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California Crypto Currency Laws

The California Digital Financial Assets Law requires a digital financial asset transaction kiosk operator (“kiosk operator”) to comply with certain requirements that go into effect on January 1, 2024, January 1, 2025, and July 1, 2025.

Effective January 1, 2024

Effective January 1, 2024, the Digital Financial Assets Law requires a kiosk operator to: (1) provide a list of its kiosk locations to the Department of Financial Protection and Innovation (Department), (2) comply with daily transaction limits, and (3) provide receipts to customers with specified information for any transaction made at the operator’s kiosks.

Kiosk Locations

Effective January 1, 2024, the Digital Financial Assets Law requires a kiosk operator to provide the Department with a list of all locations of kiosks that the operator owns, operates, or manages in this state. The law also requires a kiosk operator to submit updates to the Department within 30 days of any changes to kiosk locations. Fin. Code, § 3906.

  • Who must report a list of kiosk locations?

    Anyone who owns, operates, or manages a digital financial asset transaction kiosk in this state must report kiosk locations to the Department. A digital financial asset transaction kiosk (“kiosk”) is defined as an electronic information processing device that is capable of accepting or dispensing cash in exchange for a digital financial asset.

  • When must a kiosk operator submit its list of kiosk location(s)?

    The law requiring a kiosk operator to report its kiosk locations to the Department becomes operative on January 1, 2024. The Department requests kiosk operators submit a list of kiosks to the Department no later than March 15, 2024.

  • How does a kiosk operator submit its kiosk locations to the Department?

    A kiosk operator can submit its kiosk location information to the Department by completing this Excel template with all kiosk locations and submitting it via the Department’s upload site.

    The Excel file must contain the following horizontal fields, in the order specified below, for each location:

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California Digital Assets Law
Licensing

Beginning July 1, 2025, companies must be licensed by the DFPI or have applied for a license with the DFPI to operate in California. The DFAL prohibits an entity from engaging in digital financial asset business activity unless the entity holds a license from the DFPI. Digital financial business activity includes activities such as exchanging, storing, or transferring a digital financial asset, such as a crypto asset. The new law promotes consumer and investor protection by creating a robust regulatory framework, including supervision and enforcement authority, for certain crypto activities.

Prospective Licensees

If you are a prospective DFAL licensee, or have a question about how the law affects your business, join our email list to receive future updates or email crypto@dfpi.ca.gov.

Kiosks

The Digital Financial Assets Law requires a digital financial asset transaction kiosk operator (“kiosk operator”) to comply with certain requirements in California.

Beginning January 1, 2024, a kiosk operator must provide the Department a list of all kiosk locations that an operator owns, operates, or manages in the state. An operator is defined as a person who owns, operates, or manages a digital financial asset transaction kiosk located in this state. Additionally, by January 1, 2024, an operator (1) may not dispense or accept more than $1,000 in a day to or from a customer via kiosks and (2) must provide a customer with a receipt with specified information for any transaction made at the operator’s kiosk.

Beginning January 1, 2025, kiosk operators must provide pre-transaction disclosures to customers and are prohibited from collecting from customers in any single transaction the greater of $5 or 15% of the U.S. dollar equivalent of digital financial assets involved in the transaction.

By July 1, 2025, operators must comply with the licensing requirements stated in the law. Learn more on the kiosk operators webpage.

The $500,000 Homeowner Tax Break

Understand the rules now to avoid a tax surprise later!

There is large tax break that allows you to exclude up to $250,000 ($500,000 married) in capital gains on the sale of your personal residence. But making the assumption that this gain exclusion will always keep you safe from tax can be a big mistake. Here is what you need to know:

The basics

To qualify for the capital gains tax exclusion when you sell your home, you need to pass three hurdles:

  1. It’s your main home. It can be a traditional home, a condo, a houseboat, or mobile home. Main home also means the place of primary residence when you own two or more homes.
  2. You pass the ownership test. You must own your home during two of the past five years.
  3. You pass the residency test. You must live in the home for two of the past five years.

There are some additional quirks to know about, including:

  • You can pass the ownership test and the residence test at different times.
  • You may only use the home gain exclusion once every two years.
  • You and your spouse can be treated jointly OR separately depending on the circumstances.

When to pay attention

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IRS Halts Most Unannounced Collection Employee Visits To Taxpayers

On July 24, the IRS announced that it will immediately end most unannounced revenue officer (RO) visits. 

For decades, IRS ROs have visited households and businesses as part of their efforts to collect federal tax liabilities. In a major policy change, the IRS has stopped most unannounced RO visits to taxpayers to reduce public confusion and enhance overall safety measures for both taxpayers and employees. 

