2014/2015 ny/nj state and local tax update

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2014/2015 ny/nj state and local tax update
2013 YEAR END INCOME & ESTATE/GIFT TAX PLANNING
10/24/2013
2014/2015 NY/NJ STATE AND LOCAL TAX UPDATE
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Tax Update
All Things New York
Comb. Reporting History
• Prior to 2007, in order to properly reflect a taxpayer's franchise tax liability, Tax Law (former § 211(4)) gave the Division the discretion to require or permit corporations subject to New York State franchise tax to file combined reports with certain other corporations. The statute required that the taxpayer either own or control substantially all of the stock of the other corporations, or the taxpayer's stock be substantially owned or controlled by such other corporations. The statute further limited the Division's discretion by providing that no combined report covering any corporation not a taxpayer shall be required unless the Division deemed such a report necessary, because of intercompany transactions, a unitary relationship & common ownership.
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Corporate Tax Changes
Amendments to Regulations regarding Combined Reports effective 1/1/13:
‐ Apply to tax years actually beginning January 1, 2007 (through 2014).
‐ Codification of TSB‐M‐08(2)C ‐2008‐
‐ Taxpayers engaged in unitary business required to file combined report:
• Substantial inter corporate transactions
• 80% direct or indirect stock ownership
• May be required if combined report necessary to reflect proper tax liability
Corporate Tax Changes (cont.)
Amendment generally follows interpretations of TSB‐
M‐08(2)(C)
• Below are differences between the TSB and the new Reg. • In Regs, substantial intercorp transactions:
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Include interest paid and received on loans between related corporation where loans constitute subsidiary capital as a factor in determining substantial inter corporate transactions. Asset transfer test (20% or more) now includes certain assets transferred for cash for purposes of tax avoidance.
Income from sale of items produced from transferred production equipment now included in 20% test if transferred prod. Equip. is substantially all of prod equip.
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Substantial Inter‐Corp Transactions
(a) manufacturing, acquiring goods or property, or performing services for related corporations; (b) selling goods acquired from related corporations;
(c) financing sales of related corporations;
(d) performing related customer services using common facilities and employees for common customers of related corporations;
(e) incurring expenses that benefit, directly or indirectly, one or more related corporations; and
(f) transferring assets, including such assets as accounts receivable, patents, or trademarks from one or more related corporations. Therefore, intercorporate receipts, intercorporate expenditures, and intercorporate transfers of assets all constitute intercorporate transactions.
N.Y. Tax Law§210‐C Combined reports. •
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Bright line Test for Combined Reporting. Effective 1‐1‐2015: Any taxpayer which owns or controls either directly or indirectly more than fifty percent of the voting power of the capital stock of one or more other corporations, or more than fifty percent of the voting power of the capital stock of which is owned or controlled either directly or indirectly by one or more other corporations, or more than fifty percent of the voting power of the capital stock of which and the capital stock of one or more other corporations, is owned or controlled, directly or indirectly, by the same interests, and is engaged in a unitary business with those corporations shall make a combined report with those other corporations.
Substantial inter‐corporate transactions are no longer a separate requirement for a combined filing.
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Corporate Tax Changes 1‐1‐2015
• Sourcing of service receipts for allocation (sales factor) purposes will be based on customer location.
• Nexus will be created for Non‐NY corporations if: (1) receipts within NYS exceed one million dollars(market source); (2) if a business issues 1,000 or more credit cards to New •
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York customers; or (3) has “merchant contracts” covering 1,000 or more NY locations.
Corporate NOLs to be determined on a post apportionment basis. 2014 Carryforwards convert to: prior NOL conversion subtraction. Tax on subsidiary capital is eliminated effective 1‐1‐15.
The minimum taxable income base is eliminated, effective 1‐1‐15.
Beginning in 2015, banking corporations will be subject to the Article 9‐
A corporate franchise tax NY Joins Ranks of Economic Nexus States
• Economic nexus: A state can impose a tax if an out‐of‐state taxpayer avails itself of the benefits of the economic market of a state regardless of physical presence.
• Revenue sourced using market sourcing principals, NOT always the same as apportionment sourcing rules, e.g. CO (COP Appt Ratio/Nexus Market), CT (COP Appt Ratio/Nexus Revenue “Attributable”).
• CA beginning January 1, 2011, sales > $500k & proof of solicitation is not needed.
