Posts tagged Tax
Sales Tax Exemption Change for Nonresidents: Effective July 1, 2019

In May of 2019, Governor Jay Inslee signed Senate Bill 5997 into effect, which changes the way Washington businesses handle and collect retail sales tax for nonresidents.

Beginning July 1, 2019, businesses who make retail sales of tangible personal property, digital goods, and digital codes must collect sales tax from all consumers at the point of sale, regardless of residency. Under the prior law, nonresidents were exempt from the sales tax on such items and businesses were not required to collect sales tax from these consumers. Under the new law, the exemption is eliminated and nonresident consumers must pay sales tax at the point of sale, but instead may request a refund from the Department of Revenue once a year for the state portion of the sales tax they paid in the prior year.

Note: Purchases of items and services that are substantially used or consumed within Washington are ineligible for the refund. Additionally, sales tax exemptions on sales of vehicles and trailers, watercraft, and farm machinery or implements have different requirements.

What You Need To Know:

  • Sellers: Beginning July 1, 2019, retailers must collect retail sales tax from nonresidents when the nonresident takes delivery of the merchandise at a Washington location.

  • Buyers: Qualified nonresident consumers must pay retail sales tax at the point of sale in Washington. Retain your receipts and submit an annual refund request with the Department of Revenue beginning January 1, 2020 for a refund of taxes paid on qualifying purchases in the prior year. The refund request must be at least $25.00.

For additional information, refer to the Washington Department of Revenue (DOR) Special Notice or the DOR website.

Looking Through The Crystal Ball at Tax Reform

With every new administration comes a new approach to taxation and changes to deductions and credits.  The Trump administration has promised tax reform since the early campaign days, and his latest tax reform legislation does just that.  However, instead of highlighting what the legislation would alter if its adopted, this article focuses on what is likely to remain the same.   

With the latest administration in office, there may be changes to the tax breaks you have historically claimed on your tax returns.  While it's still unclear what tax laws will change, USA Today recently reported there are five tax breaks that remain unaltered in the current version of tax reform legislation:

  • Mortgage Interest Deduction

  • Charitable Contributions Deduction

  • IRA Contribution Deduction

  • Premium Tax Credit

  • HSA Contribution Deduction

Let’s take a more detailed look at each to get a better understanding of how you may be affected, relevance to the taxpayer, and how these deductions might help:

Mortgage Interest Deduction:  As its name reflects, the mortgage interest deduction is available to those who pay a mortgage and itemize their deductions.  While this deduction would not change, the proposed reforms to the tax laws may not leave enough itemized deductions intact to make itemization of deductions a viable option for most folks. Combine fewer deductions with raising the amount of the standard deduction, and relatively few taxpayers may bother itemizing under a revised system.  As a result, even though you might continue to qualify for a mortgage interest deduction, it may not make sense to take it because the standard deduction would be a better deal.

Charitable Contributions Deduction:  A certain percentage of charitable contributions are deductible under the current tax code and like the Mortgage Interest Deduction, this looks like it won’t change in the tax reform package.  Also like the mortgage interest deduction, charitable contributions are only available if you itemize your deductions.

IRA Contribution Deduction:  Contributions to IRAs are deductible under certain circumstances and at present, this non-itemized deduction would remain unchanged.

Premium Tax Credit:  Unsurprisingly, this credit is tied to the Affordable Care Act, which is very much unresolved at the present time.  This credit will still exist for low and moderate-income taxpayers who buy private health insurance, but changes are expected under the new plan. The proposed new version of the Premium Tax Credit would make it available to a wider range of income levels and the credit amount would increase with age, rather than with need. Additionally, the new premium tax credit won’t require taxpayers to buy health insurance policies on the ACA marketplace, as the current tax credit does.

HSA Contribution Deduction:  This is part of the tax reform plan that appears to be expanding in the healthcare reform package. If approved, annual contribution limits would increase to nearly double what they are right now. HSAs would become a payment option for every health insurance policy, instead of just for special HSA-enabled plans. Lastly, the healthcare reform package would expand what qualifies as medical expenses for the purposes of HSA spending.  If this tax reform legislation passes as-is, it would make sense to increase HSA contributions. 

No one has a crystal ball to determine exactly what will be changed with the tax reform.

Of interest – and certainly water cooler discussion – is how these changes will impact you as a taxpayer, and when the changes will become effective. The only certainty right now is that changes will come, and it’s important for you to be informed.


Source:  USA Today ‘5 tax breaks President Trump won't kill’

Own A Family Business?

PROPOSED TREASURY REGULATIONS COULD COST FAMILY MEMBERS MORE MONEY

If you operate a family-owned business, transferring interests in that business to other family members for less than fair market value – by way of gift or below-market sale – could be more costly than you realize.

