2013 Praxity International Tax ConferenceAtlantaOverview of State and Local Tax Issues
2013 Praxity International Tax ConferenceAtlantaAGENDA• Introduction• Nexus• Income	Tax• Sales	&	Use	Tax• Property	Tax• Cr...
2013 Praxity International Tax ConferenceAtlantaObjectives• Provide	an	overview	of	state	and	local	taxation	in	the	United	...
2013 Praxity International Tax ConferenceAtlanta• Corporate	income	tax	–45	states‐ Exceptions:	NV,	OH,	SD,	WA,	and	WY• Per...
2013 Praxity International Tax ConferenceAtlantaAGENDA• Introduction• Nexus• Income	Tax• Sales	&	Use	Tax• Property	Tax• Cr...
2013 Praxity International Tax ConferenceAtlantaState	Tax	NexusWhat	is	nexus?• Nexus	is	defined	as	the	connection	between	...
2013 Praxity International Tax ConferenceAtlantaNexus	For	Income	Tax:	PL	86‐272Federal	law	prohibits	states	and	cities	fro...
2013 Praxity International Tax ConferenceAtlantaNexus	For	Sales	Tax:	Physical	Presence• States	generally	prohibited	from	i...
2013 Praxity International Tax ConferenceAtlantaNexus	TrendsLawmakers	are	finding	new	ways	to	impose	state	taxes	on	out‐of...
2013 Praxity International Tax ConferenceAtlantaNexus	TrendsEconomic	Nexus	Scorecard• Factor	Presence	Nexus• CA	(>$500,000...
2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income	Tax• Sales	&	Use	Tax• Property	Tax• Cred...
2013 Praxity International Tax ConferenceAtlantaBusiness	Income/Franchise	Tax46	states	plus	The	District	of	Columbia	impos...
2013 Praxity International Tax ConferenceAtlantaSeparate	reportingEach	business	entity	with	nexus	is	treated	as	a	separate...
2013 Praxity International Tax ConferenceAtlantaFederal	Taxable	Income	Base+/‐State	Modifications=			Apportionable	State	I...
2013 Praxity International Tax ConferenceAtlantaFederal	income	taxesState	income	taxesDepreciation• Many	states	disallow	F...
2013 Praxity International Tax ConferenceAtlantaApportionment:	Basic	PrinciplesWhat	percentage	of	the	company’s	income	may...
2013 Praxity International Tax ConferenceAtlantaApportionment	FormulasTraditional 3-Factor Apportionment FormulaIn‐state S...
2013 Praxity International Tax ConferenceAtlantaApportionment	–Sales	FactorWhat	is	included	and	where	is	it	sourced?Tangib...
2013 Praxity International Tax ConferenceAtlantaResidents	are	taxed	on	their	worldwide	income	(including	investment	income...
2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income	Tax• Sales	&	Use	Tax• Property	Tax• Cred...
2013 Praxity International Tax ConferenceAtlantaState	Sales	&	Use	Tax45	states	plus	The	District	of	Columbia	impose	a	gene...
2013 Praxity International Tax ConferenceAtlantaWhat	is	taxable?In	general,	all	sales	of	tangible	personal	property	are	su...
2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income	Tax• Sales	&	Use	Tax• Property	Tax• Cred...
2013 Praxity International Tax ConferenceAtlantaPrimary	source	of	revenue	for	local	governmentsRates	generally	range	from	...
2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income	Tax• Sales	&	Use	Tax• Property	Tax• Cred...
2013 Praxity International Tax ConferenceAtlantaCredits	and	IncentivesStates	provide	a	variety	of	credits	and	incentives	t...
2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income	Tax• Sales	&	Use	Tax• Property	Tax• Cred...
2013 Praxity International Tax ConferenceAtlanta• If	your	client	already	has	business	activity	in	the	United	States,	they	...
2013 Praxity International Tax ConferenceAtlanta• Almost	all	states	allow	a	taxpayer	with	an	exposure	for	current	and	prio...
2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income	Tax• Sales	&	Use	Tax• Property	Tax• Cred...
2013 Praxity International Tax ConferenceAtlanta• Before	your	client	starts	doing	business	in	the	United	States:• Consult	...
2013 Praxity International Tax ConferenceAtlantaRob	O’Neill,	PartnerMoss	Adams,	LLPState	&	Local	Tax	Practice	(503)	478‐23...