• CT beginning January 1, 2010. sales > $500k
• CO beginning April 30, 2010. sales > $500k
• OH CAT sales > $500k • MI sales > $350k with active solicitation • WA beginning June 1, 2010. sales > $250k
• NY January 1, 2015. This is for corporations ONLY. This rule will not apply to foreign partnerships like other economic nexus states.
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Corporate Tax Changes
Extension of electronic filing and payment provisions
• Extended through December 31, 2016
• E‐file mandate for preparers of tax documents for more than ten different taxpayers in a calendar year and for one taxpayer in succeeding years.
NY Manufacturers
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• Eligible qualified New York manufacturers see rates reduce to 0 in 2014.
The rate on the entire net income base was reduced from 6.5% to 3.25% in 2013 and to ZERO in 2014.
A “qualified New York manufacturer” is a manufacturer which principally engaged in the production of goods by manufacturing, processing, assembling, refining, mining, extracting, farming, agriculture, horticulture, floriculture, viticulture or commercial fishing. Has property in NY of which the adjusted basis is at least one million dollars, or all of its real and personal property is located in New York
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Corporate Tax Changes
•
10/24/2013
• MTA surcharge now permanent
• MCTMT remains in effect
MTA “Temporary” Tax initiated in 1982, like temporary NJ Parkway Tolls will be raised to 25.6% effective 2015 and become “permanent.” • NY Appellate court reversed lower court ruling that MCTMT was unconstitutional. On January 14, 2014, the New York Court of Appeals denied a motion to appeal the case Mangano, et al. v. Silver, et al., N.Y. S.Ct., App. Div., 2nd Dept., No. 2012‐09463, 06/26/2013
• MCTMT [Metropolitan Commuter Transportation Mobility Tax] applies to employers and self‐employed individuals
• Employers with NY state income tax withholding on wages over $312,500 in any calendar quarter
• Tax rate ranges from .11% to .34% for payroll expense between 312,500 to 437,500 per quarter
• Self‐employed individuals with net earnings from self‐employment over $50,000 Tax rate = .34%
Corporate Tax Changes
Fulfillment Services Nexus Exemption
Effective January 1, 2015, fulfillment services will create Franchise Tax nexus in NY.
Fulfillment services are defined as:
(a) the acceptance of orders electronically or by mail, telephone, telefax or the internet;
(b) responses to consumer correspondence and inquiries electronically or by mail, telephone, telefax or the internet;
(c) billing and collection activities; or
(d) the shipment of orders from an inventory of products.
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Sales Tax & Fulfillment?
10/24/2013
Fulfillment Services Sales Tax Nexus Exemption Still Good
N.Y. Tax Law § 1101(b)(8)(v):
(v) Notwithstanding any other provision of law, the term vendor shall not include:
(A) A person who is not otherwise a vendor who purchases fulfillment services carried on in New York by a person other than an affiliated person; or
(B) A person who is not otherwise a vendor who owns tangible personal property
located on the premises of an unaffiliated person performing fulfillment services for such person.
New York Tax $$ Grab
• NY has now dramatically expanded its tax
base to non-NY residents and businesses.
• Income Franchise Tax: Economic Nexus
• Market sourcing.
• Sales Tax: Click through nexus.
• Franchise Tax Fulfillment Exemption: Gone
• A business from Washington state (for example) who has never had
an employee set foot in NY can now have full tax nexus…
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4 Tax Bases for Current NY Corporate Tax Rates
Overview
• NYS Corporate Tax
–ENI Base
–Business Capital base Starts phasing out in 2016 (.15% to .125% to zero in 2021.
–Minimum taxable Income Going away in 2015
–Fixed Dollar Minimum
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1. ENI Base
10/24/2013
The Business and Investment Capital Base
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• ENI base for general business taxpayers = 7.1% dropped to 6.5 in 2016. This will be the lowest rate since 1968.
• ENI base for qualified small business taxpayers: This is the total investment and business capital allocated to New York State after deducting short‐term and long‐term liabilities attributable to assets. The current tax rate is .15%. (A new small business corporation may claim an exemption from the tax on ENI base of $290,000 or less = 6.5%
this base for its first two tax years if it ENI base of more than $290,000 but meets certain requirements.) The tax not more than $390,000 = on capital is limited to $350,000 for $18,850 •plus 7.1% of the amount qualified New York manufacturers, and over $290,000 •plus 4.35% of the $1 million for all other taxpayers.
amount over $350,000
3. Min. Taxable Income (MTI)
• Entire net income allocated to New York State plus certain federal items of tax preference and adjustments allocated to New York. Taxpayers are allowed to deduct an alternative net operating loss against this base. The current tax rate is 1.5%.
