Texas Tax Response to Hurricane Harvey

The Texas Comptroller’s Office has posted sales tax rules and regulations for disaster recovery.  Many taxable items, including services, are now temporarily tax exempt as part of the hurricane Harvey cleanup. Learn more about tax filing extensions, and FAQs related to hotel tax and sales tax in information the comptroller has shared on their website. In addition, out-of-state businesses performing disaster or emergency related work at the invitation of an in-state business is also exempt from tax. Learn more here.

 

More States Participating in Voluntary Disclosure Program

More States Participating in Voluntary Disclosure Program

Eight more states have joined in the Multistate Tax Commission Voluntary Disclosure Program, a program beneficial for taxpayers who sell through online marketplace arrangements. The voluntary disclosure program is designed to encourage the future collection of sales, use, income and franchise tax from taxpayers, while allowing relief of various taxes, depending on the state. Read more.

However, many online sellers working through fulfillment centers, may not know how to locate where they have inventory being stored and whether or not they have a filing obligation. Noted in Amazon Seller Central, a seller can pull the Inventory Event Detail Report to identify where inventory is being stored before sale. The steps are: Seller Central – Reports – Fulfillment – Inventory Event Detail Report

Currently twenty-three states and Washington D.C. are participating in the program:

(The highlighted states have an Amazon fulfillment center.)  States with a * were added after our previous announcement.

  • Alabama
  • Arkansas
  • Colorado will waive any back tax liability for uncollected sales/use tax. However, Colorado will not waive the back tax liability for income tax beyond its normal four-year look-back period. Colorado notes that it already has a small seller income tax nexus exception for sales less than $500,000 into the state.
  • Connecticut is requesting customer lists for the past three years from online retailers.  Failure to provide the list will result in a $500 penalty.  These notices are being sent out with the online retailer being provided with the opportunity to provide the information or register for sales tax.
  • * District of Columbia’s standard look-back period is 3 years for sales/use and income/franchise tax. D.C. will consider granting shorter or no look-back period for applications received under this initiative.
  • * Florida
  • Idaho
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • * Massachusetts requires compliance with its standard 3-year look-back period; this look-back period in a particular case may be less than 3 years, depending on when vendor nexus was created. Massachusetts also requires that vendors register, file and pay electronically through Mass Tax Connect, in compliance with TIR 16-9.
  • * Minnesota’s customary look-back period is 3 years for sales/use tax and 4 years (3 look-back years and 1 current year) for income/franchise tax. Minnesota will grant shorter look-back periods to the time when the marketplace seller created nexus.
  • * Missouri
  • Nebraska will consider waiving back tax liability for uncollected sales/use tax and income tax.
  • New Jersey notes that the storage of inventory by a partnership or a sole proprietor in New Jersey does not trigger nexus for gross income taxes.
  • North Carolina will consider applications for participation in the initiative made by all online marketplace sellers, including those that have been contacted by the Department concerning their liability or potential liability for sales and use taxes, income, and franchise taxes.
  • Oklahoma
  • South Dakota imposes sales/use tax but does not impose income tax.
  • * Tennessee’s business tax, as well as sales/use tax and franchise and excise tax, are included in this initiative.
  • * Texas
  • Utah
  • Vermont
  • * Wisconsin will require payment of  back tax and interest for a lookback period commencing January 1, 2015 for sales/use tax, and including the prior tax years of 2015 and 2016 for income/franchise tax.

Contact your Eide Bailly professional or a member of our State and Local Tax Team to learn more.

Iowa farmer puts the plow away too soon, loses capital gain break

Iowa has a unique tax break for business owners who sell their businesses or business real estate. Iowa exempts the resulting capital gains from state income taxes if at the time of the sale:

  • The taxpayer had held the property for ten years, and
  • The taxpayer had “materially participated” in the business for the ten years preceding the sale.

The technicalities of this rule tripped up a retired Iowa farmer when he sold his land in a recently-released Iowa administrative decision.

The taxpayer farmed in northern Iowa from 1978 through 2002. In 2002 he swapped farmland in a qualified like-kind exchange. That’s OK, as the holding period of the old farm tacked on to the new farm received in the swap.

The taxpayer stopped actively farming and started cash renting the land in 2004. He turned 62 in 2008, and he started collecting Social Security benefits. He continued renting through 2009. He sold the land in December of 2010 and claimed the Iowa capital gain exclusion on his 2010 Iowa return. There’s where his problem started.

Iowa’s capital gain exclusion uses the “material participation” definition from the federal “passive loss” rules. These rules are generally based on the amount of time a taxpayer spends on an activity in a year.

A special rule considers retired farmers to continue to materially participate forever if they materially participated under the hours rules for five of the eight years before they retire or become disabled. In the year at issue, 2010, retired or retirement was not defined in Iowa law related to the capital gains exclusion. However, at that time, the Iowa Department of Revenue “concluded and regularly advised” that a person retired upon receiving Social Security benefits. This concluded and regularly advised position on retirement was adopted as an amendment to Iowa law in 2012.

The ruling explains how this applied to this farmer:

Mr. Brandt stopped actively farming the land in 2004, began receiving Social Security old-age benefits in 2008, and sold the land in 2010. Brandt did not materially participate in farming the land five or more of the last eight years before he became a retired farmer by receiving Social Security old-age benefits. He was not entitled to claim a capital gain deduction for proceeds from the sale of the replacement farm under the retired farmer provision.

With the run-up in farmland prices in recent years, the Iowa capital gain exclusion can be a big deal, considering the states 8.98% top individual tax rate. It’s important for Iowa farmers to think this through in their decisions on whether to cash rent and when to sell out.

Iowa’s capital gain break doesn’t apply just to farm real estate, but to all real estate used in a business. It can also apply to a sale of an entire business in an asset sale or liquidation.

An Eide Bailly tax specialist can help you determine whether this break will work for you.

The Solar Eclipse and Tax Permits – What You Need to Know

You might think it’s just a one-time thing, surely no tax would be due, but the Idaho Tax Commission reminded taxpayers about the importance of tax permits after seeing online ads and roadside signs offering Idaho eclipse visitors rooms and homes to rent for lodging and camping. Residents who rent out their properties for these activities are required to collect sales and lodging taxes from guests. In addition, people making money selling souvenirs, food and other items need to collect sales tax. Hopefully, Idaho residents who capitalized on the increased traffic of eclipse watchers earlier today, properly registered with and received a tax permit from the State of Idaho. Learn more here. Contact your Eide Bailly professional or a member of our State and Local Tax team with questions.

 

SD Supreme Court will hear South Dakota Sales Tax Case

It looks like the SD Supreme Court will hear the Wayfair, Overstock, and Newegg case on August 29, 2017. Read more about the case and how it may impact multistate businesses in a recent Tax News & Views.

The Aberdeen News, a newspaper in Aberdeen, SD, recently published an article on the topic as well, South Dakota hopes for a quick loss in internet case, in the hopes of appealing to the U.S. Supreme Court.