Focus on Wyoming
This month, we take you to the western mountain region of our country. Wyoming’s natural beauty and mountain ranges offer a sense of adventure, and perhaps a sense of rugged courage that surrounds you with the Western spirit. Popularly known as “The Equality State” and “The Cowboy State”, Wyoming is the least populous state and the 10th largest state by area in the country. The state is also the 2nd most sparsely populated after Alaska. It was named after a Native American word “mscheweamiing” meaning “at the big flats” or “Large plains.”
How to Apply for PPP Loan Forgiveness
In last week's blog, we discussed the continuing confusion surrounding the deductibility of eligible expenses by small businesses who have received loans through the Paycheck Protection Program (PPP). While that situation has yet to be fully resolved, another aspect of the PPP program, applying for loan forgiveness, is a bit clearer cut.
You might ask, "why are you writing about the PPP loan forgiveness in a multistate tax blog?" The answer is simple. One of the things we are proudest of, in our state tax consulting space, is that we too, are a small business. And we've had first-hand experience in working through the complexities of this process. We felt it was important enough from a national small business perspective to warrant some dedicated space!
Loans through the PPP are applicable for forgiveness, but to be forgiven, the funds must be used to cover the following:
- Payroll costs, including benefits (up to $15,385 per worker)
- Interest on mortgage obligations, entered into before February 15, 2020
- Rent, under lease agreements in force before February 15, 2020
- Utilities, for which service began before February 15, 2020
In addition, employee and compensation levels must be maintained, or employees must be quickly rehired. Plus, no more than 25 percent of the forgiven amount may be for non-payroll costs.
To ensure small businesses owners will not be required to pay back large portions of PPP loans, it's important they calculate eligible expenses. In the weeks since the implementation of the PPP, many business owners have anxiously awaited further guidance regarding the application process and exact information regarding calculating loan forgiveness.
On May 15, the Treasury Department and the Small Business Authority released a Loan Forgiveness Application, which includes instructions and additional information for business owners.
By following the directions as described in the application, business owners will be able to calculate their forgiveness amount and submit required documentation.
Keeping accurate records regarding total eligible costs during the 8-week covered period after receiving loan funding is critical to securing loan forgiveness.
The main considerations for loan forgiveness are:
- The amount of funds used for eligible payroll: If payroll equates less than 75 percent, loan forgiveness will be reduced.
- Average Full-Time Employees (FTE): If the average weekly number of full-time employees during the covered period of the PPP loan was less than either Feb. 15 - June 30, 2019 or Jan 1 - Feb 29, 2020, loan forgiveness may be reduced. Seasonal employers can use a consecutive 12-week period between May 1 - Sept. 15, 2019.
- Salary and hourly wage reductions: If salary or hourly wages of certain employees during the covered period was less than from Jan. 1 - March 31, 2020, the amount of loan forgiveness may be reduced.
- Full-Time Employee Reduction Exceptions: Good-faith, written offers to rehire employees during the covered period that were rejected, or employees who were fired for cause, voluntarily resigned or voluntarily requested a reduction of hours will not count against loan forgiveness.
In addition to filling out the form and submitting it to their lender (or the lender servicing their loan), small business owners will be required to submit supporting documentation detailing payroll costs, FTE information and details verifying obligations for mortgage interest payments, rent or lease payments and business utility payments.
If you have questions regarding the PPP and loan forgiveness, please contact us today. We're happy to clarify any multi-state or PPP/CARES tax issues you're trying to navigate.
The Miles Consulting team is wishing you and your family continued good health and safety in these trying times.
Do You Know If You Can Deduct Expenses with a PPP Loan?
It’s been nearly a month and half since the Coronavirus Aid, Relief, and Economic Security Act (CARES) established the Paycheck Protection Program (PPP). In the time since, countless businesses across the country have applied for aid. Congress has also passed the Paycheck Protection Program and Health Care Enhancement Act, which added an additional $320 billion in funding after the first $349 billion was allocated.
During this time, there have been various criticisms of the program, with many questions coming from small business owners. Many tax experts and economists also have unanswered questions regarding the program. One of the most asked questions is, will small businesses who have received PPP loans be allowed to deduct expenses?