4. Fixed Dollar Minimum (FDM)
MANY NEW BRACKETS ADDED WITH 2014‐2015 CUOMO BUDGET
For a corporation with New York State receipts of:
• Not more than $100,000  $25* • More than $100,000 but not over $250,000  $75* • More than $250,000 but not over $500,000  $175* • More than $500,000 but not over $1,000,000  $500 • More than $1,000,000 but not over $5,000,000  $1,500 • More than $5,000,000 but not over $25,000,000  $3,500 • Over $25,000,000  $5,000
*Foreign authorized corporations are subject to a maintenance fee of $300. If the total tax (including tax imposed under Article 9) and MTA surcharge is less than $300, a taxpayer must increase its payment accordingly to satisfy the $300 maintenance fee requirement. Note: For tax years beginning on or after January 1, 2012, and before January 1, 2015, the FDM tax rate is one half the rates shown above for eligible qualified New York manufacturers.
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New Credits ‐
Overview
• Empire state film production and post productions tax credits
• Rehabilitation of historic property credits
• Credit for hiring veterans
• Minimum Wage Reimbursement Credit
Credits
Empire state film production and post productions tax credits (effective March 28, 2013)
• Extended for tax years 2015 through 2019
• Various changes to definitions, eligibility, limitations ( www.nylovesfilm.com
for details) & additional credits available to upstate NY
Minimum Wage Reimbursement Credit (1/1/14 ‐12/31/18)
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Refundable credit equal to number of hours worked x $.75 (increased to $1.31 and 1.35 through 12/31/18)
Eligible employees are those that are paid the minimum wage rate, between ages 16‐19 and a student 11
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Credits
Credit for hiring Veterans (1/1/15 – 12/31/16)
• Employed for one year for at least 35 hours a week if employment begins 1/1/14 – Yr Beginning prior to 1/1/16 • Credit claimed in year veteran completes one year of employment (2015‐2016)
• Begin employment 1/1/14 to year beginning before 1/1/16
• 10% credit for first year wages (15% if disabled)
• Max $5,000 per veteran ($15,000 if disabled
• Carry forward of unused credit for three years
• One additional $1,000 credit available for employee employed 1 additional year.
• Tax credit expanded and extended to December 31, 2017.
• Allowing an additional $1,000 credit for each qualified employee employed for at least one additional year.
• Expanded to Five new programs ending each year from 12/31/12 to 12/31/17.
• Apply to DOL between January 1 and November 30 for each year of credit program
Incentive Program$
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Incentives
• Operating grants and assistance for New York companies in early state of development
• ESD ‐ Empire State development designates innovation hot spots and designates applicants and NY state incubators
• Available for 5 years beginning with first year a qualified entity becomes a tenant in a NY state innovation hot spot
o Entity will only be subject to the fixed dollar minimum tax under Article 9‐A
o Credit or refund of the 4% sales and use tax and 3/8% MCTD tax on retail sale of tangible personal property and certain taxable services
Incentives
Designed to help existing companies, particularly high‐tech companies and start‐ups, stay in New York State by offering tax benefits for businesses located in tax free New York areas and their employees. The tax benefits under the bill apply to tax years beginning on or after 1/1/14, to sales tax quarters beginning on or after 3/1/14, or to transactions occurring on or after 1/1/14, whichever is applicable.