What is a Revenue Officer? 

IRS ROs are unarmed civil employees whose duties include visiting households and businesses to help taxpayers resolve their account balances. Their job is to collect unpaid federal taxes and to secure past-due federal tax returns. ROs also educate taxpayers on their tax filing and paying obligations and provide guidance and service on a wide range of financial issues to help taxpayers resolve their tax issues. They also ensure taxpayers are aware of their rights under the Taxpayer Bill of Rights. The IRS currently has about 2,300 ROs working cases across the country.  

How do Revenue Officers work? 

ROs conduct interviews with taxpayers and/or their representatives as part of the process of collecting delinquent taxes and securing past-due tax returns. Through interviews and research, the ROs get and analyze financial information to determine taxpayers’ ability to pay their tax bill. ROs consider alternative means of resolving tax debt issues when taxpayers cannot pay the debt in full and provide taxpayers with resources that can help, including: 

  • Setting up payment agreements that allow taxpayers to pay their bills over time; 
  • When appropriate, granting relief from penalties imposed when tax bills are overdue; or 
  • Suspending collection of accounts due to financial hardship. 

If the IRS is unable to reach an agreement with a taxpayer, enforcement actions may be taken. For more information about the IRS collection process, visit our Get Help page. 

Why is the IRS stopping these unannounced visits? 

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If Your Company Is Based In NY And You Work Remotely In California You Are Double Taxed

As we were reading an article written by Noah Peterson at The Tax Foundation it caught our attention. We believe it will catch your attention, too! It is titled “How Are Remote And Hybrid Workers Taxed?” Here is what Noah Peterson writes:

Working from home is great. The tax complications? Not so much.

Last year, 13 percent of full-time employees in the U.S. worked from home and 28 percent worked a hybrid model. Many of them worked in a different state than the one in which their employer was located. That’s millions of Americans who will face complicated income tax situations this filing season—some even getting taxed twice.

Where Is Income Taxed?

Generally, income can be taxed where you live and where you work. If those are the same state—as is typically the case with remote and in-person workers—then that’s where you’ll get taxed (with one exception; more on that below). But if you live and work in two different states—say, you live in New Jersey and commute into New York—then you could get taxed in both.

Thankfully, every state with an income tax offers a credit for taxes paid to another state. The catch: it won’t exceed the amount you pay on that income in your home state. So, your income wouldn’t be double taxed, but if the second state has higher income tax rates, you would be paying more than if you worked exclusively from your own state.

When Would I Be Double Taxed?

Five states tax people where their employer’s office is located, even if they work remotely and never set foot in the state. This is called the “convenience of the employer” rule, and ConnecticutDelawareNebraska, New York, and Pennsylvania have it, though they differ on the details.

If your employer is based in one of these states, but you’re working elsewhere for your convenience (not because your employer requires it), then you might pay income taxes both in the state where you live and work and in the state where your employer is based, without an offsetting credit.

For example, say your company is based in New York but you work remotely in California. Because you live and work in California, the state expects you to pay taxes on the income you earn there. But because New York has a convenience rule, it also expects you to pay taxes on the income you earn through your New York-based company. You’d pay income taxes to both states.

What If I Commute across State Lines?

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DISSOLUTION OF A NEW YORK COMPANY
Background

Domestic corporations (corporations created under the laws of New York State) must pay income franchise and other taxes to New York State. The corporation pays the income franchise tax in exchange for the privilege of exercising its corporate franchise, doing business, employing capital, owning or leasing property, maintaining an office, or deriving receipts from activity in the state.

A domestic corporation that is in existence must continue to file New York State returns and pay any taxes or fees due regardless of whether it does any business, employs any capital, owns or leases any property, maintains any office, derives any receipts from any activity in this state or engages in any activity, within or without New York State, until it is formally dissolved. The process of voluntary dissolution brings the existence of the corporation to an end, and eliminates the corporation’s obligation to file returns and pay taxes and fees to New York State in the future. The dissolution process involves both the Tax Department and the New York Department of State.

A domestic corporation that voluntarily dissolves does not end its obligation to file returns and pay taxes and fees if it continues to conduct business, even if the business is carried on entirely outside New York State.

There are different procedures for the voluntary dissolution of New York State not-for-profit corporations and the surrender of authority by foreign business corporations.

Procedure For Voluntary Dissolution

Voluntary dissolution is generally a two-step process:

  • Obtaining written consent from the Tax Department1 (which will check to see if the corporation owes back taxes and if it has filed all its returns)2; and
  • Filing paperwork with the New York Department of State, including a Certificate of Dissolution.

1Written consent from the NYS Tax Department is not required for Limited Liability Companies.

