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Tag Archive for Annette Nellen

Two States Using Wayfair Economic Nexus Standard More Broadly

Annette Nellen

As we know, the June 2018 U.S. Supreme Court decision in South Dakota v. Wayfair, Inc., et al, allows for an economic nexus threshold for all types of taxes. Many states already had an economic nexus threshold for income taxes. Many states have adopted the South Dakota threshold for nexus. This standard generally starts use tax obligations when a vendor has over $100,000 of sales in the prior calendar year or the current year to date or 200 or more transactions.

Now, one state – Hawaii, has adopted that same threshold for its state income tax effective for tax years beginning after 12/31/19.  [SB 495 (Act 221, 7/2/19)] Hawaii’s sales tax nexus threshold based on the South Dakota law upheld by the Court started 7/1/18.

Also, the Texas Comptroller has proposed the same via a proposed regulatory change for its franchise tax. The Texas sales tax Wayfair threshold though is over $500,000 of sales and it doesn’t matter how many transactions there are (there is only a dollar sales threshold).

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Latest Guidance on SALT Cap and Donations + Notice 2019-12 Safe Harbor

Annette Nellen _ SALT Caps

The $10,000 cap on itemized deductions of state and local taxes led a few states to add new “workarounds” such as offering a credit that would reduce state taxes (where the deduction is limited) and converting it to a federal charitable contribution (which is not limited (well it is, but only when donations exceeds about half of your income)). For example, since 2014, California’s College Access Fund takes donations for which the donor gets a 50% credit against their California income tax. On the federal returns that means a charitable contribution for the full amount and a reduced state tax deduction since the credit reduced the donor’s state taxes.

Prior to the Tax Cuts and Jobs Act, at least 18 states had these credit donation arrangements with credits up to 100%, mostly for donations for scholarships to private schools (see Sept. 2018 GAO report). The benefits are funding scholarships, shifting tax dollars to private schools rather than only public schools, and providing a tax break to donors who owe alternative minimum tax (AMT).

After the TCJA, Treasury said it would issue regs to limit the benefit of these credit schemes, taking a substance over form approach in the guidance (Notice 2018-63 (8/3/18)). Proposed regulations were issued in late August 2018 (REG-112176-18 (8/27/18)) & IR-2018-172 (8/23/18)) that basically require the donation to be reduced by the state tax credit claimed or available unless that credit was 15% or less of the amount transferred to the state or local government. This treatment applies to donations made after 8/27/18, regardless of when the state/local tax credit regime was created. Treasury Secretary Mnuchin also issued a press release on 8/23 about the regulations and intent.
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Tips For Tax Practitioners And Their Clients

Annette Nellen - Tax Reform Changes

Following is an excerpt from my February Note from the AICPA Tax Executive Committee Chair. For complete note (for AICPA Tax Section members) – click here.
Given the number of TCJA changes, incomplete guidance and many other issues, I offer the following suggestions to share with your clients to help them avoid surprises later.

  1. The TCJA is comprised of over 100 changes with little time for the IRS to issue guidance on all of them before 2018 returns are due.
  2. A good amount of guidance has been issued, but much of it is transitional or interim. That means the guidance might only apply for 2018; a rule could apply differently in 2019.
  3. The Joint Committee on Taxation’s Bluebook, which explains the TCJA, states over 70 times that technical corrections may be needed to achieve what legislators intended. For example, footnote 209 of the Bluebook states that a technical correction may be needed to reflect the intent that wages are not considered when calculating an excess business loss under the new Sec. 461(l).  Form 461Limitation on Business Losses, used for measuring an excess business loss, though,  includes wages (the form follows the statute, as required).
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Update On State Reactions To South Dakota V. Wayfair Decision

Annette Nellen Update On Wayfair

What are some states saying about the U.S. Supreme Court’s decision in South Dakota v Wayfair, et al [see my 6/22/18 post for more on the case]

Here is news from several states. I don’t think most states will strive to collect below the thresholds of the South Dakota law, but you never know. I think we’ll hear from more states by early 2019 and perhaps even from a few members of Congress. I’ll continue to update this post.

States in bold are full members of the Streamlined Sales and Use Tax project. The SSUTA scheduled an emergency meeting of the SSUTA Board for July 19-20 to discuss the Wayfair decision. Agenda items included use of the Central Registration System and the Certified Service Provider system by non-members.