10 Year exemption from corporate, real property tax, MCTMT and sales taxes for operations in the district
Certified employees get 5 year exemption from Individual income tax. For second 5 years exemption limited to $200,000 (I), $250,000 (HOH) or $300,000 (MFJ)
Annual cap of 10,000 net new jobs exempt statewide for the 10 year run of the program
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Incentives
• Eligible businesses: New Company to NYS Out of‐state company moving in
• Expanding within a zone and creating jobs not moving jobs from another location in NYS
• For NYC, LI & Westchester Start up business must be either High Tech Or biotech • As of the beginning of April, 2014, the state’s ESD (Empire State Development) department which is charged with administering “Start‐Up” has approved numerous properties throughout New York for participation in the program. Most properties are located in or near both public and private colleges and universities. A comprehensive list of those schools is shown on the next slide
Incentives
Binghamton University, Broome Community College, Cayuga Community College, College at Brockport, Cornell University, Downstate Medical Center (NYC), Erie Community College, Farmingdale State College, Finger Lakes Community College, Genesee Community College, Monroe Community College, Morrisville State College, Onondaga Community College, Schenectady County Community College, Sullivan County Community College, SUNY Adirondack Community College, SUNY Buffalo State, SUNY Canton, SUNY Cobleskill, SUNY ESF, SUNY Genese, SUNY Plattsburgh, SUNY Oswego, SUNY Old Westbury, Tompkins Cortland Community College, University at Buffalo , University at Buffalo, University at Buffalo, Stony Brook University, and University at Albany.
Other New York schools planning to participate in the program that have not yet designated property are schools like Bronx Community College, The City College of New York, Medgar Evers College, College of Staten Island, and York College in Queens.
Thinking outside the box, New York has also designated as Start‐Up properties, four correctional facilities scheduled for closure later this year.
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Incentives
Ineligible businesses:
Retail or wholesale
Restaurants
Real Estate Brokers
Finance and financial services
Hospitality
Professional Services
Utilities
Energy production & distribution
NESTOA
• North Eastern States Tax Officials Association Conference. 9/28/14 – 10/1/14 at the Hyatt in New Brunswick.
• Mwisa Chisunka, the NY State Business Ombudswoman, Director of Business Tax Services and Education, NYS Dept of Taxation and Finance said the state had received over 150 NY Star Up Program applications and 8 have been approved.
• Why so few?
• Imagine the bureaucracy involved when you not only have the Tax Department involved, but you also have to get the universtiy/college people on board before a business can set up on school property.
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Personal Income Tax Changes
Personal Income Tax Rates
• Current rates extended through 2017 with COL adjustments
• NY State rates =4% to 8.82% for NY AGI over $2,000,000 MFJ ($1,000,000 for single)
• NY City rates =2.907% to 3.876% for NY AGI over $500,000 Extension of limit on NY itemized deductions (effective for 2013, 2014 and 2015 tax years)
• AGI between $1 million and $10 million‐ itemized deduction limited to 50% of Federal itemized deductions for charitable contributions
• AGI more than $10 million ‐itemized deduction limited to 25% of Federal itemized deductions for charitable contributions
• No other federal itemized deductions will be allowed for the taxpayers with AGI over $1 million
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Personal Income Tax Family Tax Relief Credit (2014 through 2016)
• Refundable $350 credit
• Eligibility to be determined based on last two tax returns filed for advance credit
• NY residents claiming one or more dependents under age 17
• AGI between $40,000 to $300,000 with tax liability greater than 0
Personal Income Tax Small business modification (starting in tax year 2014)
• A small business that is a sole proprietorship where the sole proprietor employs 1 or more persons during the tax year and has net small business income/net farm income greater than 0 but less than $250k for the tax year.
• A farm business that is a partnership, a New York S corporation, or a qualified JV that employs 1 or more during the tax year and has net farm income greater than 0 but less than $250k for the tax year.
• The subtraction is equal to a % of the net income attributable to the eligible small business or farm business included in the taxpayer’s federal AGI (but not less than zero) for the tax year
• 2014 the subtraction is 3% of income
• 2015 the subtraction is 3.75% of income
• 2016 and after the subtraction is 5% of income
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Sales Tax Changes
• Sales tax on charges for transportation services (effective date March 1, 2013)
• Transportation services provided by Livery vehicles are excluded from NY sales tax
• Trips that either begin or end in NYC are now excluded
• Previously, only excluded trips wholly within NYC
• Commercial solar energy systems equipment (effective 1/1/13)
• Receipts from sale and installation of commercial solar energy systems equipment exempt from state sales, MCTD tax, and various other local
Sales Tax (Nexus) Changes
• On December 2, 2013, the United States Supreme Court declined to review two cases addressing the constitutionality of the nation’s first click‐through nexus statute. • Earlier this year, the Court of Appeals of New York held that New York’s click‐through nexus statute was facially constitutional.
