"SALT Attorney"

Published on: February 26, 2013

Multi-State Sales Tax Update: STATE TAXATION OF NATIVE AMERICANS UPDATE

Few attorneys or accountants practice or ever even heard of lawyers that practice in the area of Native American Taxation. However, I have found this unexplored area of the law to be fascinating. Similar to many areas of state and local tax work, Native American Taxation is poorly developed and the rules are unclear and largely don’t make any sense. While it is common for multi-state SALT attorneys like me to live in a world with no clear answers, living in this gray area of the law is uncomfortable for most lawyers and professionals.

Over the past few months, there have been a few developments in the area of Native American Taxation that have caught my eye. At the core of most state taxation issues involving Native American Tribes, is the struggle of a state’s power to tax transactions on tribal reservations versus the Indian Commerce Clause. Almost every lawyer and tax professional has heard of the Commerce Clause. The Commerce Clause is the provision in the United States Constitution that gives Congress the power to regulate interstate commerce. Specifically, the Commerce Clause states in Article I, section 8, that Congress shall have the power, “To regulate Commerce with foreign Nation, and among the several states.” Most people are only taught or only remember that part of the Commerce Clause, but the Commerce Clause continues to read “and with the Indian Tribes.” It is this provision that has led to enormous debate and litigation in the world of state taxation with the regards to the Native Americans.

From the early days of our nation, in Cherokee Nation v. Georgia (1831) and Worcester v. Georgia (1832) it has been battled over whether and to what extent the Indian Reservations are foreign and discrete nations within the United States borders. Identical to most undeveloped state and local tax issues, the same problems remain in 2013.
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Published on: February 18, 2013

Multi-State Sales and Use Tax: McDonald’s Participates in Sales Tax Savings Program

By Jerry Donnini, Esq.

As many of you are aware, today, February 18, 2013, is President’s Day. For many that means banks are closed and, more importantly, work is closed. For many others, like me, President’s Day really just feels like another day. However, this President’s Day is special thanks to McDonald’s.

Like most of the country, on my drive into work this morning, I heard about McDonald’s special President’s Day promotion. Specifically, if a customer purchases a Big Mac or Quarter Pounder, a second delicious sandwich can be purchased for a penny. Why did McDonald’s charge a penny, rather than just giving it away for free? Perhaps, the corporate executives at McDonald have read my riveting state and local tax blog last week.

For the few of you that did not read my blog I did last week, I wrote about the power of the sale for resale exemption offered by most states in their sales and use tax regime. In a nutshell, this means that when a business purchases something it does not pay tax but rather charges tax to its customer when the item is resold.

The policy behind the sale for resale exemption is that sales and use tax attempts to tax consumption by adding a tax to purchases made by the end consumer of a good or service. While each state varies as to exactly what is and is not taxable, every state that I am aware of has a sale for resale exemption. Conversely, if the business is the end user on items it purchases it owes a use tax on those items. The sale for resale exemption can be a very powerful multi-state sales tax technique if used correctly.
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Published on: February 13, 2013

MULTI-STATE SALES AND USE TAX: THE POWER OF THE SALE FOR RESALE EXEMPTION IN SALES TAX CASES

By Jerry Donnini, Esq.

Anytime I go out to eat or to a fast food restaurant, my mind automatically thinks in terms of ways a company can save wasteful state tax dollars in its operation. Whether I am at a restaurant that hands out silverware, a fast-food chain that offers plastic silverware, or a restaurant that gives away items, the use tax issues can likely be avoided if the company practiced careful sales and use tax planning techniques.

Over the past few years, a couple of cases in Alabama showcase the ongoing dilemma. The first case involved Logan’s Roadhouse. Many of us have been to a Logan’s across the country and enjoy the ability to eat peanuts and throw the shells all over the floor. But how many of us, aside from me, actually analyze the sales and use tax implications of this practice? Peanut Shells.jpg Are the peanuts being purchased by Logan’s and resold to its customers? Or is Logan’s purchasing the peanuts for its own use as a giveaway to its customers?

In a similar case, Kelly’s Food Concepts (KFC, Popeye’s, and Church’s Chicken) illustrates a common restaurant problem that has been litigated since the creation of the sales tax. Are items purchased by a restaurant such as napkins, utensils, straws, stirrers, trays, kitchen supplies, ketchup, salt and pepper, toilet paper, and other items on the table, for the restaurants use or resold to the customer for its use?

Without immediately diving into the cases, it seems appropriate to explain a common problem faced by the state and local tax professional. Most states (45) have a state sales tax regime. The sales tax attempts to tax consumption by adding a tax to the end-user of tangible personal property (“TPP”). While each state various as to exactly what is and is not taxable, every state that I am aware of has a sale for resale exemption. That means that when a business purchases something it does not pay tax but rather charges tax to its customer when the item is resold. Conversely, the business is the end user on items it purchases for its own use (items not for resale) and it owes a use tax on those items. While it seems obvious whether an item is an exempt sale for resale, as shown by a couple simple examples above, this inquiry can become quite complicated.

Published on: January 22, 2013

To Be an “S” or a “C,” That Is The Question – Companies Consider The Switch Following The Fiscal Cliff Tax Act

By Jerry Donnini, Esq.

Traditionally, if a corporation met the eligibility requirements of an S-Corporation, then it is almost always advisable to elect “S” status for small corporations. However, amidst the fiscal cliff tax act of 2012, some of our clients have explored the option of converting to a C-Corporation. While the results of an empirical analysis are important, other often overlooked ramifications should be considered.

By way of background, many businesses incorporate to shield its owners from personal liability as a result of acts of the business. Most small businesses organize as “pass-thru entities,” which are S-Corporations, Limited Liability Companies (LLC’s), or partnerships. Such entities are called “pass-thru entities” because the entity itself does not pay tax; rather the income is taxed when it “passes through” to the owners. In a simple example if ABC, Inc. earns $100 and it has 2 owners taxed at a 35% rate, it will not pay tax on $100. Rather the owners will report income of $50 and pay tax of $17.50.

In contrast, the traditional C-Corporation is not a “pass thru entity,” because a corporation is taxed twice. The C-Corporation is taxed on income it earns and then is taxed again when its earnings are distributed to its shareholders in the form of a dividend. In my simple example, if ABC, Inc. was a C-Corporation, it would be taxed at 35% on its $100 of income, resulting in $35 of tax at the corporate level. Upon distributing its remaining $65 to its lone shareholder, the income would get taxed again. Assuming the old 15% tax rate on dividends, the shareholder would then pay another $9.75 in tax. Therefore, purely because of its structure, $9.75 in additional tax would be due if the company were set up this way. Adding several 0’s to my simple example, one can easily see how this simple example can quickly become an issue.
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