Nevada Tax Law Changes
In 2015, Nevada’s legislature was busy enacting controversial legislation aimed at raising revenue in the state. These laws are yet another challenge for businesses.
Last year, Senate Bill (SB) 483 was signed into law by Governor Sandoval and became known as the “Commerce Tax.” This new law went into effect on July 1, 2015 and applies to businesses whose Nevada gross revenue in a taxable year exceeds $4,000,000. Under the law, a “business entity” is defined as a corporation (both S and C), partnership, LLC and sole-proprietorship (i.e., those who file schedule C), just to name a few. For a complete list of the business entities subject to the Commerce Tax, click here. Note that out of state companies are also subject to the Commerce Tax to the extent that they have nexus in Nevada.
This law was enacted a year ago, but the effects of it are now being seen by companies whose first Commerce Tax return is due for the year ended June 30, 2016. This tax must be remitted to the state within 45 days after the end of the taxable year (August 15, 2016). Companies may file an extension for 30 days, to allow them more time to comply with the new law. All Nevada business entities are required to file the return, even if total revenue is less than the $4,000,000 minimum.
Companies Looking to be Acquired: Why Worry About Sales Tax?
Although it may not seem like sales tax has much to do with mergers and acquisitions, the truth is, many deals have fallen apart because of multistate sales tax issues. Controllers and CFOs who have seen the process first-hand know how messy the acquisition process can be – particularly if the target company’s multistate tax issues (especially sales taxes) haven’t been addressed.
How Does Sales Tax Affect Mergers & Acquisitions?
As a company looking to be acquired, it’s important you work with a firm that specializes in this area; this can help you identify and mitigate some of the potential problems before the deal closes. If you’re considering an acquisition in the next year or two, we highly suggest a nexus, taxability and potential exposure review prior to a bigger company calling and performing their own due diligence. This is definitely a case where knowledge is power!
Why Should the CFO or Controller Care?
Although CFOs and Controllers have a lot of financial experience, dealing with all the sales tax rules is likely to be outside their wheelhouse. There are so many things to consider in an M&A deal, and making sure both parties are following all merger and acquisition provisions can be difficult – especially considering that not all states follow the federal standards. The sales tax consequences are often forgotten until the very end – when it may be too late to proactively deal with them!Read more
FOCUS ON IDAHO
This month, we travel west to Idaho, the 14th largest state in the U.S. Known for its mountainous landscapes, vast swaths of protected wilderness and outdoor recreation areas, Idaho is bigger than all of the New England states combined. Boise, the capital and largest city, is set in the Rocky Mountain Foothills and is bisected by the Boise River, a popular destination for rafting and fishing.
Although Idaho is best known for its great fishing, other outdoor recreational adventures attract people to mountain biking at the Schweitzer Mountain Resort, and jet boating on the Snake River. Rafting and Kayaking are also popular activities. Idaho is ranked number one in the U.S. and in the world for whitewater adventures by Outdoors Magazine. And for something on the calmer side, excellent golf courses await throughout Idaho. Idaho has more than 100 golf courses nestled amongst the gorgeous Idaho landscape.
Business Climate
Idaho is a prominent agricultural state. Nearly one third of the nation’s potatoes are grown in the state. Additionally, all three varieties of wheat are grown in Idaho: dark northern spring, hard red and soft white. But Idaho is more than outdoor recreation and farming. Some major industries include food processing, lumber and wood products, machinery, chemical products, paper products, electronics manufacturing, silver and other mining and tourism.
Recently, Idaho expanded its commercial base as a tourism and agricultural state to include the science and technology industries. Science and technology have become the largest single economic center (over 25 of the state’s total revenue) within the state and are greater than agriculture, forestry and mining combined.
Tax Climate
Idaho is the 10th highest of states in the U.S. that levy an income tax. Idaho’s individual income tax system consists of seven brackets with a top rate of 7.4%. Corporations based in Idaho must pay a corporate income tax at a flat rate of 7.4%. Among all of the states in the country, this corporate rate is the 19th highest.Read more
Celebrating a "Sales Tax Holiday!"
What if you could walk into a store, buy something and not have to pay sales tax because the whole state does not impose a sales tax? Believe it or not, in some states that does happen. Several states, mainly in the South and East, have these so-called “tax holidays.” These holidays are targeted at specific goods. As we discuss below, during tax holidays specific items are exempted from the tax, only in certain states, and these holidays occur only on limited days. Very little is uniform in the multistate tax world.
This is a hotly contested topic; the question up for debate is whether sales actually increase enough to offset the lost sales tax revenue. Researchers found that on sales tax holidays, households increase the quantities of clothing and shoes bought by over 49% and 45%, respectively to what they buy on average. However, evidence shows that these holidays simply shift the timing of these purchases and some retailers will actually raise prices during the holiday, reducing consumer savings.
How did Sales Tax Holidays begin?
Ohio and Michigan enacted the first state tax holidays in 1980, offering a tax holiday on automobile purchases. However, it was New York that, with the first tax holiday on clothing, sparked the interest in other states wanting to have state tax holidays. New York sought to combat ‘border shopping’ by administering tax holidays because New Jersey does not charge tax on clothing during the ‘back to school’ shopping season in late August. Border shopping is the concept of traveling to nearby states to take advantage of lower tax rates. Another example of multistate ‘border shopping’ is that Manhattan drivers cross the George Washington Bridge into New Jersey to buy gas at the small gas station at the end of the bridge because gas is dramatically cheaper in New Jersey.