• Since that decision, numerous other states—AR, CA, DC, CT, GA, KS, ME, MO, MN, NC, NJ, PA, RI have enacted, or are enacting similar click‐through statutes. 18
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NY & Software
Way back in March of 1993, NY issued the still relevant TSB‐
M‐93(3)S. The TSB said: “Prewritten software is subject to tax whether sold as part of a package or separately. Software created by combining two or more prewritten programs or portions of prewritten programs is still prewritten software subject to tax. The medium by which the software is transferred to the purchaser has no effect on the software's taxability. Thus, prewritten software is taxable whether sold, for example, on a disk, tape or by
electronic transmission over telephone lines.” SUNGARD SECURITIES FINANCE LLC • NY Division of Tax Appeals, Administrative Law
Judge Determination, 2/6/14
• Sunguard provides consulting and data processing
services.
• Data processing is not a taxable service in NY.
• S&U Tax audit assessment of $400k was appealed.
• Smart Loan Service: Provides data processing
services and fulfills “back office” functions for its
customers, including analyzing, processing and
maintaining customer accounting ledgers and
making such information available to the customer’s
employees in various processed formats
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SUNGARD SECURITIES FINANCE LLC • Sunguard delivers the Smart Loan service by using its 25 employees, hardware and proprietary software to process customer data between the hours of 7:15 A.M. and 6:00 ., Monday through Friday.
• Invoices labeled “Smart Loan ASP Services,” are based on the volume of services delivered to the customer and the number of the customer’s personnel (“users”) simultaneously receiving the Smart Loan service.
SUNGARD SECURITIES FINANCE LLC • The Smart Loan system incorporates a limited amount of software that Sunguard uses to deliver processed data to its customers.
• Software is furnished free to Sunguard’s
customers to view processed data. A main purpose of the software is to facilitate a secure connection with customers.
• This software cannot function independently of the Smart Loan system cannot be altered or manipulated by customers.
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SUNGARD SECURITIES FINANCE LLC • Is the Smart Loan service a license of computer software to Sunguard’s
customers taxable as the sale of tangible personal property?
• No. The court found that Sunguard uses its own specialized proprietary software to verify, synthesize (or process), secure, format for customer viewing, and archive its customers’ own transactional data. Estate Tax Changes
• Beginning in 2015…
• Phase in over four years an increase of the exclusion threshold of the estate tax
• from $1 million to $5.25 million.
• Reduce the top estate tax rate from 16 to 10 percent over four years.
• Close the resident trust loophole which results in New York personal income tax immunity for certain trust grantors and beneficiaries.
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Miscellaneous Tax Changes
• A manufacturers tax credit for 20% of the firms property tax liability.
• Renters' tax credit that would provide tax relief for renters with incomes below $100,000 by offering a refundable personal income tax credit that increases with family size.
• Increase the income threshold for filing a personal income tax return from $4,000 to the same level as the taxpayer's standard deduction. • Align mobility and personal income tax filings for the self‐employed.
• Self employed persons can file and pay MTCMT tax when they file their personal returns
• Extends the enhanced earned income tax credit for 2 years
• Exempts distributions from benefit plans for volunteer fire fighters and ambulance workers
Eliminate:
• The franchise tax on agricultural cooperatives, • The stock transfer tax (which collects no revenue). NYC – Tax Update
Biotechnology Credit extended to December 31, 2015
• Applicable to taxable years beginning on or after January 1, 2010 and before January 1, 2016, New York City provides a biotechnology credit against the New York City general corporation tax, unincorporated business tax and the banking corporation tax.
• An eligible taxpayer will be allowed a credit for 18% of the cost or other basis for federal income tax purposes of research and development property that is acquired by the taxpayer and placed in service during the calendar year that ends with or within the taxable year for which the credit is claimed, a credit of 9% for qualified research expenses, and a credit for up to 100% of high‐technology training expenditures.
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NYC – Tax Update
• NYC income tax credit for general S corp taxes paid
• For taxable years beginning on or after January 1, 2014 and before July 1, 2015, if city taxable income is $35,000 or less, the credit for NYC tax paid by the s corp is 100% of proportionate share of the tax paid. If city taxable income is more than $35,000 but less than $100,000, the credit percentage is calculated as follows: subtract from 100% a percentage determined by subtracting $35,000 from city taxable income, dividing the result by $65,000, and multiplying by 100%. If city taxable income is $100,000 or more, no credit is allowed. • Special rules for calculating the credit apply for any taxable year of a taxpayer for which this credit is effective that encompasses days occurring after June 30, 2015
Voluntary Disclosure
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NJ VDAs
• Question: Are there any substantial differences between the NJ and NY VDA programs? • Answer yes or no.
