State & Local Tax - Income & Sales Tax, Nexus and Incentives

Size: px

Start display at page:

Download "State & Local Tax - Income & Sales Tax, Nexus and Incentives"

Franklin Floyd
7 years ago
Views:

1 State & Local Ta - Income & Sales Ta, Neus and Incentives 28 Alon Sherer, Senior International Ta Manager,

2 Agenda 1. Income / Franchise ta Neus Trends Credits & Incentives 2. Sales Ta Neus Trends Eemptions 2

3 The world of state taes Gross Receipts Ta Income Ta Property Ta ABC & Co. Franchise Ta Payroll Ta Sales Ta Use Ta PwC

4 Business Taes 1

5 Neus Generally, neus is the minimum contact required before a state is able to subject an out of state company to states taes. If a company has neus in a state then the company needs to register, file and pay business taes (i.e. income/franchise/gross receipts). Neus is interpreted differently from state to state!! 5

If a company has neus in a state then the company needs to register, file and

6 Notable Activities Which May Create Neus Employees working in-state and travelling to other states to provide business activities Corporate office space (owned or rented) Ownership of inventory, including consigned inventory Ownership of a warehouse Ownership of capital equipment, land or other assets General or limited interest in a partnership doing business in a state (i.e. partnership with rental properties) 6

consigned inventory Ownership of a warehouse Ownership of capital equipment, land or other assets

7 Protected Activities for Income Ta In-state solicitation - activities of employees engaged in interstate commerce are limited to solicitation of sales of tangible personal property, provided that the employees send the orders out of state for approval and processing. De-minimis varies from state to state 7

sales of tangible personal property, provided that the employees send the

8 Neus impacts you in more ways than one It is important for a corporation to evaluate and determine neus for the following main reasons: Understating/overstating income ta liabilities Compliance cost Statute of limitations Permanent establishment (PE) vs. Neus FAS 109, FIN 48 Due diligence 8

Understating/overstating income ta liabilities Compliance cost Statute

9 Permanent Establishment vs. Neus Other key aspects to consider after assessing neus: State adoption of U.S. income ta treaties Worldwide Income vs. Water s-edge Income Eample: Co. ABC domiciled in Israel holds inventory on consignment in NY Israel Co. Israel Co. Federal Ta Effectively Connected Income NY/NYC Ta Worldwide Income 9

ate adoption of U.S. income ta treaties Worldwide Income vs.

10 State Income Ta Trends State Budget Deficits Source Mai, Chris; Oliff, Phil; and Palacios, Vincent, States Continue to Feel Recession s Impact." Center on Budget and Policy Priorities. 27 June 2012 < 10

11 State Taable Income (Ta Base) Federal Taable Income +/- State Adjustments Adjusted Federal Taable Income State Apportionment % State Taable Income (Ta Base) State Income Ta Rate State Income Ta Liability U.S. Ta Seminar 11

Apportionment % ----------------------------------------- State Taable Income (Ta

12 State of the States - Responses Combined Reporting More aggressive neus approaches Ta Base Changes - Decoupling from federal stimulus provisions - Related Party Addbacks - NOL Suspensions Apportionment Changes - Sales Factor Weighting - Market Based Sourcing Other Changes - Amnesty - Increase in State Ta Audits & Penalties Slide 12

Addbacks - NOL Suspensions Apportionment Changes - Sales Factor Weighting - Market

13 More Aggressive Neus Approaches Economic neus Many states no longer require physical presence (i.e., property or payroll) within the state to establish neus Companies which generate income from licenses, royalties and trademarks. Factor presence neus Generally, the state has a minimum threshold of receipts in order to be included in the economic neus regime. California sales eceed $500,000 and/or California sales eceed 25% of the company s total sales Connecticut, Colorado, Ohio, Washington 13

Factor presence neus Generally, the state has a minimum threshold of receipts in order to be included in the economic neus

14 Market Based Sourcing Apportionment Methodology Cost of Performance or Market Sourcing IL NY Single Sales Factor Single sales factor Market Cost of performance CA Eample: Double weighted sales factor OR single sales factor election Cost of performance (market if single sales factor elected) Service company located in New York provides services to customers located in Illinois. What is the effect on total state apportioned income? 14

sales factor election Cost of performance (market if single sales factor elected) Service company located in