2013 Praxity International Tax ConferenceAtlantawww.praxity.com
Upcoming SlideShare
Loading in …5
×

Global Praxity Tax Conference Amsterdam 2013 - Moss Adams LLP SALT Presentation

544 views

Published on

Published in: Technology, Business
0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
544
On SlideShare
0
From Embeds
0
Number of Embeds
2
Actions
Shares
0
Downloads
0
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Global Praxity Tax Conference Amsterdam 2013 - Moss Adams LLP SALT Presentation

  1. 1. 2013 Praxity International Tax ConferenceAtlantaOverview of State and Local Tax Issues
  2. 2. 2013 Praxity International Tax ConferenceAtlantaAGENDA• Introduction• Nexus• Income Tax• Sales & Use Tax• Property Tax• Credits & Incentives• Voluntary Disclosure Agreements• Parting Thoughts
  3. 3. 2013 Praxity International Tax ConferenceAtlantaObjectives• Provide an overview of state and local taxation in the United States• Highlight important trends• Explain planning opportunities and pitfallsIntroduction
  4. 4. 2013 Praxity International Tax ConferenceAtlanta• Corporate income tax –45 states‐ Exceptions: NV, OH, SD, WA, and WY• Personal income tax –43 states‐ Exceptions: AK, FL, NH (int. & div.), NV, SD, TN (int. & div.), WA, TX, and WY• Sales & use tax –45 states‐ Exceptions: AK, DE, MT, NH, and OR • Property tax –50 statesState and Local Taxes At AGlanceIntroduction
  5. 5. 2013 Praxity International Tax ConferenceAtlantaAGENDA• Introduction• Nexus• Income Tax• Sales & Use Tax• Property Tax• Credits & Incentives• Voluntary Disclosure Agreements• Parting Thoughts
  6. 6. 2013 Praxity International Tax ConferenceAtlantaState Tax NexusWhat is nexus?• Nexus is defined as the connection between a taxpayer and a state that is necessary before a state can impose taxes Income tax nexus differs from sales tax nexus• Income tax nexus: limited by Public Law 86‐272 • Sales tax nexus: limited by “Physical Presence” or the “Quill” requirementNexus
  7. 7. 2013 Praxity International Tax ConferenceAtlantaNexus For Income Tax: PL 86‐272Federal law prohibits states and cities from imposing a net income tax on an out‐of‐state company if the only connection to the state is the solicitation of sales of tangible personal propertyPL 86‐272: General Rule• Company must be selling Tangible Personal Property• Sales of services or intangible property not protected• Only activity in the state is solicitation of sales• Order for good must be sent outside the state for approval• Goods are shipped from out‐of‐state• Only applies to U.S. corporations, but some states honor foreign (non‐U.S.) corporationsNexus
  8. 8. 2013 Praxity International Tax ConferenceAtlantaNexus For Sales Tax: Physical Presence• States generally prohibited from imposing sales tax collection requirements on out‐of‐state vendors• U.S. Supreme court has affirmed that a vendor must have physical presence to create sales tax nexus (Quill Corp. v. North Dakota , 1992)Examples of Physical Presence• Deliveries in company owned vehicles or backhauling property• Occasional visits by sales persons or other personnel• Trade shows (limitations)• Fulfillment centers and warehouses• Servers and/or hosted websites• Agents and affiliates performing services in the state on your behalf• Consigned inventory & vendor managed inventory• Dealer training• Warranty workNexus
  9. 9. 2013 Praxity International Tax ConferenceAtlantaNexus TrendsLawmakers are finding new ways to impose state taxes on out‐of‐state companies that lack traditional physical presence nexus• Nexus through agency or affiliation• An out‐of‐state company may be taxable based on its relationship to an in‐state company• “Amazon Laws” and click‐through nexus• Out‐of‐state seller creates sales tax nexus with a state when it enters into an agreement with a resident of that state, under which the resident refers buyers via a website link for a commission.• Adopted in AR, CA, CT, IL, MN, MO, NC, NY, OH, PA, RI, SC (2016), VT• Many other states are considering• Federal legislation• Marketplace Fairness Act of 2013 (“Internet Sales Tax”): Would allow states to impose sales tax collection requirement on certain remote sellers • As of this writing, the Act has passed the U.S. Senate and has moved to the House of RepresentativesNexus
  10. 10. 2013 Praxity International Tax ConferenceAtlantaNexus TrendsEconomic Nexus Scorecard• Factor Presence Nexus• CA (>$500,000 of receipts)• CT (>$500,000 of receipts)• CO (>$500,000 of receipts)• MI (>$350,000 of receipts)• OH (>$500,000 of receipts)• WA (>$250,000 of receipts)• Deriving receipts or income from in‐state sources• IA• KY• MN• NJ• OR• WINexus• Economic nexus• Income taxes imposed when a specific dollar amount of sales, property or payroll • Some states have more vague definitions• Applies to income from services, royalties, interest, digital goods• P.L. 86‐272 protects sales of tangible personal property
  11. 11. 2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income Tax• Sales & Use Tax• Property Tax• Credits & Incentives• Voluntary Disclosure Agreements• Parting Thoughts