Focus on Tennessee
This month, we travel to the south to Tennessee, the Volunteer State. Popular culture finds several well-known attractions in the state. Nashville is the country music capital of the world, and is home to the Grand Ole Opry. Memphis, in the far southwest portion of the state, is home to Elvis Presley’s Graceland and the blues clubs of Beale Street. Sun Records resides in Memphis, which is where Elvis Presley, Johnny Cash, Roy Orbison, Carl Perkins and Jerry Lee Lewis began their recording careers. The state also has an agricultural and business climate that many companies find very attractive.
Business Climate
Ranked among the top 10 destinations in the U.S., domestic and international tourism play a major role in the state’s economy. Tourists are flocking to the very popular Great Smokey Mountains National Park (the most visited state park in the U.S.), Graceland, the Ryman Auditorium, the Gaylord Opryland Resort, Lookout Mountain and the Tennessee Aquarium. With these attractions and others, tourism accounted for $17.7 billion of the state’s economy in 2014.
Other major industries include agriculture and manufacturing. 59% of the 82,000 farms supply cattle while soybeans are the major cash crop of the western portion of the state. Industrially, FedEx, AutoZone, International Paper and Volkswagen are some of the major corporations headquartered in Tennessee.
With its well-known low cost of living, Tennessee ranks ninth among states where people retire. In 2014, 3,368 people over the age of 60 migrated to Tennessee.
Tax Climate
Tennessee has a tax climate that is favorable to both your employees and your company.
A New Approach to Oregon’s State Taxes: IP28
The Oregon Legislature is proposing an interesting approach to state taxes. Initiative Petition 28, or IP28, is designed to raise more than $6 billion in revenue every two years for public education, health care and senior services. How? The petition would raise the state's business tax rate by creating a gross receipts tax on C corporations of 2.5 percent on sales above $25 million.
3 Positives to IP28
There are a few positives to this approach to state taxes.
- Analysis reveals that IP28 would reduce Oregon’s revenue from personal income taxes from the highest in the country (69 percent) to 55 percent.
- Because of increased tax revenues, it’s expected that employment in Oregon’s public sector would increase.
- Despite increasing state taxes for corporations, more than 28,000 companies would remain unaffected.
When do you Need Multistate Tax Consulting Services?
I was speaking with a marketing consulting colleague of mine not long ago and in trying to help me hone my approach for continually connecting better with my target audience, he asked me the seemingly simple question “How does someone know when they need your services?” Of course, that should be simple! I’ve been consulting for clients in this market space for many years. And yet, the circumstances when someone may need our services can vary. So, I thought I’d dedicate some time here to give examples of when CFOs, controllers or other accounting professionals might need my multistate tax consulting services.
Your Company is Expanding
Once your company begins doing business across state lines – whether that means setting up additional offices, hiring employees in other states or even just sending a salesforce out to call on clients in other states, or utilizing the services of independent contractors to perform installation, repairs or maintenance services – you are going to begin to trip into tax situations in other states. Read more
South Dakota and the Online Sales Tax Debate
Last month we discussed how two states, Louisiana and Alabama, are taking matters into their own hands regarding the online sales tax debate. Now another state, South Dakota, is forcing the issue.
South Dakota’s Case Regarding Online Sales Tax
If you recall from our previous posts about the online sales tax debate, states are frustrated that they can’t collect the revenue from purchases made via the internet, and retailers claim it’s too difficult to keep track of the wide variety of tax codes for every single state, county and municipality – especially for small internet retailers.
Instead of waiting for Congress to come to some sort of agreement, South Dakota has taken matters into their own hands by passing Senate Bill 106, allowing the state to collect taxes from sales made from online retailers - even if they don't have nexus within South Dakota itself. This challenges the 1992 ruling in Quill Corp. v. North Dakota, in which the U.S. Supreme Court ruled that only businesses with an actual physical presence in the state (or nexus) needed to collect sales tax from residents.Read more
Focus on Connecticut
For this state of the month, we remain on the East Coast to focus on Connecticut. The “Nutmeg State” is the third smallest state according to land size, but its population is actually bigger than 20 other states. Connecticut’s strength lies in its versatile workforce that are skilled in the fields of financial services, bioscience, and even in entertainment.
Business Climate
Connecticut’s business environment is often associated with high business costs and poor economic climate due to the slow recovery from the recession. On the contrary, the state has bright spots in which collaboration among sectors developed a solid foundation for doing business.
Among the state’s key industries are insurance services, bioscience and digital media. The state has rightfully claimed to be one of the major insurance capitals of the world. In the US alone, the state has generated the most jobs in the industry, producing over $16 billion in payroll. Aetna, Inc., The Hartford, The Travelers Companies are just a few industry leaders to call Connecticut home. Accordingly, Connecticut is also one of the healthiest states in America. It has one of the lowest obesity rates and a high number of dentists and doctors per capita.Read more
Rainmaking - The Value of the Next Client
If you’ve been following my Rainmaking blogs, you know that much of what we talk about is developing relationships that ultimately lead to becoming a trusted business advisor to both potential clients and referral partners. Why is it so important to engage in Rainmaking and pick up that next client? Well, aside from the obvious reason - that it leads to cash today, it will also likely lead to cash tomorrow. Once we build a relationship with a customer and provide good service, they will generally become a repeat customer and/or a good source of future referrals.
Customer Lifetime Value
This is where the concept of “Customer Lifetime Value” or “CLV” comes in. According to Wikipedia, in the technical sense, CLV is a prediction of the “net profit attributable to the entire future relationship with a customer”. The term is used mostly in marketing to determine how much to spend in acquiring a client and whether that money is well spent. For instance, if, by using a formula to calculate the CLV of an average customer, we determine it’s $10,000, and the marketing costs associated with securing or engaging the client are $5,000, then the customer is judged to be profitable. (Note that the $5,000 of cash outlay is also known as “cost of customer acquisition”.) Read more