15 Increase in State Ta Audits!! State ta audits are on the rise (sales ta, use ta, income ta) IRS and the state authorities are working together Transfer pricing adjustments being reported by states to IRS IRS audits adjustments must be reported to certain states within 30 days!! 15

and the state authorities are working together Transfer pricing

16 Credits & Incentives Credits CA MA NJ N Y N C PA R&D New Hire Investment Enterprise Zone 16

17 Sales Ta 2

18 Sales Ta - background Sales ta is a transaction ta, similar to VAT. A gross-basis sales ta is imposed by most states. Businesses which sell taable products and services are subject to state/city/county taes. Differs from Israeli VAT in that sales ta needs to be collected only when sold to the end user (e.g. retail sale). 18

Businesses which sell taable products and services are subject to

19 Determining Neus Broader definition than income ta neus. Physical presence Agency neus No protection for mere solicitation activities!! What is the current trend? Affiliate neus Click-Through Neus 19

20 Importance of Determining Neus Similar to income ta Companies are over-looking state filing requirements - it is not always possible to go back to the customer for uncollected sales ta!!! 20

21 Trends Click-Through Neus Amazon Law Vendor presumption (solicitation through online links) New York state residents provided (paid) online links to Amazon s website, which New York customers accessed when purchasing products. Amazon was deemed to have click-through neus in New York. Roughly 20 states have proposed similar type laws, so NY s ultimate decision can have a significant impact 21

22 Remote Seller Reporting Requirements State legislation already passed: Sellers without neus/not registered to collect sales ta to notify purchasers of use ta obligation Colorado, North Carolina, Oklahoma, South Dakota, Vermont As a purchaser are you currently paying use ta? Federal legislation being considered: Standardize the taation of remote sellers Standardize the taation of digital goods (conformity for electronically delivered goods and their tangible counterparts) 22

23 Taation of Emerging Technologies The evolution: Electronically Downloaded Software Digital Products Cloud Computing Software as a Service (SaaS) TPP or Service? 23

24 Trends Taation of Digital Goods What is a digital good? Tangible Personal Property Data Processing Information Services Telecommunications/Ancillary Services Software Why does it matter? Need to know what it is before we can determine how it will be taed States moving toward taation of digital goods as new revenue source 24

25 Classification of SaaS States are taking different approaches to cloud computing, mainly SaaS at this point. Electronically delivered software Non-taable information or data processing service Taable information or data processing service Nothing: state does not ta electronically delivered software or information/data processing services PwC Slide 25

26 Sales Ta Eemptions Do you qualify for an eemption from collecting sales ta? Wholesale Goods Ta-Eempt Service Ta-Eempt Customer Qualified Medical Equipment Qualified Manufacturing Equipment Software delivered electronically vs. on a tangible medium 26

27 Scope and Limitations The information contained in this presentation is for general guidance on matters of interest only. As such, it should not be used as a substitute for consultation with professional ta advisors. This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding any U.S. federal, state or local ta penalties. Circular 230: this document was not intended or written to be used, and it cannot be used, for the purpose of avoiding U.S. federal, state or local ta penalties that may be imposed on the tapayer. 27

28 Thank you! Alon Sherer, International Ta Manager, Kesselman & Kesselman. All rights reserved. In this document, refers to Kesselman & Kesselman, which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. Please see for further details. helps organisations and individuals create the value they re looking for. We re a member of the PwC network of firms with 169,000 people in more than 158 countries. We re committed to delivering quality in assurance, ta and advisory services. Tell us what matters to you and find out more by visiting us at This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. It does not take into account any objectives, financial situation or needs of any recipient. Any recipient should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (epress or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the etent permitted by law, Kesselman & Kesselman, and any other member firm of PwC, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it, or for any direct and/or indirect and/or other damage caused as a result of using the publication and/or the information contained in it.

The material appearing in this presentation is for informational purposes only and is not legal or accounting advice. Communication of this

State Tax Update The material appearing in this presentation is for informational purposes only and is not legal or accounting advice. Communication of this information is not intended to create, and receipt