Articles Tagged with “SALT Attorney”

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You have a business that sells goods to your customers in other states. Recently, you heard that you should have collected sales tax on certain transactions or that the money you collected as sales tax should have been remitted to that state. You suspect that if you contact the state directly about your issue, the state may decide to audit you or bring you to jail for not remitting the taxes you collected. What do you do? What can give you peace of mind?

In comes the Voluntary Disclosure Program. With the Voluntary Disclosure Program, you pay the state its tax and interest, have most or all penalties waived, and most importantly, you avoid going to jail. At the end of the day, the Voluntary Disclosure Program truly is the best solution to some of the worst tax problems. But what is the Voluntary Disclosure Program and how do you qualify?

The Voluntary Disclosure Program is the process of initiating contact with a state to come clean on potential tax liabilities. To qualify for the Voluntary Disclosure Program, you cannot have been contacted by the state. If you have been contacted by the state before you apply for the program, most states recognize this contact as disqualifying you from the Voluntary Disclosure Program. However, some states may nevertheless allow you to enter the Voluntary Disclosure Program. The moral here is that as soon as you discover a tax liability that you wish to disclose, you need to enter the Voluntary Disclosure Program immediately.

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Earlier in 2017, Premier Netcomm Solutions LLC (“Premier”) lost on reconsideration in New Jersey tax court.  The case dealt with the taxability of software as a service (“SaaS”) dating back to an audit from 2004 through 2005.  After initially beating for state, the court overturned a prior decision on reconsideration, which ultimately upheld New Jersey’s tax assessment.

Premier seems to be a classic IT provider in that it provides services such as network supports, internet access, consulting and design of IT and telephone projects, trouble shooting, remote training, data back-up, and network monitoring for businesses.  In the original decision, the court sided with Premier that its sales were not subject to sales tax.  The court concluded that prior to 2005, sales of services related to prewritten software were not taxable. In so doing the court invalidated New Jerseys tax assessment against Premier.

Unhappy with the decision, New Jersey’s Division of Taxation sought reconsideration, which is very difficult to prevail on.  The Court seemed to grant reconsideration because the original case erred fundamentally on its analysis.  Primarily, the court originally believed the law did not tax such services until its 2005 amendment.  However, the amendment was really based on New Jersey’s membership into the Streamline Sales and Use Tax Agreement (“SSUTA”) in 2005, which required it to adopt a uniform definition.  Therefore, based on a 2004 Bulletin, the court reconsidered the case and ruled that the services were and have been subject to tax since 2004.

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Over the past several years software as a service (“SaaS”) has been a booming industry.  Pioneers in the cloud computing industry, like Salesforce, have developed web based applications that offer a wide range of services to the user.  Driven by competitors such as Microsoft, Adobe, Sap, ADP, Oracle, IBM, Intuit and Google, the SaaS industry has become a $204 billion industry and grown by more than 16% last year.

Traditionally, from a sales tax perspective, states tax the sale of tangible personal property but not services.  While many states adhere to that mantra, several states have moved towards taxing software despite being intangible in nature.  Still, it can be difficult to determine whether SaaS is more like a software, which may be taxable, or if it feels more like a service provided, which is not taxable in many states.

States have been consistently inconsistent across the country in determining whether to tax SaaS.  States often have similar statutes and reach completely different conclusions in their quest to analyze SaaS.  Further, many situations occur in which a state can treat two seemingly similar SaaS companies differently within their own state.  In an attempt to comply, companies often struggle with charging the appropriate sales tax in the correct state and/or their state income tax obligations, with respect to SaaS.

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If states could impose tax on every company that makes a sale within its borders, they would. Luckily, the Commerce Clause of the Constitution requires something known as “nexus,” or a connection, between a company and state in order for that company to be subject to state and local taxes. The standards for nexus can be ambiguous, particularly in recent years as a result of the radical changes to traditional business models that have occurred with the internet.

While nexus may seem easy to determine using the physical presence test, the definition of physical presence has in fact been something that courts across the country have struggled with since the beginning. That struggle has only become increasingly complicated with the internet and virtual marketplaces that no longer require a company to open a brick and mortar shop everywhere it wants to sell its products.

Recently, Washington state has found nexus with a company that made wholesale sales through infomercials. This particular company sent employees to Washington to participate in trade shows and other promotional events. However, they did not have a physical business location within the state.

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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 charges a fee for its services, Amazon boasts that retailers’ sales significantly increase. However, from a state and local tax perspective, this can create a ticking time bomb for the online retailer.
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Colorado clearly does not stick to the trends. Whether it is legalizing marijuana or attempting to get Northern Colorado to become the 51st state, Colorado has been all over the news during the past year. Recently, the state had on its ballot an interesting tax that stayed in line with Colorado’s unusual politics. Specifically, on November 5, 2013, Colorado voters passed the pot tax.