If the corporation has done business in and incurred tax liability to the City of New York, it  must request written consent to dissolve from the New York City Commissioner of Finance. Additional information is available on New York City Department of Finance’s website.

How To Get Consent From The Tax Department

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WOW Folks! 67% of New York Voters Support Raising Taxes On Profitable Corporations And Highest 5% of Earners

We noticed this poll from the Sienna College Research Institute you may find interesting. However, when we looked at who conducted this poll, you should know this is what is stated in their ABOUT US. This will provide you information on how to weigh this poll telling us most of New Yorkers want their taxes raised.

Founded in 1980 at Siena College in New York’s Capital District, the Siena College Research Institute (SCRI) conducts regional, statewide and national surveys on business, economic, political, voter, social, academic and historical issues. The surveys include both expert and public opinion polls.

Siena students and students from other colleges participate in each and every survey conducted. Their experiences allow them to gain experience in political science, computing, communications, sociology, and psychology in a professional setting. SCRI frequently employs interns that participate in special projects including event planning, in-depth research, report writing and analysis.

The results of SCRI surveys have been published in major regional and national newspapers, including The Wall Street Journal and The New York Times, as well as in scholarly journals, books and encyclopedias (both print and online). Survey results are regularly featured on local and national television and radio.

SCRI conducts the Siena New York Poll, a monthly snapshot poll of registered voters from throughout New York State on timely political topics, and the New York State Index of Consumer Sentiment, a quarterly look at New Yorkers’ willingness to spend.

SCRI subscribes to the American Association of Public Opinion Research (AAPOR) Code of Professional Ethics and Practices.

SCRI is frequently commissioned to conduct surveys for organizations, businesses, and local and state government agencies. For more information contact us at SienaResearch[at]Siena[dot]edu.

Additional information provided states:

  • Only 22% Prefer Cutting Spending on Public Programs Rather than Increasing Taxes On Top Earners to Address State’s Fiscal Woes
  • Still, By 49-40% Agree Tax Increases Will Result in Wealthiest Leaving NY
Lowest State Income Tax Rates

If you are thinking about leaving New York State to keep more of your hard earned dollars, where would you go. We discovered this information from USA News and Facts.

 States With The Lowest Tax Burdens
  1. Alaska (5.36%)
  2. Tennessee (6.33%)
  3. New Hampshire (6.37%)
  4. Wyoming (6.63%)
  5. Florida (6.73%)
  6. Delaware (6.77%)
  7. South Dakota (7.03%)
  8. Montana (7.33%)
  9. Missouri (7.38%)
  10. Alabama (7.51%)

    We recommend you visit this site due to the best chart we discovered about the average tax burden from individual income, property, sales,license,and other taxes on individuals as a percentage of average state income. Although it is from the year 2020, it is a very good chart to compare all 50 state income taxes for individuals. It is an eye opener.

Taxpayers Leaving New York

According to an article in the Heritage Foundation written by EJ Antoni, this exodus is a direct response to New York’s obscenely high taxes.

Compared with other states, New Yorkers:

  • Pay the highest total tax burden and highest share of personal income (14%) in taxes.
  • Endure the second-worst overall business tax climate.
  • Face the highest individual income tax rate and income tax collections per capita.
  • Pay the second-highest state and local corporate income tax collections per capita.
  • Have the fourth-highest property taxes and local sales tax rate (on average),
  • Pay the highest cigarette taxes and ninth-highest gasoline taxes.
  • Pay the sixth-highest capital-stock tax rate.
  • Are tied for third-highest estate tax rate.

And what do New Yorkers get for all these taxes? Roads smooth as glass? The best airports in the world? Trains running on time? Bulletproof electric grid and water infrastructure? Ample police to maintain safety and order? Not even close states the commentary written by the author Etoni.

Instead, New York City residents face some of the highest crime rates in the world, thanks to soft-on-crime policies from liberal politicians. And people everywhere across the state are threatened by a looming municipal debt crisis. Notwithstanding its sky’s-the-limit tax policies, New York has accumulated the highest state and local debt per capita in the nation.

And the future is not bright. When people flee the state, they take their jobs and money with them. That hamstrings future revenue collection for a state that has never learned to spend within its means. But the days of being rescued by tycoons like J.P. Morgan are long gone. Absent a federal bailout, both New York state and New York City are on a collision course with first grade mathematics—and bankruptcy.

Utility Studies for Sales and Use Tax Exemptions

While specific exemptions vary from state to state most manufacturers are aware that all states offer some type of sales & use tax exemptions for having operations located within their state. Manufacturers always capture all of the savings pertaining to sales tax exemptions on raw materials, machinery and equipment, but often overlook the utilities exemptions. Some jurisdictions exempt manufacturers from paying sales tax on energy sources, such as electricity, natural gas, and water, when used in the manufacturing process.

