New York Tax Update. Mark S. Klein, Esq. Hodgson Russ LLP

Transcription

1 Copyright 2017 New York Tax Update Mark S. Klein, Esq. Hodgson Russ LLP 605 Third Avenue, Suite 2300 New York, NY Phone: (646)

2 BUDGET BILL Millionaires Tax Extended Top NYS tax rate of 8.82% extended for two years (2018/2019) Limit Extended on Charitable Contribution Deductions Sales of Partnerships Interests by Nonresidents May be Taxable Disregarded Entities Treated as Single Taxpayer for Credits Sales Tax Deferral Technique for Related Entities Eliminated Energy Transportation, Transmission, and Distribution Services Subject to Tax Certain Credits Extended No Sales Tax on Cemetery Monuments (effective September 1, 2017) 2

3 WHAT DIDN T PASS Expand sales tax collection requirements to marketplace vendors Eliminate the sales tax exemption for contributions of property to new ventures Reduce the tax liability threshold to $5,000 to suspend a taxpayer s driver s license Like-kind exchanges under IRC 1031 still the best loophole in New York! Limited sales tax liability for LLC owners Federal Sub-S Conformity Centralized Administrative Hearings Gaied Legislation with 90 days/50 miles Rule (S.6860/A.8610) 3

4 CORPORATE TAX REFORM $1,000,000 NY sales threshold Market-based sourcing Exempt investment income limited to stocks held over one year 8% limitation on investment income exemption Special rules for pre-2015 NOLs Mandatory combined reporting (50% ownership test) Special NYC rules 4

5 ESTATE TAX CHANGES Rates Exclusion phase-out Gift tax GST gone No portability New calculation for nonresidents Trust changes 5

6 COMPLIANCE AND ENFORCEMENT Whistleblowers Harbinger Capital April 2017, $40M settlement largest to date New compliance measures Driver s license suspension New reporting obligations New York wants a CISS Increased criminal investigations CARP 6

7 FISH IN A BARREL Hot Buttons for Corp v. sales tax revenue Art Gallery sales and use NYC residents with Sch. C income (BOD members, too!) No Box Visiting executives Cash/credit ratio seems off Used automobile registration Facebook Return preparer penalties - $1K/return no reasonable belief $5K/return reckless disregard Voluntary Disclosure Offers in compromise 7

8 PERSONAL INCOME TAX TAKE-AWAYS Move out of NYC before the closing. Avoid permanent place of abode (PPA) rules with brokerage agreement. Does statutory residence trump domicile? Keep an eye on Wynne 8

9 NY PERSONAL INCOME TAX CASES Chamberlain v. NYS, New York State Supreme Court (March 3, 2017) Based on US Supreme Court s constitutional analysis in Wynne v. Maryland, where the Court struck down a portion of MD s resident credit scheme, Taxpayers alleged NY s statutory residency scheme improperly subjected them to double taxation in violation of the Federal Commerce Clause Court here held NY s scheme was constitutional despite the Supreme Court ruling Court held Wynne didn t alter the constitutional analysis NY courts had used pre-wynne, and that the tax passed the internal consistency test used in Wynne Case is on appeal 9

10 RESIDENCY FACTS AND FIGURES 2016 NYC Comptroller Report: The Increasing Concentration of High Income Taxpayers in the New York Economy 43% of US Taxpayers with income > $10MM reported some NY source income In 2014, half of NY taxpayers with > $720K income were (or claimed to be) nonresidents! Nonresidents earned more than $90B in NY income in 2014 ($68B in NYC alone)! What could this mean? More audits? Are these folks really nonresidents? Even more taxpayers? How may other non-filing nonresidents are there? Re-birth of NYC nonresident tax? 10

11 RESIDENCY Why do we care? Income tax 17 states still impose an estate or inheritance tax Domicile or by statute Leave and Land When did you move or change your domicile? Explain the change Who proves what? 11

12 RESIDENCY (CON T.) Statutory Residence 183 days and a permanent place of abode (PPA) What is a day? Proof Exceptions Travel In-Patient Gaied/Barker/Sobotka Patrick love conquers all Blatt loving your dog works, too Campaniello failure to check the box is negligence 12

13 DOMICILE PRIMARY FACTORS Home Bigger, better, more valuable Watch out for STAR and IRC 121 issues Business Limited to active involvement Location of business headquarters, your office, assistant, etc. 13

14 DOMICILE PRIMARY FACTORS (CON T.) Time Not 183-day rule! Domicile day count Near and Dear Where is your teddy bear, Safe deposit box, And insured and other valuables? Moving vans v. storage 14

15 DOMICILE Family Factor Most spouses share their domicile Minor children can be critical Other Factors Checklist items nice but not determinative Parking tax exemption 548- and 30-day Rules 15

16 TOP TEN RESIDENCY ERRORS 1. Nobody moves on January 1 2. Statutory residence trumps domicile 3. The Living Quarters box 4. Consistency! 5. Husbands and wives usually share a domicile 6. Don t start an audit with an offer to settle 7. Don t let client chat with auditors 8. Credits for taxes paid elsewhere 9. Never amend a return under audit 10. Many states have an accrual rule (a cruel rule!) 16

17 TAXATION OF NONRESIDENTS Wages (including convenience rule) Business and flow-through income Post retirement remuneration Sales of property (see, e.g. Ittleson). Is location temporary? Accrual rule (a cruel rule) Withholding audits 17

18 TAXATION OF NONRESIDENTS (CON T.) Flow-through entity issues: Increased audit activity Scrutiny of claimed apportionment; difficult flow-through issues Sales of partnership/llc issues and real estate Tiered-partnership issues 18

19 NUTS AND BOLTS OF A SALES TAX AUDIT Expenses recurring test or stat sample Sales guest checks - test? Reconcile to corporate return and bank deposits Capital usually in detail Reconcile to depreciation schedule 19

20 NEXUS Nexus issues generally The Amazon tax -- nexus for Internet retailers and other remote sellers - Aimed predominantly at out-of-state Internet retailers, the sales-tax amendment will require certain remote retailers to begin collecting sales tax on sales to New Yorkers that formerly would have been exempt based on the seller s lack of nexus with the State. Form of affiliate nexus; keep an eye on other affiliate nexus situations Limited visits to New York exceeding the slightest presence threshold Hiring subcontractors in New York Concepts relevant for Corporate Franchise & Withholding matters What about differences with these tax types? Look at economic nexus 20

21 AUDIT QUESTIONS Where to hold audit Responsible officer questionnaire (special statute of limitations) Access to information Consent to extend Statute of Limitations Consent to test period Penalties Exemption certificate issues FOIL!! 21

22 TOP TEN SALES TAX AUDIT ISSUES 1. Cloud computing Is it a license of software? Is it a an information service? RetailData and Wegmans Is it the electronic delivery of other tangible property? Remember allocation and overlapping audit rules. 2. Cheeseboard consultants 3. Catering rules And coat checks! 4. Bulk sales rules (derivative liability) 22

23 TOP TEN SALES TAX AUDIT ISSUES (CON T.) 5. Contractors 6. Sales to residents use tax 7. Substitute of assets in a Trust 8. Art Galleries 9. Cash businesses 10. Boats 23

24 ADMINISTRATIVE UPDATE BCMS ALJ 7,000 cases 75% agreement 67% resolved within six months 88% consent rate 11-month backlog TAT Article 78 24

25 THANK YOU Mark S. Klein, Esq. Hodgson Russ LLP 605 Third Avenue, Suite 2300 New York, NY Phone: (646) 25