Do you own an entity that holds real estate? Are you thinking about selling real estate? Are you considering selling the real estate asset or selling the entity that owns the real estate?
Generally, a real estate transfer tax is imposed on documents that convey an interest in real estate from one person to another person. The transfer tax, generally, is imposed on the recordation of a deed and is based on the consideration paid or the fair market value of the property (the “Real Estate Transfer Tax”).
Taxpayers utilized loopholes to avoid paying the Real Estate Transfer Tax, by selling the entity that owns the real estate instead of selling the real estate itself. Approximately 17 states have closed such loopholes.
My colleague, Matthew Roberts, recently posted an article regarding choice-of-entity, “Starting a Business in Texas: Choice of Entity.” The article provided a summary of the tax and non-tax implications of each potential entity type.
We will discuss “passive entities” under Texas law. Please note the definition of a passive entity under Texas law is not the same as the definition under the Internal Revenue Code. Depending on the business being conducted in Texas, a certain type of entity may be more beneficial to reduce or eliminate your Texas Margin Tax (the “Margin Tax”).
This article is the second of a three-part series regarding the State and Local Tax consequences of doing business in multiple states. This article will discuss Voluntary Disclosure, Part 1 discussed Nexus and Part 3 will discuss the Audit Process.
The Wayfair decision changed the landscape for nexus in the sales and use tax area. It lowered the bar to establish nexus with a state, which gives a state the right to require the collection and remittance of sales and use taxes. The Supreme Court’s decision changed the nexus focus from the existence of a physical presence to an economic presence—which generally may be based on sales into the state themselves. As a result, many taxpayers may have triggered the nexus threshold, especially if a state imposes a factor presence standard for income, franchise or gross receipts taxes.
On June 25, 2019, the House Ways and Means Committee held a hearing on the SALT cap with the majority’s views on it clear from the title of this hearing: How Recent Limitations to the SALT Deduction Harm Communities, Schools, First Responders, and Housing Values. Testimony was provided by some state and local elected officials and the Tax Foundation.
I agree that this is a flawed provision that was addressing what was already a flawed provision. There were no hearings held for the Tax Cuts and Jobs Act so it was difficult to get broad input into the process. The AICPA Tax Section did submit a few letters during this process including one that made a very important point. If individuals would have a cap on their state and local tax deduction when claimed as an itemized deduction, an additional change had to be made to treat all business entities the same. Since a C corporation continues to get to deduct all of the state and local income taxes it pays, so should a sole proprietor, partner and S corp shareholder. That could have been accomplished by making a change to a 1944 law to allow state and local income taxes on that business income to be deducted above the line (for AGI) rather than only as an itemized deduction. [See AICPA letter of 11/21/17 and letter of 9/25/18 submitted when the House was discussing Tax Reform 2.0]
The ease of listing your home, vacation property or a room on Airbnb or similar web platform has turned a lot of individuals into landlords. We hear about these landlords being subject to local taxes such as the transient occupancy tax (hotel tax) and business license tax, but what about state and/or local sales tax?
In some jurisdictions, sales tax applies. So that is one more thing to check. (And don’t forget that one of the first things to check is if the local jurisdiction even allows short-term rentals!)
What do you think? Read More
Certain taxes you have paid can be allowable as itemized deductions. To be deductible, these taxes must have been imposed on you personally, and you must have paid them during the year.
The following taxes you paid during the year are deductible on Schedule A:
• State and local income taxes (from your W-2).
• Real estate taxes (deductible in the year you paid them).
• Personal property taxes charged on the value of personal property.
• Foreign income taxes paid.
Note carefully, however, that the following taxes are not deductible: Read More
Now more than ever Amazon has been a one stop shop for many consumers. Not only can you buy just about anything you can think of on the Amazon website, but you can also receive lightning fast delivery of whatever you buy. Over the past few years, Amazon has taken their company to the next level. Now, in addition to selling items, Amazon provides a fulfillment service to online retailers.
As Amazon puts it, their fulfillment business “helps you grow your online business by giving you access to Amazon’s world-class fulfillment resources and expertise.” Simply put, the online retailer sends their products to Amazon. Amazon stores the item at one of its distribution centers. Once the item is purchased, Amazon packs and ships your product to the customer. In addition, Amazon provides customer support. While it certainly Read More
Many states, like my home state of Florida, have broad freedom of information laws. Known in Florida as the Sunshine Laws, the state’s citizens can request a wide range of information from the government. Under the laws, so long as the information is not made confidential by a specific statute/law, then the government has an obligation to provide the citizen with whatever is requested. As a state and local tax (“SALT”) practitioner, I often use this knowledge to my advantage. I often request documents and statistics from the state that I find beneficial to myself, my client, or my practice.
Other states have similar laws. In Kentucky, the Open Records Act gives its citizens a mechanism to request a broad spectrum of information from its government. Like many state agencies believe, the Kentucky Department of Revenue thought it was above the law. Read More
As a Florida state and local tax attorney I live in the world of strange. Few attorneys or tax professionals are even aware of our peculiar area of the law. Even fewer attorneys or tax professionals have heard of, let alone practiced in the even stranger area of Native American Taxation. During my travels and while earning my LL.M. at NYU, I was one of the few fortunate souls to be exposed to this spin off of state and local tax. In fact, there are only two courses offered in the United States at the LL.M. level on this subject. Native American Taxation is poorly developed, the rules are unclear, and the cases make no sense whatsoever. While this is common for Florida attorneys like me who live in a world with no clear answers, living in this gray area of the law is uncomfortable for most lawyers and professionals. Read More
On March 28, 2013, Overstock and Amazon lost their challenge of a state tax on online sales in New York’s highest court. Further, the the Supreme Court of United States declined hearing the case, because the court determined that such a law did not violate the federal Commerce Clause. Following the Amazon decision, we expected the states to follow New York’s lead and enact its own click-through-nexus laws.
In 2011, Illinois did just that. Specifically, Illinois has a nexus law that required any company with a place of business in Illinois to collect and remit tax to Illinois. In 2011, Illinois enacted its so-called “Click Through” nexus law, which required a business to collect and remit tax if it has contact with a person or business in Illinois who referred customers to the business’s website for a commission. In this case, the trade group Read More
Each year, the Supreme Court punts on dozens of cases. Included in the dozens of cases which the court elects not to hear each year are sales tax cases. They are uninteresting to the majority of the population and just not the type of cases the justices want to hear. In fact, despite having a significant affect in most multi-state businesses, the Supreme Court has not heard a sales tax nexus case since Quill in 1992.
If there was ever a case to hear, it was Amazon and Orbitz versus New York. At issue was the two large online retailers versus the mighty state of New York. To the dismay of many State and Local Tax (“SALT”) critics, the Supreme Court decided to punt on this case at the end of 2013. Perhaps, it thought Congress was going to shock the world and actually do something. Or, perhaps, it just really didn’t care about sales tax nexus. Read More
It is hard to believe we are more than halfway through 2014. What is not surprising is that states continue to battle with online companies, such as Amazon, as to whether it should be required to collect and remit sales tax. States continue with aggressive tactics and continue to look to distribution centers, affiliates, or even hard drives as a hook to establish nexus, which would require the company to collect and remit tax in that state.
In 1992, the Supreme Court of the United States heard a case called Quill v. North Dakota. In announcing the supreme law of the land, the Supreme Court ruled that a company has to have some physical presence in a state to have sales tax nexus. In other words, in order for a state to force a company to charge, collect, and remit its tax then the company has to have a warm body (an employee or independent contractor), or property (inventory) Read More