The M&A Ballet as Related to Employment Tax
Thank you to our guest blogger, Peter Del Monaco, for his second installment about employment tax matters – this time related to a merger/acquisition transaction. Click here for Peter’s previous article.
Employment Tax Refunds, Mergers & Acquisitions
The occurrence of a merger, acquisition or divestiture can significantly impact a company’s employment tax liabilities and affects many within an organization. Favorable employment tax attributes of an acquired or merged entity often may be preserved, and refund opportunities may exist as a result of prior mergers, acquisitions, and/or divestitures. However, many employers often overlook these issues for a host of reasons - registration at the state and local level, ensuring that the new employees receive their paychecks in a timely fashion and that their benefits are accurately carried forward.
Happy Thanksgiving!
With the holiday season officially kicking off, we’d like to take a minute to stop and reflect on the many things we’re thankful for – both business and personal as we head into a long weekend with loved ones.
Thank you, Clients! Whether you’ve been a client for ten years, ten months or ten days – we appreciate the trust you’ve placed in us to consult with you on your state tax needs. We enjoy the collaboration on your important transactional tax matters and always endeavor to get you to the best answer for your situation. And hope that we all enjoy the process (What? Enjoy sales tax?) as we work together to get there. It’s the best of all worlds when your client also becomes a friend!
Thank you, Miles Consulting Team! It’s a wonderful thing to have a team of smart, energetic and fun people to work with every day. Behind every successful project delivered to our valuable clients is a team of dedicated people making it happen. As a firm owner and founder of this company, I know I speak for my partner, Bill, as well when I say that we couldn’t be prouder of the group we have been lucky enough to pull together and keep together. Our firm will celebrate 20 years in business early next year…a little Silicon Valley success story.
Are You A Marketplace Facilitator? Important Things You Need To Know
As the preference for online shopping continues to expand, many states have passed marketplace facilitation legislation. Since legislation does vary state to state, it is important to be prepared and understand your tax obligations as a marketplace facilitator. In this article we will break down areas that our marketplace facilitator clients have difficulties with and how we are able to help them. But first, let's start with the basics. How do you know if your organization is a marketplace facilitator (or "MPF")?
What Is A Marketplace Facilitator?
The first step to determine if you are a marketplace facilitator is to have a clear understanding of what a marketplace facilitator is.
As explained by TaxJar, a marketplace facilitator is a business that contracts with a third party (a "marketplace seller" or "MPS") to sell goods or services on its platform. Amazon and Etsy are two examples of well-known marketplace facilitators. Marketplace facilitation tax compliance can get tricky because sales tax obligations for MPFs vary by state. Avalara shares a helpful guide to marketplace facilitator legislation to help you get to know the basics. In its easiest definition, an MPF brings together buyers and sellers on its own platform, but does not generally take title to the inventory being sold.
We include here some definitions from California's marketplace facilitator statutes, to show the technical aspects of the law. Many states have similar criteria to California's.
- Effective Oct. 1, 2019, marketplace facilitators are considered the seller and retailer for each sale they facilitate through their marketplace and must register and collect sales tax.
- Marketplace facilitators are required to register and collect tax if they actively sell tangible personal property in the state, are a retailer engaged in business in the state, or have an economic nexus with California. In determining whether the marketplace facilitator has sufficient nexus with California, the facilitator must include both sales it facilitates and sales made on its own behalf. (Note that nexus creation is important - it can be created by physical presence or economic nexus. For economic nexus purposes, CA requires a marketplace facilitator to make sales of $500,000 or more in a calendar year before triggering the filing requirement. But that includes all sales made to CA through the marketplace.)
- A marketplace is a physical or electronic place (such as a store, booth, website, catalog, television or radio broadcast, or dedicated sales software application) where marketplace sellers offer for sale tangible personal property, regardless of whether the property, seller, or marketplace has a physical presence in California.
- A marketplace facilitator is a person who contracts with marketplace sellers to facilitate, for consideration, the sale of the seller's products through a marketplace operated by the person or related persons, and:
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- directly or through one or more related persons: transmits the offer from the buyer to the seller; owns the infrastructure that brings buyers and sellers together; provides a virtual currency that buyers can or must use to purchase items from sellers; or certain software development or research and development activities related to its marketplace; and
- with respect to the seller's products: engages in payment processing, fulfillment or storage services; lists products for sale; sets prices; brands sales as those of the facilitator; takes orders; or provides customer service or accepts or assists with returns or exchanges.
The above definitions are important because they show how easily a company can fall into the marketplace facilitator role, simply by meeting just a few simple rules including providing the platform, facilitating the exchange of payment and providing customer service - which most such platforms do!
Real Client Examples
To bring some color to the marketplace facilitator story, here are some of the situations in which we've recently helped our clients regarding marketplace facilitation:
- A company provides a platform to match people requiring specific services with those who can provide the service, and needs assistance because some of the services provided through their platform are subject to sales tax, varying state by state.