Tax Update
New Jersey Changes
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New Jersey Changes: Governor Christie Legislation Effective July 1, 2014 • CORPORATE INCOME TAX—New Jersey has a new definition of operational income. Reaction to McKesson 7/2009.
• Effective for tax years ending after June 30, 2014, “operational income” that is subject to allocation to New Jersey is defined as income from tangible and intangible property if the acquisition, management, or disposition of the property constitute integral parts of the taxpayer's regular trade or business operations
• Corporate Tax – Net Operating Loss: The law now follows the federal rule (section 108 of the IRC) of reducing an NOL by the amount excluded from federal taxable income for debt forgiveness.
New Jersey Changes: Governor Christie Legislation Effective July 1, 2014 • Effective for tax years that end after June 30, 2014, a partnership that pays tax for its nonresident partners is not entitled to claim a refund of payments credited to the account of any of its nonresident partners. In 2002, legislation was enacted to require New Jersey partnerships to make payments on behalf of their nonresident partners. • In BIS LP, Inc. v. Director, Div. of Taxation, N.J. Super Ct. App. Div., Dkt. No. A‐
1647‐12T3, 04/11/2014, the court determined that the statute did not bar a nonresident partner that had no New Jersey filing obligation from claiming a refund of tax it did not pay, but that was paid on its behalf. • The effect of this new law is that payments made by a partnership on behalf of its nonresident partners are only refundable to a nonresident partner that files a New Jersey tax return and reports income that is subject to tax in New Jersey
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New Jersey Change That Did Not Happen, and Won’t.
Back is 2013, NJ floated a proposed change in sourcing regulations for corporate filers. The proposed regulation provided that service receipts would be sourced to where the benefit is received. If the benefit is received in more than one state, the taxpayer could estimate the share of the benefit received in New Jersey. The regulation if approved, would have been implemented effective January 1, 2014.
• That regulation was not implemented; however, there has been a great deal of speculation that it still may be.
•
NESTOA
• The question was asked of Lee Evans, Chief, Office Audit Branch, New Jersey Division of Taxation, if NJ plans to address the fact that NJ Corporate Service Providers will now be double taxed on revenue earned providing services in NJ for customers located in NY.
• Mr. Evans said NJ has no plans to address that matter.
• Mr. Evans was also adamant in stating that New Jersey will not be adopting any changes to its corporate sourcing regulations. • NJ’s proposed regulations would have dealt with this issue.
• Note: Pennsylvania also went to market sourcing for corporate fliers effective Jan 1 2014.
• Connecticut is still a ratio/COP state.
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New Jersey Changes: Governor Christie Legislation Effective July 1, 2014 • New Jersey adopts click‐through nexus similar to New York State’s “Amazon law.” The bright line presumption of nexus exists if there are sales of $10,000 for the prior 4 quarters and there are commission agreements in place with representative having physical presence in NJ.
New Jersey Legislature Approve Economic Opportunity Act of 2014 October 27th
• Atlantic City would be designated as the fifth Garden State Growth Zone.
• Mega project status with capital investments of $20 million in areas designated in need of redevelopment in Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Ocean or Salem counties that will create or retain more than 150 full‐time positions.
• Minimum capital investment requirement for the rehabilitation and improvement of warehousing, logistics, and research and development premises.
• Bonus for investing in vacant property.
• Ease the eligibility criteria for incubators located near a research institution, teaching hospital, college or university in a GROW NJ incentive area.
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New Jersey Legislature Approve Economic Opportunity Act of 2014 October 27th
• Calculation of annual tax credit changed & broadened credit opportunities for Camden and Atlantic City‐based businesses.
• Reduces to $25,000 the general minimum Urban Transit Hub tax credit amount that recipients would be able to sell.
• Eliminates the existing authority for recipients to make one transfer of less than $100,000 per year
TAM 2014‐1
ISSUED 6‐16‐14
• This TAM issued as a result of, Ironbound Intermodal Industries, Inc. v. Director, (012089‐2008, July 19, 2013).
• Storage services for cargo containers and chassis that are provided at a marine terminal facility (e.g. Ironbound Section of Nwrk Terminal) are specifically exempt.
