to state.

Nexus in a COVID-19 Environment

As the pandemic has forced employees to work from their homes, is it time to take a look at how that might unexpectedly create nexus for companies? Do teleworkers indeed create nexus for the businesses during a pandemic? Do states provide any exception to the physical presence rule for sellers who usually work in one state (the company location) but live (and now work) in another as a result of the COVID-19 pandemic?
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Why Popular Food Delivery Services Face Tax Auditing

Tax Audits For Food Delivery Services

Have you made use of a third-party food delivery service, like DoorDash, Postmates or Uber Eats? Millions of Americans do every day, and that number has only increased as a result of the COVID-19 pandemic and subsequent stay-at-home orders.

According to Second Measure, through the end of May, sales for third-party food delivery services more than doubled on a year-over-year basis.

So, why is this a big deal, tax-wise? While these services have been on tax organizations’ radar for several years, the pandemic has highlighted the issue even further, especially as the third-party food delivery industry is one of the few that has thrived during the pandemic.

The main concern tax officials have is whether these third-party food delivery services are properly collecting and remitting taxes, particularly in the current post-Wayfair tax environment.

All combined, it’s the perfect tax liability storm.

Why Are States So Interested in Food Delivery Services?
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Wayfair Two Years Later: What We Have Learned

Monika Miles: Wayfair Two Years Later

It’s hard to believe that it has been two years since the landmark decision in South Dakota v. Wayfair (2018) that changed the sales tax landscape. The high court’s decision on June 21, 2018 was that South Dakota’s economic nexus law was constitutional and that the state could require companies who met certain sales thresholds to collect and remit sales tax on sales to South Dakota customers, even if the company had no physical presence. The decision effectively changed the way states define nexus for sales tax purposes.

The Supreme Court’s ruling did not automatically make this the law of the land for all 50 states. It was a South Dakota case, so the ruling just applied to South Dakota. However, in the last two years, states have been jumping on the economic nexus bandwagon and enacting laws similar to those of South Dakota. States have long been searching for new ways to bring revenue into their state and the Wayfair case gave them a long-awaited opportunity to do so.

What is Economic Nexus?
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