- A platform that finds purchasers for gently used clothing needs assistance because clothing is generally taxable, but there are some exemptions.
- A company that matches sellers and buyers of specific manufacturing materials needs help because many of the sales on their website are not only through marketplace facilitators, but are also for resale.
- A company that provides a platform for people who have specialty equipment to lease needs assistance in determining the taxability of lease transactions across the states.
The challenge in all of these situations, is not just the structure of the sale or the nature of the product or service sold - it's that online marketplaces are by their nature multi-state and require even relatively small companies to be familiar with the laws of all the states. This is where we can help!
What Are Your Next Steps?
Once you determine whether or not your company is an MPF, what are your recommended next steps?
- Review state economic nexus rules to determine whether the threshold has been met (and when). Many states have a sales threshold of just $100,000.
- If nexus has been created, consider any prior exposure and quantify it.
- Determine a path for remediation of prior liabilities.
- Determine a plan forward for accurately collecting and remitting sales tax on sales made through the marketplace.
Do You Need Help With Your Marketplace Facilitation Tax Compliance?
If you find yourself in a similar situation, wonder how to tackle the "next steps" above, or have other marketplace facilitator questions, give us a call! We recommend that people new to marketplace facilitation legislation connect with professionals like Miles Consulting Group to make sure they are compliant with the MPF legislation in their state. We would be happy to help you and clarify any tax issues you are trying to navigate. Contact us today.
Focus on Louisiana
We travel south this month to Louisiana, the Pelican State. It is the 19th smallest by area and the 25th most populous of the 50 states. Louisiana is known for its soulful music, amazing food and rich heritage. The state’s multicultural background comes together in the form of festivities and lively interactions with the locals. Its annual Mardi Gras festivities and extravagant floats bring visitors from all over the world.
Much of the state’s lands were formed from sediment washed down the Mississippi River, leaving enormous deltas and vast areas of coastal marsh and swamp. These contain a rich southern biota; typical examples include birds such as ibises and egrets. There are also many species of tree frogs, and fish such as the sturgeon and paddlefish. In more elevated areas, there are extensive areas of longleaf pine forest and wet savannas. These support an exceptionally large number of plant species, including many species of terrestrial orchids and carnivorous plants.
What You Need To Know About Holiday Shopping And Online Sales Tax
Holiday shopping can be a time of mixed emotions for retailers. While they may be grateful for the increased sales the season brings, more purchases mean more sales tax responsibilities for them to worry about.
It has been over three years since the Wayfair online sales tax decision, and all states with a general sales tax have implemented some sort of economic nexus law. If they're not prepared, retailers, especially those without a dedicated accounting department, can be caught off guard by the additional online sales tax responsibilities days like Cyber Monday can bring.
Keep reading to learn more about how Wayfair laws affect Cyber Monday and the negative side effects online holiday shopping can have on small retailers.
Cyber Monday And Wayfair Laws
Now that all states with general sales tax legislation have enacted online sales tax laws as of earlier this year, there is concern that the increased tax burden may outweigh the benefits of increased online sales.
According to Adobe, Cyber Monday 2020 was the biggest online shopping day in U.S. history, with customers spending 10.8 billion dollars online. As the ongoing COVID-19 pandemic has seen many customers continuing to prefer online shopping, 2021 is expected to exceed these numbers.
So, what new tax responsibilities does this increased revenue bring to small companies?
The Impact Of Holiday Shopping On Small Retailers
With small businesses already dealing with the combination of extra tax liabilities resulting from the COVID-19 pandemic and Wayfair legislation, they may be overwhelmed even when it is not a busy holiday season. According to a recent study, 98 percent of accountants who responded believe that small businesses are not meeting all of the online sales tax laws they are liable for. At Miles Consulting Group, we are contacted every day by either middle market companies or smaller retailers who are not in full compliance with the responsibilities in each state.
A December 2020 study found that just 42 percent of small business owners felt they were completely compliant with Wayfair laws.
Small businesses may find themselves reaching nexus in states where they haven't before. As a result, they will now need to register to collect and remit sales tax in those states. In this case, being prepared ahead of time is crucial. If you are close to reaching nexus in a certain state before the holiday season officially begins, it may be beneficial to apply for a sales tax permit. Staying prepared and up to date is key to ensuring tax compliance. If you are a small business who needs extra help, consider reaching out to us at Miles Consulting Group.
Do You Need Help With Your Online Sales Tax Compliance?
If you have questions about your tax liability from online sales or have any other state sales tax compliance questions, please contact us today. We're happy to clarify any multi-state tax issues you're trying to navigate.