• Repairs to “commercial ships or any component thereof including cargo containers, are exempt. • Charges for “other services rendered with respect to loading, unloading and handling cargo at a marine terminal facility” e.g. charges for repair services to chassis which are used to load, unload, and handle cargo, when such services are performed at a marine terminal facility, are exempt.
• Repair parts and replacement parts for cargo containers located at marine terminals are exempt when cargo containers are component parts of commercial ships.
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RESIDENCY
Pre‐Audit Analysis
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Prior Audits
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•
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Review of Business Relations with New York
• Auditor uncovers involvement with NY partnerships revealed in K‐1
• Use online tools to discover taxpayer’s nature and involvement with business
•
Review Capital Gains
• Large capital gains are red flags. Many taxpayers have claimed a change in domicile immediately prior to the occurrence of a large capital gain.
Auditor reviews the files of prior audits
Auditor uncovers New York Addresses
•
Auditor reviews entire return for addresses identified
•
For example, the W‐2 may reveal that it was sent to taxpayer’s NY address
•
Auditor searches Lexis Nexis
database to uncover New York address. •
Auditor checks Real Estate Transfer Taxes (RETT) to determine if taxpayer was buyer or seller of NY property
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Communications
Auditor schedules initial
appointment
Auditor first sends questionnaire and may request a waiver extending SOL if it appears the statute will expire prior to completion of investigation
As a general rule, nonresident audits should not be started unless the auditor and the taxpayer have at least 120 days (without extending the assessment limitation period) to present and review material
Accumulation and Analysis of Data
•
Analysis of federal return
• Auditor scrutinizes schedule A for info about real estate taxes paid, mortgage interest paid, casualty loss suffered, New York medical practitioners used, travel and entertainment expenses on Form 2106 to verify days spent in NY.
•
Records Analysis (day count calendar, EZ pass, credit card, etc) Receipts and net gains from sales of business assets (Often conditional, e.g. not if distortive).
• Auditor analyzes all records submitted and requests verification when necessary
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Accumulation and Analysis of Data (cont.)
•
Personal Observation
• Auditor should visit place of abode, take note of the relationship between neighborhood, abode facility, and taxpayer lifestyle.
• Check names on mailbox, license number on vehicles, interview doorman, take pictures.
• Auditor should visit residence outside New York as well. •
Affidavits
• Auditor evaluates affidavits submitted based on how they are used and the basis for the assertions they contain.
•
Credible Testimony
• Auditor conducts interview with taxpayer.
• Questioning Focuses on taxpayer’s intentions and actions
Concluding the Audit
Determination
• Auditor prepares a summary of facts.
• Auditor discusses findings with team leader
• Auditor issues determination discussing domiciled, statutory residence, and income subject to New York taxation as non resident
Penalties
Auditor determines propriety of penalty
Communicating Results
The auditor presents the examination results to the taxpayer and/or the representative at the conclusion of the audit.
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Redacted Sheriff’s Letter
NYC TAX AUDIT PROCEDURE
Background
• General Guidelines for NYC field auditors are established in SAP No 90.AP/AU 14
• These guidelines apply to audits of all tax types, but should be modified as necessary as each case dictates
Case File
• The auditor organizes the case file in accordance with a uniform system.
• The case file serves as the record for the audit
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NYC TAX AUDIT PROCEDURE
Auditor’s Report and Comments
•
The purpose of the comments is to show how the auditor arrived at the final determination of tax liability
•
Comments begin with a description of the taxpayer’s business including affiliates and partners and taxpayer's federal, state, and city filing status.
•
The Comments will also mention any prior audits of the taxpayer and the federal and state adjustments.
•
The auditor should give a brief description of taxpayer's treatment of items on the return as filed. •
The auditor will describe the issues found on audit, following the format of the return and schedules, and will discuss any adjustments as they are made, giving the Department's final treatment of each adjustment. NYC TAX AUDIT PROCEDURE
Documents
•
Auditor records all requests for documents
•
The auditor should request the documents needed on the Information Document Request, at the beginning of the audit or as needed during the audit
•
The auditor may also later orally request documents, depending on what the audit requires
•
The auditor will call the taxpayer promptly if the document s not supplied by the agreed date and will send a written confirmation of the conversation and a renewed request for the document.
