Monthly Archives

September 2012

Sep 14
0

Tricky New York Sales Tax on Capital Improvements

By | Contractor/Repair Services, Tax Audit

The NY Department of Finance issued an updated Bulletin on the application of New York sales tax to capital improvements.  New York, as expected, makes this a challenging element for sales tax administrators to deal with.

In general, capital improvement projects are not subject to sales tax.  These must meet the following 3 tests: (1) substantially adds to the value of the real property, (2) becomes par of real property or is permanently affixed to real property, (3) is intended to become a permanent installation.

If the project qualifies as a “capital improvement” the contractor must obtain form ST-124 from the customer or be able to defned the nature of the project as a capital improvement.  If the item is a capital improvement, tax is paid by the contractor on the items purchased and no tax is collected from the customer.

If the project is not a capital improvement but is a “repair”, then the project is taxable on the materials and the labor charges. 

If out-of-state vendors are working in NY and are doing work that does not qualify as a capital improvement and they have paid tax on the materials used, then there could be significant tax implications and double taxation related to materials.   Be sure to carefully identify the nature of the projects you perform in NY to determine whether they are taxable repair services or nontaxable capital improvements.

Ned Lenhart, CPA
President

 

 

Sep 11
0

State Budge Gap Persists-Taxpayers Beware!

By | Tax Audit

According to the Center on Budget Policies and Priorities, 31 states are projected to have a $55 billion revenue shortfall for fiscal 2013.  This is smaller than in the past, but it is still extremely large by historical standards.  This short fall is likely caused by a revenue shortfalls from the slow economy and increased spending needs on current state projects and those projects where federal funding has ended and the states are not expected to pick up the tab themselves.  The states with the most significant shortfalls are California, Nevada, Oregon, Texas, Minnesota, and New Jersey.  Other suffering states include most of the east-coast and New England area.  Also hard hit is Arizona.

So what does this mean to you?  If you are in these states you can expect to see higher taxes and more cuts in state services.  You can also expect to see more audits and more assessments of tax.  You should also expect to see an expansion of the sales tax base to include the taxation of more services and also an uptick in state tax audits.

I’ve been talking about revenue shortfalls for the past 5 years and there is scant evidence to suggest that the situation is improving at all.  If we hit another recession in 2013 or the economy continues to grow at the anemic rate of 1.5%, then we are in for a very long and painful state revenue shortfall.  This will continue to put pressure on state legislatures and audit groups.

Ned Lenhart, CPA
President

Sep 06
0

Pennsylvania Rules on “click-through” Nexus

By | Sales Tax, Uncategorized

On August 28th, the PA Department of Revenue ruled that the presence of an instate affiliates will not create nexus for the out-of-state seller unless there is a commission paid by the out-of-state seller for the services performed by the in-state affiliate.  This is especially true where the commission is based as a percentage of sales.   While the state is trying to tie this “commission based” nexus rule to the recently passed Amazon laws in other states, the truth of the matter is that any commission based agent will create nexus for the out of state principal.  

There may be a lot of internet sellers who are only monitoring the development of the “Amazon” legislation and are not really paying attention to the traditional nexus rules.  These would include the presence of property in a state.  In many situations, the out-of-state e-tailers use Amazon and other “fulfillment” centers for delivery of goods that are ordered.  In these cases, the e-tailer may actually ship property to the fulfillment center and then pay a fee for fulfillment.  The presence of this property in the state will, in most cases, create nexus in most state and create a sales tax collection responsibility for all the sales shipped to that state by the e-tailer regardless where they were shipped from.

Ned Lenhart, CPA
President

Sep 04
0

Successor Liability for Income Tax-Buyer Beware!!

By | Sales Tax, Uncategorized

In the September edition of the Journal of Accountancy, the section entitled “From the Tax Adviser” ventures into the world of sales tax and the concept of successor liability for income and franchise tax.  I’ll confess that this was new to me.

In his article, the Editor notes that Illinois and Pennsylvania have provisions that the buyer of assets can succeed to the income tax liabilities of the seller when a “major part” of the business is purchased.  To avoid this liability, the buyer must notify the state that the bulk-sale is occurring. 

These provisions sound similar to the sales tax bulk-sale notifications which are mostly ignored in every M&A deal I’ve ever been involved with.  Rather than go through the pain of getting tax clearances from the states, most sellers and buyers just work out a hold-back or escrow of the taxes due.  Speaking of sales tax, the purchase of assets will make the buyer the successor to the seller’s known and unknown sales tax liability.  If due diligence is not conducted, these issues can be significant.

Ned Lenhart, CPA
President