Guest Blog: Independent Contractors v. Employee Classification- Truth or Consequences
Thank you to Peter Del Monaco for this month’s guest blog. Companies sometimes contact us at Miles Consulting about multistate payroll related matters, and we then refer many of those requests to Peter, who specializes in such things!
Many employers, especially those small and midsized, are economically and professionally negatively impacted after undergoing a worker classification audit - federal or state. They are caught off guard and some have difficulty ever recovering from the financial impact. Independent contractor and/or worker classification audit defense is an area I spend much of my professional time and want to share with you what I have learned (“the truth”) over the years in order for you to perhaps eliminate (“ the consequences”) from a worker classification audit.
Happy Halloween! Are Popular Treats Affected By Sales Tax?
Halloween is just around the corner and while this year's celebrations are likely to be more subdued than usual, it's still a fabulous excuse to buy a few bags of candy, put on a scary movie and enjoy the spooky atmosphere. But what you might not know is that the amount you pay in sales tax for your Halloween treats (if you do at all) will depend on where you live.
Because states set their own regulations regarding sales tax, including what it's applied to and for how much, a bag of candy bought in one state may have a wildly different tax rate than it would in another state.
Keep reading to learn more about how sales tax on candy, and taxes on food in general, vary from state to state.
The Complexity Of Taxes On Food
Before we can get into the specific application of sales tax on candy, let's first talk about how taxes on food work in general.
Like many things, the taxation of food is complex. There are a variety of factors that influence its taxation.
To name just a few, these factors include:
- If food is considered a "necessity."
- If the item is considered "prepared food."
- If the item is sold hot or cold.
- Where the item is purchased from (e.g., a grocery store or a restaurant).
- If it's bought in person or online.
- If the food will be consumed in the location it was purchased from.
- The ingredients in the food.
When determining if a food item is taxable, the first question is whether food is taxed at a state level in that state at all? Some states consider food items a "necessity" and, in general, do not tax them, like Washington, Arizona and Wyoming. That said, even these states will have exemptions to this general rule and as a result, some food is still taxed.
For example, in Washington, "prepared food," "soft drinks" and "dietary supplements" are all subject to sales tax.
Other states do generally apply sales tax to food items, such as Alabama, Arkansas and Idaho. However, states that generally tax food may also make exemptions and not apply tax to certain items.
Another thing that may impact the taxability of the food you're purchasing (or selling) is where and how the food is being purchased. Some states that don't tax food in general will add tax if it's prepared by a restaurant or if it's bought from a grocery store or other retailer, but it's intended for immediate consumption (e.g., a sandwich from a grocery store deli).
To dive even deeper, sometimes the literal temperature of the food (whether it's intended to be a hot food item or a cold food item) will change its status as a taxable item.
Ordering takeout, especially through services like DoorDash and UberEats, can also result in changes to the taxability of the food items. Many states have yet to implement legislation that includes specific references to services like these and as such, the way current legislation is interpreted may vary state-to-state.
Will Your Halloween Candy Be Taxed?
Now that we've discussed the wildly complicated world of food taxes, let's get back to the original question of candy taxes.
If you've determined the state you're in does place a sales tax on food in the way that you're going to be purchasing (or selling) it, you can, generally speaking, assume that your Halloween candy will also be taxed.
That being said, some states, such as Wisconsin, North Dakota and New York, that do not tax food may have separate taxes on things like candy or exempt candy as a "non-necessary" food item.
The bottom line is that no two states have the same situation regarding the taxation of things like Halloween candy, and if you're planning on making a large volume purchase of these items (or selling them), it's important you have a thorough understanding of how taxes will be applied.
Do You Need Help With Sales Tax Compliance?
If you have questions about sales tax or state sales tax compliance, please contact us today. We're happy to clarify any multi-state tax issues you're trying to navigate.
Focus on Wisconsin
This month we travel north to the Badger State of Wisconsin, a Midwestern U.S. state with coastlines on two Great Lakes (Michigan and Superior) and an interior of forests and farms. Several beer companies are based in Milwaukee, and many offer brewery tours. The state is known as “America’s Dairyland” because it is one of the nation’s leading dairy producers, particularly famous for its cheese. Manufacturing, especially paper products, information technology (IT), cranberries, and tourism are also major contributions to the state’s economy.
Wisconsin’s geography is diverse having been greatly impacted by glaciers during the Ice Age with the exception of the Driftless Area. The Northern Highland and Western Upland along with a part of the Central Plain occupies the western part of the state, with lowlands stretching to the shore of Lake Michigan. Wisconsin is second to Michigan in the length of its Great Lakes coastline.
The highest natural point in Wisconsin isn’t a mountain- it’s actually a hill. Timm’s Hill is recorded at 1,951 feet. Due to Wisconsin’s mostly glaciated terrain, there aren’t a lot of craggy peaks. In exchange for leveling the landscape, glaciation has left the state with some of the most beautiful rolling hills, valleys, prairies and fertile farm fields.