Deductibility For PPP Expenses
While the CARES Act does contain language that specifically excludes loans forgiven under the PPP from being taxable income at the federal level, it also conflicts with other areas of tax code, which initially led to confusion amongst small business owners and tax officials alike.
Specifically, Section 265 of the tax code states that businesses cannot deduct expenses associated with tax-free income. This creates conflict because tax-free loan forgiveness without deductions is the same as allowing deductions when forgiven loans are treated as taxable income.
Following the initial confusion, the IRS issued a notice on April 30 which said small businesses couldn’t deduct expenses if they receive a PPP loan. Specifically, it states that deductions are not allowed “for an expense that is otherwise deductible if the
payment of the expense results in forgiveness of a covered [PPP] loan…”
However, on May 5, lawmakers introduced S.3612, a bill which, if passed, would enable small businesses to deduct expenses, effectively invalidating the IRS notice.
Also on May 5, several sponsors of the bill sent a letter addressed to Treasury Secretary Steven T. Mnuchin, in which they noted that the guidance from the IRS on April 30 is contrary to Congressional intent when the PPP was created.
In the letter, the sponsors stated “Providing assistance to small businesses, only to disallow their business deductions… reverses the benefit that Congress specifically granted by exempting PPP loan forgiveness from income.”
The bill was referred to the Committee on Finance for further consideration.
In the meantime, the guidance from the IRS stands, and until the fate of S.3612 is decided, small business owners will need to keep that in mind moving forward. However, the ultimate answer to the question of deductibility is still left unanswered.
And, if you think it’s unclear at the federal level, the next question is – how will the states treat the deductibility issue? Stay tuned. Hopefully once the dust settles and a decision is reached at the federal level, the states will weigh in on guidance. We expect it to be a mixed bag, with some states conforming to federal rules, and others not.
Do You Have Questions About the PPP?
As developments for the CARES Act and PPP continue to come, we will be keeping a close eye on the situation and will be providing updates as the situation continues to evolve.
If you would like to know more about pending legislation regarding the PPP and how it could impact your business, please contact us today. We’re happy to clarify any multi-state or PPP/CARES tax issues you’re trying to navigate.
As always, we wish you and your family continued good health and safety.
CDTFA Amends its "Collection of Use" Tax Regulation—Part 2
Use Tax" Regulation?
If you’ve been following along with our blogs, you know that we talked about some new amendments taking place under California Sales and Use Tax Regulation 1684, “Collection of Use Tax by Retailers”. In the first part of our blog, we discussed how California implemented on April 1, 2019 an economic nexus threshold for retailers in addition to the longstanding physical nexus threshold. The State now requires out of state sellers to register and collect use tax in California as soon as they exceed $500,000 of sales of tangible personal property in either the preceding or current calendar year.
CDTFA Amends its "Collection of Use Tax" Regulation
The CDTFA has updated an important regulation; one that affects all out of state retailers selling to customers in California. California Regulation 1684, “Collection of Use Tax by Retailers,” is not a new regulation, but it is one that needed many updates due to the Wayfair case. The CDTFA recently received approval from the Office of Administrative Law to publish the revised regulation.
In this two-part blog we will address the most important changes to the regulation. In this first blog we will discuss an out-of-state retailer’s registration and collection requirements in California. In the second blog we will discuss when an out-of-state retailer is no longer required to hold a California use tax permit (Certificate of Registration – Use Tax).
Wayfair Bills Are On the Horizon Despite Disruptions
As a result of the COVID-19 pandemic, many states have postponed legislative sessions due to health concerns and to abide by current social distancing recommendations from the Centers for Disease Control and Prevention (CDC).
However, despite these disruptions, lawmakers from several states are still prioritizing legislation related to South Dakota v. Wayfair, which established precedent for economic nexus. These states have been late to the table on such legislation or clarification.
