California and Multistate

Transcription

1 Chapter 7 California and Multistate 1 Topics California Income and Franchise Taxes Sales and Use Taxes Property Taxes Miscellaneous Multistate 2

2 Contacting FTB FTB Pub CALIFORNIA Income/ Franchise Taxes 4

3 MyFTB Reg changes Jan. 4,

4 7 Economic Nexus Thresholds for 2015 Factor Threshold ty beg on or after 1/1/15 California Sales $536,446 Payroll $53,644 Property $53,644 8

5 Conformity Legislation AB 154 now 1/1/15 (rather than 1/1/09) Some exceptions R&T added to conform to IRC 6164 for extension of time to pay taxes when corp expecting to use an NOL carryback. (IRS Form 1138) 2/3 affirmation to SB 401 (April 2010) last conformity bill (passed prior to Prop 26) Annual fee on branded prescription drugs not deducible (same as for federal). Modification to LCUP for some t/p relief. Continued areas of non-conformity (such as 199 deduction) 9 17-page analysis by FTB 10

6 California Does Not Conform to New Federal Due Date Rules (yet). 11 CA Tax Incentives Review SUT Exemption New Employment Credit CA Competes Credit Tax affected State level sales tax PIT or corporate income tax Income taxes (see details on net tax and more) Zone requirement? No (SB 90) Yes No Other requirements NAICS specified list Wage level. FT EEs > than in base year. Qualified taxpayer Some businesses excluded unless small. Original return only. Must reserve in advance with FTB Specified factors to be considered by committee. Fund has dollar limits per year. 25% reserved for small businesses. Timeframe 7/1/14 to 6/30/22 (SB 90) TY beg on or after 1/1/14 and before 1/1/21 TY beg on and after 1/1/14 and before 1/1/25 Key R&T statute ,

7 FTB and Research Credit Audits FTB s May 2015 Newsletter - how it audits California research tax credit. FTB stated that it aims to follow federal determination when there is one. Observation: CA has not adopted simplified research credit method. As more taxpayers use this approach for federal purposes, FTB will have less info verified by IRS, such as gross receipts and qualified research expenses for the 1984 to 1988 base years. Thus, FTB will need to spend time on these examinations beyond what IRS may have spent. 13 College Access Tax Credit Enacted in 2013 (SB 798) R&T and Credit for TY beg on or after 1/1/14 and before 1/1/18 for donations to College Access Tax Credit Fund. 60% for 2014, 55% for 2015 and 50% for 2016 and 2017 Use against regular tax and AMT. Cash donations. Aggregate credit capped at $500 million for each year. Helps donor and state Full donation deductible on income tax return Reduced state taxes though 14

8 College Access Tax Credit Reminders Need to reserve in advance. First come, first served returns: Get application filed by 1/4/15 at 5 pm 2016 returns: Apps accepted starting 3/2/

9 FTB Rulings 2015 Legal Ruling California Tax Treatment of Transactions between IC DISCS and their Owners. Legal Ruling Determining Whether a Tribal Member Is "Living On" or "Living Off" His or Her Tribe's Reservation for California Personal Income Tax Purposes. TAM Treatment of payments made pursuant to Cost Sharing Arrangements for California sales factor purposes. Chief Counsel Ruling Guidance on whether sale of a line of business is substantial and "occasional" within meaning of CA Code of Regs, title 18, section 25137, subsection (c)(1)(a) Rago Development Valid Exchange Found! Published by BOE because deficiency > $500K T acquired and held property for 7 months as TIC before transferring property to LLC BOE step transaction doctrine n/a 18

10 CALIFORNIA Sales and Use Taxes 19 BOE Resource Guide (August 2015) for small businesses 20

11 CALIFORNIA Property Taxes 21 Equipment/Fixtures Factors 11/25/15 Assessors Handbook Section 581 updated and approved

12 CALIFORNIA Miscellaneous 23 EDD 2016 Rates Employment Training Tax (ETT) 0.1% UI and ETT taxable wage limit $7,000 per employee per calendar year (same as 2015). State Disability Insurance (SDI) withholding rate 0.9% Taxable wage limit is $106,742/employee/ calendar year ($104,378 in 2015) Maximum per employee = $