Why Wayfair Legislation Is Helping States Survive The Pandemic
Last year was not an easy one for a variety of reasons, the ongoing pandemic chief among them. 2021 has provided some relief, but COVID's economic impacts are still being felt by individuals, businesses and governmental organizations across the country.
According to a pair of Harvard economists, the pandemic would have cost the U.S. "at least 16 trillion" if it ended this fall. Given COVID numbers are still high in many areas, it's safe to say the pandemic is not over and its true cost will exceed their estimate. By how much is yet to be seen.
That said, some states have weathered the pandemic better than initially feared. This is largely thanks to legislation adopted following the 2018 Wayfair decision which allowed states to collect additional tax from online purchases.
For an overview of the Wayfair decision and its impact on state tax legislation, click here.
Wayfair Legislation And COVID-19
So, how has the Wayfair decision impacted states during these turbulent times? The most significant way is the adoption of economic nexus legislation.
The pandemic resulted in an explosion of online shopping in the spring of 2020, and it's largely persisted since. Those states that have economic nexus in place, which includes every state that has a general sales tax and some jurisdictions in Alaska, have seen a drastic increase in tax revenue from online sales tax collections, especially as many retailers have triggered economic nexus in states they previously did not have nexus in.
The final hold out states, Missouri and Florida, finally implemented economic nexus legislation earlier this year and while we cannot say for certain how large of an impact the pandemic had on that decision, it certainly offered some amount of incentive.
States that have had economic nexus since before the pandemic also made changes to their own nexus legislation. Several states have either reduced or removed the sales or transaction thresholds for triggering nexus in their states within the last year (or have otherwise expanded the nexus net), including Arizona, Illinois, and Tennessee.
While these moves have increased state's revenue streams, it's only further complicated the already complex online sales tax situation, especially for small online retailers.
We expect additional change to come as states continue to search for additional sources of revenue to make up for what has been lost due to the pandemic, and the proven success of Wayfair laws make them a prime target.
In the meantime, businesses should be preparing themselves for any online sales tax changes that may come down the pipeline by ensuring they are compliant now and will be in the future. Being proactive can save you thousands (or more) in fees later.
Do You Need Help With Your Online Sales Tax Compliance?
If you have questions about your tax liability from online sales or any other state sales tax compliance questions, please contact us today. We're happy to clarify any multi-state tax issues you're trying to navigate.
New California Competes Grant Program
Since 2013, when California eliminated its statewide enterprise zone tax credit and incentive programs, we have been following the evolution of the California Competes Tax Credit (“CCTC”) program, which seeks to award tax credits to companies locating to or expanding within California. The program has had its issues, certainly. Not the least of which is that few companies have been able to take advantage of the program, either because they do not engage in the type of expansion necessary, or because they are not paying income tax due to excess net operating losses, tax credits (i.e.; Research and Development Credits) or other reasons.
For this fiscal year, the Governor has included in his budget a new grant program called the California Competes Grant Program (“CalCompetes Grant Program”), which promotes that it will allow more companies to qualify and utilize cash grant funds (as opposed to tax credits) in the name of expansion in the state. The goal of this new program is to make funds available to companies which could previously not qualify for the tax credit, but might be making the necessary investments and could benefit from the grant instead.
The primary goal of the CalCompetes Grant Program is to incentivize businesses to choose California for investment and to stimulate the creation of quality, full-time jobs in the state. California’s goal is to attract out of state companies to the state and/or to keep companies from moving elsewhere.
Details of the Program
According to the Governor’s Office of Business and Economic Development (GO-Biz), the first application period for this program will be from January 3 to January 24, 2022. This application period has a cap of $120 million, increased from $80 million.Interestingly, up to $36 Million may be available to a single taxpayer. One of the following criteria must be met for a business to take advantage of the CalCompetes Grant program:
- Will create at least 500 new full-time jobs in California,
- Will make capital investments of at least $10 million,
- The project will take place in a area of high unemployment and/or poverty as defined in the California Competes Tax Credit regulations.
There are several evaluation factors that are considered. A few of them include:
- Number of jobs created or retained,
- Training opportunities offered to employees,
- Compensation paid to employees, including wages and fringe benefits,
- Extent of unemployment and poverty in current or proposed site location.
- Amount of investment
- Extent to which the grant influences the creation of new CA jobs.
Please click here for short synopsis from the state (LINK to PDF). Note that additional information will be forthcoming in the next few months. The next application period will take place from March 7, 2022 through March 28, 2022. Increased from $71.1 million, $104.7 is estimated to be available plus any remaining amounts.
What Does the Future Hold?
If your business is considering investing in new, full-time jobs in California or contemplating relocating some or all of your operations, this grant program might be good for you. Stay tuned to our future blogs for further updates on this new grant program. We are here to help with all of your multistate tax needs. Call us today!