  12. 12. 2013 Praxity International Tax ConferenceAtlantaBusiness Income/Franchise Tax46 states plus The District of Columbia impose an income and/or franchise tax• Income taxes are imposed on corporations− Rates generally range from 1% to 12% • Franchise taxes are imposed on business entities− Tax base is capital or net worth− Rates generally range from $1.50‐3.00 per $1,000 net worth− More than half of the states impose some sort of franchise taxFiling methods generally include combined, consolidated, and separateBusiness Income Tax
  13. 13. 2013 Praxity International Tax ConferenceAtlantaSeparate reportingEach business entity with nexus is treated as a separate taxpayerCombined reporting• Businesses that are part of a “unitary” group file a combined tax return• Characteristics of a “unitary” business:− Contribution & dependency− Strong centralized management− Economies of scale/flow of goods• Intercompany transactions are eliminated• May include non‐U.S. affiliates owned > 50%− A non‐US affiliate is typically excluded if 80% or more of its business activity is outside the U.S• Trend: More states are requiring combined reporting in order to increase their tax baseSeparate vs. Combined ReportingBusiness Income Tax
  14. 14. 2013 Praxity International Tax ConferenceAtlantaFederal Taxable Income Base+/‐State Modifications= Apportionable State Incomex Apportionment Percentage= State Taxable Incomex State Tax Rate= State Tax AmountState Taxable Income FormulaBusiness Income Tax
  15. 15. 2013 Praxity International Tax ConferenceAtlantaFederal income taxesState income taxesDepreciation• Many states disallow Federal “bonus” depreciationExpenses paid to related parties• Includes interest, royalties, management fees• Trend: More states are disallowing related‐party expenses to prevent taxpayers from shifting income to low‐tax jurisdictionsCommon ModificationsBusiness Income Tax
  16. 16. 2013 Praxity International Tax ConferenceAtlantaApportionment: Basic PrinciplesWhat percentage of the company’s income may the state tax?• Non‐uniformity: Rules vary from state to state‐ May result in double taxation or “nowhere sales”Planning opportunity: Consider state apportionment rules when locating or expanding your businessBusiness Income TaxTotal apportionable State Incomex Apportionment Percentage= Apportioned Business Income
  17. 17. 2013 Praxity International Tax ConferenceAtlantaApportionment FormulasTraditional 3-Factor Apportionment FormulaIn‐state SalesTotal SalesIn‐state PayrollTotal PayrollIn‐state PropertyTotal Property3Trends in apportionment formulas:• Shift towards single sales factor or multiple‐weighted sales factor• Decreases tax burden of companies with in‐state property and payrollBusiness Income Tax
  18. 18. 2013 Praxity International Tax ConferenceAtlantaApportionment –Sales FactorWhat is included and where is it sourced?Tangible Personal Property:• Sales sourced to destination state• “Throwback rule” in some states: When the seller is not taxable in the destination state, sales are sourced to the state shipped from Services:• Cost of performance method: Sales sourced to state in which “income producing activity” is performed• Market sourcing method: Sales sourced to state in which customer receives the benefit of the service• Favors in‐state service providers who have out‐of‐state sales.• Trend: More states are moving to a market‐based rule• Current market states: AL, CA, GA, IL, MD, MI, MN, NE (eff. 2014), OH, WA, & WIBusiness Income Tax
  19. 19. 2013 Praxity International Tax ConferenceAtlantaResidents are taxed on their worldwide income (including investment income that is sourced to state of residence). To prevent double‐taxation, may claim credit for taxes paid to other statesNonresidents are taxed on their state‐source income (wages and apportioned business income)Tax rates range from 3.4% ‐ 12.3%Personal Income TaxPersonal Income Tax
  20. 20. 2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income Tax• Sales & Use Tax• Property Tax• Credits & Incentives• Voluntary Disclosure Agreements• Parting Thoughts
  21. 21. 2013 Praxity International Tax ConferenceAtlantaState Sales & Use Tax45 states plus The District of Columbia impose a general Sales & Use Tax• Five states do not: Alaska, Delaware, Montana, New Hampshire and OregonAverage rates range from 4‐10%Tax is imposed on buyer, but seller is required to collect itHome Rule vs. Non‐home RuleNon‐home rule (general rule)• Usually, states administer and collect all state, city and other local sales taxesHome rule:• Certain local governments are authorized to impose and collect their own sales tax• Watch out for local filing requirements in: Alabama, Alaska (local only), Arizona, Colorado, Illinois and LouisianaSales & Use Tax
  22. 22. 2013 Praxity International Tax ConferenceAtlantaWhat is taxable?In general, all sales of tangible personal property are subject to sales tax• Exemptions may apply (varies by state)Other transactions/products may also be subject to sales tax (varies by state):• Services (42 states), intangibles, computer software, utilitiesCommon exemptions from sales tax include:• Sale for resale • Examples: Food by a restaurant, raw materials by a manufacturer• Seller must obtain resale certificate• Casual or Occasional Sales• Component parts of manufacturing products• Sales of machinery or equipment• Essential items (food and medical devices)Sales Tax ‐Exemptions From BaseSales & Use Tax