Here’s what can happen. If you, or a family member, transfers interests in your family-owned business, the difference between the actual market value of the interest and what the recipient pays for it is treated as a taxable gift. And any gift in excess of $14,000 ($28,000 if married), to any one recipient will affect the amount your estate can claim tax-free at death.  

Sound complicated? Well, it is. This is a key reason the advice of an attorney, well versed in tax law, is vital when you’re considering the sale of your business to family members. 

Currently, when these family business interests are assessed a market value, discounts are applied if the interest transferred is a minority interest.  These valuation discounts can reduce the value of assets owned by the business by as much as 65%, drastically reducing the value of gifts to relatives. That’s the essentials to the law at this time of writing. 

On August 4, 2016, the Treasury Department and the IRS released proposed regulations under IRC Section 2704 which, if finalized, will severely limit, if not eliminate valuation discounts for interests transferred in a family controlled entity.

The current regulation does little to limit restrictions placed on voting, redemption and liquidation; while the proposed regulations would cripple the ability of family-owned businesses to place restrictions on voting, redemption and liquidation. As a result, it would decrease allowable discounts on transfers of interests in family-owned businesses - and increase gift and estate taxes to the Transferor and their families. 

There are several areas of the regulations that will be changing and could affect your business. These include: 

  • Transfers Within 3 Years of Transferor’s Death that Result in a Lapse of Voting or Liquidation Right
  • Restrictions Imposed or Required by Law
  • Restrictions on Redemption or Liquidation
  • Non-family Member Owners’ Ability to Block the Removal of Covered Restrictions
  • Assignees

So what can you do as the owner of a family business? 

Well, first, take note of the timeline. This could take effect as early as January 1, 2017. If you are planning to transfer interests in your family’s business to other family members, make your transfers before the end of 2016. Our team of attorneys at JDSA will identify the interests affected by these proposed regulations, and help you effectively make your transfers, before the end of the year, ensuring a more favorable gift and estate tax outcome.  

To learn more about this topic, read the full article. To better understand how these proposed changes might affect your business and tax burden, call us today at JDSA Law.

Cannabis Business Woes: What if you can't pay?

The cannabis industry is walking a fine line between state legality and federal illegality; constantly having to navigate the uncertainty of changing governmental policies, rules and regulations.  Given that recreational cannabis is newly legal in only a handful of states, there is not a lot of history on which business owners can base decisions, which has resulted in unexpected expenses and in some unfortunate cases, failed business ventures.

What happens if you can’t pay the bills?  It turns out that bankruptcy is not an option, but negotiation with the IRS may be possible.

Typically, if a federal tax lien is levied against a business, it can have the debt discharged in bankruptcy. However, the United States Trustees office’s is taking the position that they do not have the ability to lawfully administer Chapter 7 or Chapter 13 bankruptcies if the debtor is part of a cannabis growing or selling operation.  In the case of In re Arenas, the taxpayers owned a marijuana production business in Colorado and filed Chapter 7 bankruptcy.  The Tenth Circuit granted the Trustee’s motion to dismiss the grower’s bankruptcy for cause and disallowed the grower from converting the bankruptcy from a Chapter 7 to a Chapter 13 due to the illegality of the crop.   The Court found that the Trustee could not administer the assets without violating the Controlled Substances Act, a federal law.  Similar cases have been dismissed in California on the same grounds. This ruling would likely apply to all businesses that are directly involved in the growing, processing or selling of cannabis.

If you are in the cannabis industry, you are unable to discharge a federal tax debt through bankruptcy, leaving the options of paying the debt in full or negotiating with the IRS as the only viable paths to discharging the debt.  One such method of negotiation is called an Offer in Compromise (often called an OIC).  In a recent Federal Taxes Weekly Alert, issued May 19, 2016, the IRS has stated that it will not reject marijuana businesses’ offers in compromise on public policy grounds.

If an individual or business has received notice that the IRS has assessed a tax deficiency, the taxpayer may (if it qualifies) issue to the IRS an OIC.  The IRS will only consider an OIC where: (i) the taxpayer can viably dispute all or a portion of the tax debt; (ii) the taxpayer cannot to pay the tax; or (iii) a compromise would promote effective tax administration because collection of the full amount of tax would cause economic hardship for the taxpayer, or compelling public policy or equity considerations provide a sufficient basis for compromising the liability.

The Internal Revenue Manual (IRM) Section 5.8.7.7.2 provides that if there are indicators showing that the taxpayer financially benefits from criminal activity, the case manager may reject an OIC on public policy grounds.  The recently issued IRS Alert clarifies that if the taxpayer otherwise meets the requirements for an OIC, the case manager cannot reject the OIC just because the taxpayer is involved in a cannabis business so long as the business is legal under state law.

This Alert may seem small, but it is a step toward legitimizing cannabis businesses at the federal level and may be a sign for things to come.