On its face, the tax appears to operate similar to somewhat steep excise tax. It appears that recreational marijuana sales will be subject to a 25% tax which goes into effect on January 1, 2014. Of the 25%, 15% will be allocated to public school construction projects and 10% will go to funding enforcement regulation on the retail pot sales. This excise tax, which is similar to tobacco and cigarette taxes, is in addition to 2.9% sales tax at the retail level. Colorado estimates that the tax will generate some $35 million in year one and $67 million in year two. In total, pot users will pay an estimated $230-$250 per ounce of weed in Colorado.

Interestingly, the tax is not as steep as Washington’s efforts to impose hefty tax on the newly legalized drug. Washington imposes a 25% tax on every sale in the retail chain and it estimates the tax will raise about $2 billion in Washington in the first five years.

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Each year, many states announce amnesty programs in an effort to incentivize taxpayers to pay state tax. Most programs, in one form or another, offer partial or full interest and penalty abatements if taxpayers pay back taxes owed. While the programs seem like a win for states in theory, as a state and local tax attorney, I can promise that such programs lead to problems. Auditors in the various states are told to close down improperly completed audits in an effort to get taxpayers in the amnesty program. This, in turn, leads to poorly conducted audits that must be protested and litigated. In short, state and local tax professionals in those states should be licking their chops for the bombardment of work that will likely ensue.

The most recent states to implement a version of an amnesty program are Arkansas, Connecticut, and Louisiana.

Arkansas’ amnesty program applies to franchise taxes and runs from September 1st through December 31st, 2013. In order to participate, taxpayers must submit all reports and forms and pay the computed tax to the state. If a taxpayer meets the requirement of the deal, then Arkansas will waive all interest and penalties for delinquent taxpayers.

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As a Florida sales tax lawyer I thought I have seen it all when it comes to overzealous state agencies attacking its citizens for unpaid taxes. With a narrow corporate income tax and no personal income tax, Florida is notoriously aggressive. In August, 2013, I came across an article that shows how other states are attempting to flex their biceps when it comes to tax collection. Specifically, New York announced its war on taxes by suspending individuals’ driver’s licenses if they owe more than $10,000 in taxes.

No Driving.jpgThe Empire State has grown tired of chasing tax delinquents and Governor Andrew M. Cuomo is leading the charge. Put into law as part of the executive budget, New York believes this initiative will increase collection by about $26 million this year. The Governor was quoted as saying:

Our message is simple: tax scofflaws who don’t abide by the same rules as everyone else are not entitled to the same privileges as everyone else . . . . These worst offenders are putting an unfair burden on the overwhelming majority of New Yorkers who are hardworking, law-abiding taxpayers. By enacting these additional consequences, we’re providing additional incentives for the state to receive the money it is owed and we’re keeping scofflaws off the very roads they refuse to pay their fair share to maintain.

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In May 2013, a bill passed the Florida Legislature which developed rules for Florida’s natural gas vehicle rebate program. In June 2013, Governor Rick Scott signed HB 579, which indicates he was on board with the Legislature’s proposal. Specifically, the bill provides a rebate of $25,000 per commercial fleet vehicle for its conversion to natural gas.

The bill comes during a time which the country is trying to move away from its oil dependence and shift its consumption to a cleaner and more available fuel source. Supporters of the bill believe this step will result in the development of stations to carry the cleaner fuel line and make it more available. Companies such as Clean Energy are obviously ecstatic for the bills passing as it all but ensures greater revenue in Florida. The Natural Gas association released a comment showing its support and enthusiasm for the new legislation.

From my perspective, as a Florida sales and use tax and motor fuel tax attorney, the legislation has some tax benefits as well. Included in the bill is a provision for a state tax break on natural gas consumption that is set to begin in 2019. Further, the tax on natural gas is much lower than its diesel fuel competition from a federal tax perspective. It appears the bill will provide a rebate for fleets of three or more and placed in service after July 1.

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Part 3: Audit Ends, What Do I Do?
A daunting reality sets in for many Florida taxpayers when the audit report is issued. To say the majority of Florida taxpayers under a Florida sales tax audit have a meltdown is an understatement. Many taxpayers and other Florida tax professionals believe that this is the end of the road for their journey to a sizeable tax bill. However, this is when our job as Florida tax attorneys really begins.

Upon the completion of a Florida tax audit, the Department of Revenue issues a notice of proposed assessment (a “NOPA”). The NOPA is an important document for two reasons. First, it signals that the Florida sales tax auditor is done with the file at the local office and has sent it to Tallahassee. More importantly, if the Taxpayer or the Florida state tax professional does not know what to do, the NOPA means the company better act fast.

Pursuant to Florida law and the NOPA itself, the assessment becomes final in 60 days if it is not contested. This means that the Taxpayer or its CPA or attorney has 2 months to file a protest with Tallahassee. For those of you more familiar with IRS controversy work, this is the equivalent to filing an appeal with the IRS. For the first time, the Taxpayer and its power of attorney is dealing with a different group of theoretically unbiased conferees that evaluate the case with judgment, rather than in black and white, like the auditors are trained to see the world. A well drafted protest can be an impressive presentation by the Taxpayer if done correctly, and it should contain factual and legal assertions to refute the audit assessment. We generally also elect to have a conference with the Department, at which point we very simply lay out the posture of the case and point them to what we believe to be important.
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