  23. 23. 2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income Tax• Sales & Use Tax• Property Tax• Credits & Incentives• Voluntary Disclosure Agreements• Parting Thoughts
  24. 24. 2013 Praxity International Tax ConferenceAtlantaPrimary source of revenue for local governmentsRates generally range from 1‐5%Tax Base• Based on FMV, not cost• Assessed value on specified date (e.g., lien date)Taxable Property• All forms of realty: land, personal residences, apartment buildings, offices, factories, etc.• Selected types of tangible personal property (varies by state)• Inventory is generally exempt• States to watch out for: AK, AR, KY, LA, MA, OK, TX, VA, VT, WVProperty TaxesProperty Taxes
  25. 25. 2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income Tax• Sales & Use Tax• Property Tax• Credits & Incentives• Voluntary Disclosure Agreements• Parting Thoughts
  26. 26. 2013 Praxity International Tax ConferenceAtlantaCredits and IncentivesStates provide a variety of credits and incentives to attract businesses to their jurisdiction Credits and incentives are commonly provided for:• Creating jobs (especially for disadvantaged employees)• Investment / targeted economic development in high unemployment areas• Research & development• Targeted sectors (e.g., energy, agriculture, manufacturing, and healthcare)Many states also offer cash grants for certain business activities• Employment, training and education• Large or very targeted expansionsMany incentives are negotiable, and must be done in advance of investmentSome incentives are statutory and many be claimed if activity done by eligible companyCertain credits are transferable (may be sold to another business)Credits & Incentives
  27. 27. 2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income Tax• Sales & Use Tax• Property Tax• Credits & Incentives• Voluntary Disclosure Agreements• Parting Thoughts
  28. 28. 2013 Praxity International Tax ConferenceAtlanta• If your client already has business activity in the United States, they probably have filing obligations that they do not know about• Income tax: • Treaties between the U.S. and foreign governments may not protect a non‐U.S. company from state taxation• A non‐U.S. company may have nexus with a state even though it does not maintain a permanent establishment in that state• P.L. 86‐272 does not protect non‐U.S. companies• Other forms of taxation• Non‐income taxes are generally not subject to treatiesState Taxation of Non‐U.S. BusinessesVoluntary Disclosure
  29. 29. 2013 Praxity International Tax ConferenceAtlanta• Almost all states allow a taxpayer with an exposure for current and prior period taxes to come forward and pay tax under a voluntary disclosure agreement• Most will waive penalties, some will waive interest• Most will limit the look back period to 3‐6 years• Most require the taxpayer not be registered with the state or to have not received notices from the state (some exceptions here) ever or at least within the last year• Most require a third party to represent the taxpayer through the process• The taxpayer remains anonymous until an agreement is reached• Careful if your client has collected and not remitted sales taxState Voluntary DisclosureVoluntary Disclosure
  30. 30. 2013 Praxity International Tax ConferenceAtlantaAGENDA• Objectives• Nexus• Income Tax• Sales & Use Tax• Property Tax• Credits & Incentives• Voluntary Disclosure Agreements• Parting Thoughts
  31. 31. 2013 Praxity International Tax ConferenceAtlanta• Before your client starts doing business in the United States:• Consult with a U.S. state & local tax advisor.• Depending on where they locate their business, they may pay state tax on 0% to over 200% of their net income.• If your client is already doing business in the United States: • They are likely not filing where they need to. They should consider completing a nexus study & exposure analysis. State auditors are aggressively looking for exposures.• If selling a product that requires customs or other state inspection, make sure they are filing sales tax returns. States are vigorously cross referencing activities to locate unregistered taxpayers selling into their states.• Most companies are doing something that qualifies for a credit or incentive. Many times the opportunity to claim these incentives is lost if they do not prequalify for incentive.• If they have known exposures, consider voluntary disclosure over amnesty.• Think about a reverse audit of sales & transaction taxes paid if substantial property in US.• Have an expert review any response to state phishing letters.Parting Thoughts
  32. 32. 2013 Praxity International Tax ConferenceAtlantaRob O’Neill, PartnerMoss Adams, LLPState & Local Tax Practice (503) 478‐2339rob.oneill@mossadams.comBob Reynolds, PartnerMoss Adams, LLPState & Local Tax Practice (916) 503‐8138bob.reynolds@mossadams.com
  33. 33. 2013 Praxity International Tax ConferenceAtlantawww.praxity.com

×