After the Wayfair ruling, the Kansas Department of Revenue (DOR) stated all remote sellers, regardless of size, would be required to collect sales and use taxes starting October 1, 2019. However, as described by Avalara, the Kansas Attorney General determined the Kansas DOR does not have the authority to implement such requirements without providing safe harbor for small sellers. In response, the Kansas DOR disagreed, leaving remote sellers without clear guidance.
In an effort to provide additional direction and address the taxation of digital sales, Kansas lawmakers have introduced two bills.
HB 2537, introduced in January 2020, would require remote sellers to make $100,000 in gross receipts from sales for sales tax nexus to kick in, effectively providing safe harbor for small sellers and putting Kansas more in line with many other states.
Another bill introduced in January 2020, HB 2513, would require marketplace facilitators to collect and remit sales, use and transient guest taxes from sales made through their platforms. The bill would also remove click-through nexus provisions.
Louisiana's economic nexus provisions will go into effect no later than July 1, 2020, but the state's lawmakers have only recently moved to introduce marketplace facilitation legislation. The bill, S.B. 138, would require marketplace facilitators who either have $100,000 of in-state sales or 200 total in-state sales to collect and remit sales and use tax on behalf of marketplace sellers using the facilitator's platform.
If passed, the law would become effective Jan. 1, 2021.
In September 2018, the Mississippi DOR issued guidance which required remote retailers to collect and remit sales and use tax, with a sales threshold of $250,000. A recent bill, H.B. 379, would require marketplace facilitators to do the same for third-party sales made through their platforms.
If passed, the law would become effective July 1, 2020.
As one of two states with a general sales tax that are currently without economic nexus legislation, Missouri is now making strides to change that. In December 2019, lawmakers prefiled SB 529, which if passed, would require remote sellers and marketplace facilitators who make $100,000 or more in sales to collect and remit sales and use taxes.
If passed, remote sellers would be required to remit sales and use taxes Oct. 1, 2020. The portion of the bill impacting marketplace facilitators would go into effect Jan. 1, 2022.
Florida joins Missouri as the second state with general sales tax but has yet to implement economic nexus. In August 2019, lawmakers filed SB 126, which would have implemented provisions to require remote retailers with more than $100,000 in retail sales, or 200 or more retail sales, to collect and remit sales tax. However, in March 2020, that bill died in appropriations.
At this time, there has been no other economic nexus legislation proposed.
We are keeping a close eye on the continuing economic impact of the COVID-19 pandemic and will be providing updates as the situation continues to evolve.
If you would like to know more about pending legislation regarding economic nexus or marketplace facilitators and how it could impact your business, please contact us today. We're happy to clarify any multi-state tax issues you're trying to navigate.
Otherwise, we wish you and your family continued good health.
Focus on New York
In honor of solidarity and the fact that our hearts go out to the many New Yorkers who have lost their lives in the COVID-19 pandemic, we decided to focus this month’s State of the Month on the Northeast state of New York. It was one of the original 13 colonies that formed the United States. It is the fourth most populous state and is the 27th largest. The state and city (New York City) were both named for the 17th-century Duke of York, the future King James II of England. New York City is a global city home to the United Nations Headquarters, and has been described as the cultural, financial, and media capital of the world, as well as the world’s most economically powerful city.
What You Need to Know About COVID-19 Federal Tax Relief
Over the last three months, COVID-19 has grown to affect almost every aspect of daily life. From shelter-in-place mandates to the millions of workers currently out of work, we've all felt the impact.
As a small business ourselves, we understand that this is a time of financial crisis for so many similarly-sized businesses across the country. If you are a small business owner looking for answers, please keep an eye on this blog. We will continue to provide you with in-depth analysis of the changing situation and what it means for you and your business.
So far, we've provided a look at COVID-19 related state tax relief and what state taxes may look like after the crisis subsides. (Check out our recent blog on some sales tax relief being offered by the state of California.) We'll now dive into federal tax relief and how you can expect to be impacted.
The CARES Act, signed into law by President Trump on March 27, offers $2.1 trillion in aid to individuals and businesses.
As part of the act, employers may claim a 50 percent tax credit on the first $10,000 of qualified wages paid to employees from March 13 to December 31, 2020. Qualified wages include wages of employees who were either furloughed or whose hours have been reduced due to COVID-19.