Also look for what applies for local governments, particularly in Alabama, California (see below), Colorado, and Louisiana.

Also, on 6/29/18, the National Conference of State Legislatures released its Principles of State Implementation after South Dakota v. Wayfair. This 1-page document suggests that states be prepared before more broadly enforcing tax collection and wait  until 1/1/19 to start collecting. It also includes suggestions for states that that have not adopted the Streamlined Sales and Use Tax Agreement (SSUTA).

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Tax Cuts And Jobs Act – Professor Annette Nellen Highlights Changes In Tax Legislation On Existing Tax Code

Tax Reform – A Few Provisions In Track Changes

I often find it helpful to see how tax legislation changes existing Internal Revenue Code sections. So, I took a few and made the modifications called for in P.L. 115-97 (12/22/17) (the Tax Cuts and Jobs Act), and show how they change the relevant Code section using track changes.  I also include the effective date information.  For the changes to 448, I also include a caution about how the favorable methods changes don’t apply to “tax shelters” which could include some limited partnerships and LLCs even though they don’t act like a typical tax shelter.

Here are the ones I modified:

Section 1 – tax rates including kiddie tax change

Section 62 – changes to AGI

Section 163 – changes to mortgage interest and the new interest limitation for non-small entities (and tax shelters – see comment above)

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What The Taxman Can Learn From Crypto

We are in the midst of a “Fourth Industrial Revolution” in which technology is advancing at an exponential pace, bringing us mostly digital tools and processes. In the tax world, “digital” translates to: “how do rules designed for a tangible world apply?”

Cryptocurrency is a great example to remind us that tax as well as other laws and compliance processes need to be fluid to keep our economy moving ahead. Inaction or inappropriate responses can shut down or decelerate advancements that benefit society and lead to further technological progress.

From the late 1960s, when software was decoupled from hardware, to the birth of bitcoin nearly a decade ago, what have we learned that can help us deal with this asset and its uses as we encounter even more new forms of technology, uses and ways of doing business? This article suggests four tax lessons.

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Tax Reform Links and Examples

UPDATED 12/2/17: Tax reform is moving along. The House Ways and Means Committee introduced its bill – H.R. 1, on November 2 and the House passed it on November 16. The Senate Finance Committee released its proposal on November 9 and passed it on November 16. Late on 12/1/17, the Senate passed a bill that made numerous amendments to the bill passed by the Senate (see the list of amendments in this JCT document). Now the House and Senate need to create a conference committee to work out the differences among the bills and that version will go back to House and Senate for votes.  Or, perhaps the House will just pass the Senate version, but I don’t think so. I think there are some items the House doesn’t like such as the corporate rate reduction not starting until 2019.

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Today’s Tax Reform Cost – How Much is $1.5 Trillion?

A budget agreement that preceded current tax reform efforts included that tax reform can “cost” up to $1.5 trillion over ten years (H.Con. Res. 71).

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California College Access Tax Credit Reminders

California’s College Access Tax Credit Program started in 2014. For individuals, it allows a large credit for donations made to this fund. Before claiming any credit though, the donor must first apply for the credit with the State Treasurer. This is because a fixed amount of credits is available so people claim it on a first-come-first-serve basis. In the first few years, little was claimed relative to the amount allocated.

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Tax Reform Observations and What To Expect Next

What an exciting month so far for tax reform! We have an amended bill passed by the House Ways and Means Committee (by vote of 24-16). The bill, H.R. 1, Tax Cuts and Jobs Act, was introduced just one week earlier. On November 9th, the Senate Finance Committee also released a 253-page summary by the Joint Committee on Taxation (most of the pages describe current law).

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Next Week’s Agenda: TEI-SJSU- High Tech Tax Institute Conference

The annual High Tech Tax Institute is a two-day conference where speakers and attendees from around the world show up to experience the tax professionals event of the year.

This year, the High Tech Tax Institute starts on November 13, 2017 and wraps up on November 14, 2017.

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TEI-SJSU- High Tech Tax Institute Conference Less Than 2 Weeks Away!

The annual High Tech Tax Institute is a two-day conference where speakers and attendees from around the world show up to experience the tax professionals event of the year.

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