•
If there are problems obtaining a document, the auditor will hold a meeting with the taxpayer
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NYC TAX AUDIT PROCEDURE
Cross Referencing Workpapers
Inadequate Books and Records
•
Auditor records all requests for documents
•
The auditor should request the documents needed on the Information Document Request, at the beginning of the audit or as needed during the audit
•
The auditor may also later orally request documents, depending on what the audit requires
•
The auditor will call the taxpayer promptly if the document is not supplied by the agreed date and will send a written confirmation of the conversation and a renewed request for the document.
•
•
If the taxpayer's books and records are inadequate, the auditor will state in the Comments why the books and records are deemed inadequate and will specify which records were available and which were unavailable or inadequate. If the inadequacy is due to the taxpayer's failure or refusal to supply the requested records, such failure or refusal should be documented.
Penalties
•
Auditor should clearly state in the record why penalties are being asserted and how they were calculated
If there are problems obtaining a document, the •
auditor will hold a meeting with the taxpayer
The auditor may waive a penalty and document the reasons for doing so in the comments
NYS FALSE CLAIMS ACT
Basics
•
•
•
The False Claims Act is a weapon in preventing fraud committed against the NYS government. Whistleblowers are permitted to bring a case on behalf of the government to recover damages on its behalf.
The act incentivizes whistleblowers to report fraud by offering a percentage of any reward recovered from an ensuing lawsuit
Tax Fraud
•
•
•
•
The New York False Claims Act includes Tax Fraud The New York False Claims Act can be used for tax fraud only if the defendant has "net income or sales" of $1 million or more and damages as plead are greater than $350,000.
The federal false claims Act does not apply to tax fraud
The act incentivizes whistleblowers to report fraud by offering a percentage of any reward recovered from an ensuing lawsuit
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NYS FALSE CLAIMS ACT
Treble Damages
•
The New York False Claims Act allows for three times the damages (two times the damages for voluntary and immediate self‐reporting of fraud) and civil penalties of $6,000 to $12,000 per violation in addition to attorneys fees and costs. •
NY AG targeted Sprint for alleged underpayments of over $100 million in sales tax. If successful, the case could net the state more than $300 Million
New York vs. Sprint Nextel
•
Statute of Limitations
•
The New York False Claims Act includes a ten year statute of limitations
NYS FALSE CLAIMS ACT
Case Withdrawal
•
•
New York False Claims Act allows for a whistleblower and his/her New York qui tam lawyer(s) to withdraw his/her case in secret if the government declines to intervene.
Under the federal False Claims Act, once the government declines and the case is unsealed the whistleblower cannot withdraw his/her case under seal
Anti Retaliation
•
•
The anti‐retaliation protections in the New York False Claims Act covers current and former employees, agents and contractors and the person does not have to file a qui tam law suit to be protected. The New York False Claims Act also contains anti‐
blacklisting provisions
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2013 YEAR END INCOME & ESTATE/GIFT TAX PLANNING
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NYS PASS‐THROUGH ENTITY AUDITS
NYSPTEauditsare
directedatindividual
partner/member,and
notattheentity
Therefore,ifthereare
changes,other
partners/membershave
nowayofbeinginformed
GAIED CASE
• Facts: Gaied domiciled in NJ prior to 2004
• Owns and operates a auto repair station in Staten Island
• In 1999 buys 4 unit apartment building and rents to his parents on the ground floor
• He sleeps there occasionally to help out with medical appointments, etc.
• He does not have a room, sleeps on the couch and does not keep personal items at home
WithumSmith+Brown, PC ▪ Certified Public Accountants and Consultants
72
72
withum.com
[ 72 ]
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2013 YEAR END INCOME & ESTATE/GIFT TAX PLANNING
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GAIED CASE
• Gaied ALJ agreed with the Department
• Tribunal I was for the taxpayer
• Tribunal II reversed and caused chaos
• Supreme Court agreed with Tribunal with dissents
• Appeals Court again for State with dissents
• Appellate Court reverses with remand for more proceedings
WithumSmith+Brown, PC ▪ Certified Public Accountants and Consultants
73
73
withum.com
[ 73 ]
GAIED CASE
• Ownership by itself does not, by itself create residency
• Application in other parent cases
• Application for the college student
• Application in vacation home in Hamptons, Catskills, Adirondacks for New York City worker
WithumSmith+Brown, PC ▪ Certified Public Accountants and Consultants
74
74
withum.com
[ 74 ]
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Questions or Comments?
38

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