What Is A Manufacturer?

The definition as to what qualifies as manufacturing varies from jurisdiction to jurisdiction. The key is that manufacturing involves the transformation of raw materials or components into finished goods through a series of processes. Different business activities and operations that can be considered as manufacturing including assembly, fabrication, processing, machining, chemical production, printing, textile production, automotive manufacturing, wood working, plastic molding, food and beverage production, pharmaceutical manufacturing, aerospace manducating, and packaging.

What Is A Utility Study?

A utility study, in the context of sales and use tax, refers to an examination and analysis of utility usage within a business to determine the portion of utility expenses that may qualify for tax exemptions. The goal of a utility study is to identify and document the usage of utilities—such as electricity, natural gas, water, and other energy sources—that are related to qualifying activities, typically those associated with manufacturing or other specified processes.

The sales and use tax regulations in most jurisdictions provide exemptions for certain types of utility usage, particularly when those utilities are consumed in specific activities that contribute to the production process. By conducting a utility study, businesses aim to segregate and document the utility consumption that qualifies for these exemptions, with the ultimate objective of reducing or recovering sales and use taxes paid on non-exempt utility usage.

What Are The Steps To Doing A Utility Study?

Performing a utility study to obtain a refund of sales and use tax for utilities used in the manufacturing process involves a systematic approach to document and analyze utility consumption. The process may vary based on jurisdiction, but here is a general guide:

The utility study process requires careful documentation and adherence to tax regulations to support any claims for exemptions or refunds. It is advisable for businesses to work with tax professionals or consultants who specialize in sales and use tax matters to ensure that the study is conducted accurately and in compliance with applicable laws.

Have a question? Want to be introduced to Kamal Shaw? Contact Eric Larson, Source Advisors.

Six Taxable Items That May Surprise You

If something of value changes hands, you can bet the IRS considers a way to tax it. Here are six taxable items that might surprise you:

  • Surprise #1: Hidden treasure. In 1964, a married couple discovered $4,467 in a used piano they purchased seven years prior for $15. After reporting this hidden treasure on their 1964 tax return, the couple filed an amended return that removed the $4,467 from their gross income and requested a refund. The couple filed a lawsuit against the IRS when the refund claim was denied. The Tax Court ruled that the hidden treasure should be reported as gross income on the couple’s 1964 tax return, the year when the hidden treasure was found.Tip: The IRS considers many things like hidden treasure to be taxable, even though they are not explicitly identified in the tax code.
  • Surprise #2: Some scholarships and financial aid. Scholarships and financial aid are top priorities for parents of college-bound children, but be careful — if part of the award your child receives goes toward anything except tuition, it might be taxable. This could include room, board, books, or aid received in exchange for work (e.g., tutoring or research).Tip: When receiving an award, review the details to determine if any part of it is taxable. Don’t forget to review state rules as well. While most scholarships and aid are tax-free, no one needs a tax surprise.
  • Surprise 3: Gambling winnings. Hooray! You hit the trifecta for the Kentucky Derby. But guess what? Technically, all gambling winnings are taxable, including casino games, lottery tickets and sports betting. Thankfully, the IRS allows you to deduct your gambling losses (to the extent of winnings) as an itemized deduction, so keep good records.Tip: Know the winning threshold for when a casino or other payer must issue you a Form W-2G. But beware, the gambling facility and state requirements may lower the limit.
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Sales Tax Ramifications For Software-As-A-Service (SaaS) Products

This information provided in this post was updated in November 2023, and now includes an additional 2 states.

Almost every day we receive a call or inquiry from a potential client who has questions about the sales tax ramifications for Software-as-a-Service (SaaS) products. While the laws vary from state to state, the SaaS revenue stream is subject to tax in some form in over 25 different jurisdictions in the US. In some cases, SaaS might not be subject to state level tax, but may be taxed at the local level (see Colorado and Illinois below for further discussion).  To add to the confusion, companies who may deliver a SaaS based product, but also still have some legacy enterprise software that is electronically downloaded may find that the two products are subject to tax differently.

In this article, we’ll shed some light on the rules for both SaaS and electronically downloaded software in 20 key states.  (Sure the title says 18 – but we took our most popular blog of all time and retooled it for our readers – and included a couple more states for your reading enjoyment.)

Have a specific question about sales tax and SaaS, contact us directly at info@milesconsultinggroup.com to set up an appointment.

Here is a quick link to the  taxability of SaaS in your selected state, as discussed in more detail below:
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