Employers must either experience a full or partial suspension due to governmental actions related to COVID-19, or experience a 50 percent decline in gross receipts during a calendar quarter when compared to the same quarter in the previous year.
For businesses with over 100 employees, the credit can only be applied towards payroll of employees who are unable to work due to a business suspension, or lack of business.
However, it's important to note that employers may not receive the above tax credit if they participate in the Paycheck Protection Program, as outlined below.
Also, under the CARES Act, $349 billion in COVID-19 relief funds have been set aside for small businesses.
As of April 3, small businesses and sole proprietorships can apply for and receive forgivable loans in order to meet payroll and certain other expenses through an existing SBA lender. Independent contractors and self-employed individuals will be able to apply for the same program starting April 10.
According to the U.S. Department of the Treasury, all businesses, including nonprofits, veterans' organizations and Tribal business concerns with 500 or fewer employees can apply. In certain industries, businesses with more than 500 employees will be able to apply if they meet SBA employee-based size standards.
The program is open until June 30, so it's important to begin the application process as soon as possible. To apply, you will need to complete the Paycheck Protection Program loan application and submit it with required documentation to an approved lender that can process your application by June 30.
The Treasury Department has said funds from these loans can be used towards:
- Payroll costs, including benefits
- Interest on mortgage obligations, incurred before February 15, 2020
- Rent, under lease agreements in force before February 15, 2020
- Utilities, for which service began before February 15, 2020
Loan amounts are applicable for forgiveness as long as the funds are only used to cover payroll costs, mortgage interest, rent and utility costs over the eight-week period the loan is made, AND if employee and compensation levels are maintained. At this point, it is anticipated that not more than 25 percent of the forgiven amount may be for non-payroll costs.
More information on the size of available loans and forgiveness can be found on the Treasury Department website.
Note that as we've been researching this program and speaking to bankers, a few nuances come to light. If you bank with a large institution (Bank of America, Chase, and Wells Fargo, to name a few), you must generally apply online and the determination of funding is not made at the branch level. Also, most banks recommend that you first apply with the bank you generally use for checking or other lending. Because of the high demand for these loans, banks are expected to cater to their existing customers first.
As small business too, we are particularly interested in the PPP loan as it provides short term funding for payroll and rent, and as mentioned above, is likely to be largely forgivable.
As the economic impact of COVID-19 continues to evolve, we are keeping track of daily updates and will keep you informed.
If you have specific questions about COVID-19 federal tax relief, CARES or the Paycheck Protection Program, and of course, state tax matters, please contact us today and we can clarify any aspects you're trying to navigate.
In the meantime, from the Miles Consulting family to yours, we wish you continued safety and health during these turbulent times.
California and Sales/Use Tax in These Challenging Times
In these challenging times we are all looking for help in so many ways.
So, we are pleased to share some good news for California businesses required to file sales and use tax returns.
On April 2nd, the State of California announced that it is providing the following COVID-19 sales and use tax relief:
State Tax After Crisis—The Long View
By now most, if not all of us, have had some change in their
life and daily routine as a result of the Covid-19 pandemic. While many of us
have lived through several national crises, during the course of my life, there
has been nothing quite like this. I
suspect that there could be more dramatic changes to come and we can only hope
and pray that the loss of life seen in other parts of the world do not happen
here.
Please indulge me as I reminisce a little. I started my career in 1984, which was just
as the country and the world started coming out of a recession. As a young staff, I saw the Savings and Loan
crisis resulting in the failure of almost 1/3 of the nation’s savings and loans
during 1988 – 1995. In February of 2000,
I moved to San Jose, California, just in time for the start of another
recession that resulted in the collapse of the dot-com bubble. That next year our country experienced the 9/11
attack. Then in late 2007 through June
of 2009 we had the “Great Recession” as a result of the subprime mortgage crisis. Thankfully, since then we have been fortunate
to enjoy a strong economy and seen growth worldwide. Many of those working today have never experienced
a true economic downturn or recession.
For the most part, the 2010’s were good.