13 IRS Waiting Time Penalty Wages CCA (IRS, 5/29/15) CA Labor Code 203 failure to pay wages when due to employee who is discharged or quits. IRS not wages because for employer misconduct, not due to work of the employee. IRS holding only for the 203 penalty Penalty for meal and rest period violation = wages because for add l services provided by employee. 25 Top 500 Delinquencies Largest Smallest Total PIT $4, $186,335 $133,948,453 Corp income tax $1,379,867 $195,599 $26,266,021 Sales and use tax $6,390,514 $396,645 26

14 Consequences 27 Governor vetoes to help budget 28

15 Multistate 29 Business Tax Considerations Tennessee Business Tax Guide - nice outline (and specifics) of state taxation of businesses 30

16 31 32

17 Apportionment/Compact Litigation Multiple states, including: California Gillette won at Ct of Appeals can use 3 factor apportionment 10/6/15 oral argument before CA Supreme Court Relevant for years 1993 through 2012 Michigan 3 factor apportionment ok; litigation continues Anheuser-Busch IBM Corp, 4852 N.W. 2d 865 (2014) Minnesota Kimberly-Clark before MN Supreme Court Texas Graphic Packaging 3-factor not available 33 BIG $$$ Involved Could be big cost to the state(s) 34

18 Affiliate Nexus and State Sales Tax States continue to enact and find new ways to find vendors to be present

19 Multistate bills in Congress H.R. 2315, Mobile Workforce State Income Tax Simplification Act of 2015 H.R. 2584, Business Activity Tax Simplification Act of 2015 H.R. 1643, Digital Goods and Services Tax Fairness Act of 2015 Marketplace Fairness bills S. 698 and others to come ITFA expires (again) on 11/1/15 Action On June 17, 2015, House Judiciary Committee passed H.R. 2315), H.R. 1643) and H.R USSC and Wynne case Comptroller of the Treasury of Maryland v Wynne, No (USSC, 5/18/15) Md allows state credit for income tax paid to other states, but counties do not USSC Violates dormant commerce clause as leads to double taxation of out-of-state income Discriminates against interstate commerce as leads to such income being taxed more than intrastate commerce.

20 Direct Marketing Association v Brohl, Exec Dir, Colorado Dept of Revenue, No (3/3/15) Justice Kennedy, concurring opinion: Posited that perhaps given changes in technology and consumer sophistication, it is time to revisit the Court s 1992 decision in Quill, 504 U.S And, he said that Quill was a case questionable even when decided, [that] now harms States to a degree far greater than could have been anticipated earlier. 39 Alabama Wants to Test Quill Prop reg

21 Washington too (maybe) (HB 2224) Proposed regulation: 902 at Chapter RCW th Anniversary of Willis Comm n Report PL (Sept 1959) called for report To fully address "all matters pertaining to taxation by States of income derived within State from conduct of business activities which are exclusively in furtherance of interstate commerce or which are part of interstate commerce." Purpose - allow for recommendations to provide uniform standards for imposition of income taxes by the states. Due by July 1, P.L , 75 Stat. 41 (1961) scope broadened to include sales tax Became a 3-year project. 42

22 A few tidbits from the Willis Comm n report Doesn t some of it sound like it was written today? 43 Sum mary, Vol 4, page

23 Sales tax 1965 or today? p Issues still on congressional agenda Such as Update PL Example - Business Activity Tax Simplification (HR 2992, 113 th Cong) + earlier Congresses. Address sales tax nexus in response to 1992 Quill decision Examples variations of Marketplace Fairness Act (MFA). Address mobile workforce income and withholding tax rules. Still on state agendas o o o Should UDITPA be updated and address nexus? Streamlined Sales and Use Tax State challenge to possible today 46

24 January 4, 2016 Complete MyFTB registration. Determine which clients you need to get new POA for (generally if old POA predates 10/1/14). Learn the system! What services can/must it be used for. Determine what conformity means. Also visit FTB conformity website - Determine workflow for 2016 given new federal due dates and possibly no California conformity. See if client wants to donate to College Access Tax Fund to get favorable credit. Prepare questions to verify any changes in where business clients have income and sales tax nexus. Monitor federal and state nexus proposals affiliate nexus (states), Marketplace Fairness (Congress) and other changes that may require clients to start collecting sales tax in some states.