Current California Tax Incentive Programs [Update]
As we’ve explained before, tax incentive programs are designed to provide companies with funds set aside by states or municipalities; businesses are chosen to receive these incentives based on their potential for creating jobs, increasing manufacturing activities or carrying out other positive business endeavors like incorporating sustainable practices, to name a few. We’ve previously reported on some of the newer California incentive programs that replaced the sunsetted enterprise zone program. Here is an update of some current California tax incentive programs that may benefit your company.
The California Competes Tax Credit
This is one of California’s tax incentive programs that we’ve discussed a lot this past year. It is designed to attract out-of-state businesses to expand into the Golden State, or to encourage existing companies to stay and grow here. It’s been lucrative so far, with most of the benefit going to existing California companies engaged in expansion. During the last fiscal year (which ended June 2015), Tesla received $15 million, Northrop Grumman Systems Corporation was allocated $10 million and Samsung Semiconductor, Inc. wrangled $9 million.Read more
State Tax Audits – Easing the Pain
When people hear the word “audit”, it’s safe to say that the term doesn’t generally elicit very positive emotions. In fact, whether internal audits, IRS audits, or state tax audits, people just don’t like them, or on the far end of the spectrum, actually fear them. Call me crazy, but I’m one of the few people (besides auditors themselves) that don’t HATE them – partially because I feel that we can generally help clients who are being audited, and we can help bring them peace of mind.
Of course, the best option is to not get audited at all, but if you do find yourself in an audit situation, there are some things that you can do to mitigate the pain, and also to make it go smoothly. Here are some examples of things you can do when notified by a state that an audit is coming.Read more
How Sales Tax Affects Crowdfunding
Over the last several years, Crowdfunding campaigns have become an extremely popular way for entrepreneurs to raise funds for their latest products. But many crowdfunders don’t think about how sales tax affects their projects.
An Example of Sales Tax & Crowdfunding
If you think about it, crowdfunding is essentially the advance purchase of products, since most crowdfunders offer physical items as incentive to support their project. Therefore, if the ultimate product is taxable for sales tax, then the company should be assessing sales tax on the receipts. Most companies won’t really do that though, so they will essentially pay it out of pocket instead.
Here’s an example: You pay $25 to contribute to a crowdfunded campaign for a “new widget” with the promise that ACME Co will send it to you in the next month. The new widget will be hot off the press to you and later it will sell for $50. So, ACME is unlikely to charge you $27 (assuming an 8% sales tax rate) and remit $2 to the state. They’ll either indicate that sales tax is included and round it down (the price is $23.18 plus tax, or $25 tax included), or just eat the $2 and remit it themselves.Read more
Focus on Minnesota
If you can survive a cold winter, the Land of 10,000 Lakes might just be the place for you. Although its taxes are relatively high, it helps boost the state’s economy and produce employment. Minnesota’s unemployment rate as of May 2015 sits at 3.8%. While the state dishes out high taxes for those who can afford it, it also provides a high quality of life for all its citizens.
Business Climate
Minnesota has been actively trying to make its economy flourish by creating more jobs. Its 3.8% unemployment rate is significantly below the national rate of 5.4%. A key contributor to that is the presence of large public companies such as Target, 3M, Best Buy, US Bancorp and General Mills headquartered in the state. These corporate giants help build the foundation for businesses in the state. The state’s economy and commerce is very diverse and the quality of life is something that Minnesota boasts about. It is said to have a great source of well-educated graduates that are deployed in the workforce.
Taxes
According to the Tax Foundation’s 2015 State Business Tax Climate Index, Minnesota has one of the worst tax climates. The state falls ranks 47th out of 50. Minnesota imposes a flat rate of 9.8% for its corporate income tax rate. Only two other states have a corporate tax rate higher than Minnesota. Read more
4 Reasons the Remote Transactions Parity Act is a Bad Idea [Internet Sales Tax]
If you haven’t heard yet, there’s a new proposed Internet sales tax solution in the House: the Remote Transactions Parity Act (RTPA).
About the RTPA
Like the Marketplace Fairness Act (MFA), another proposed Internet sales tax solution, the RTPA would give remote sellers authority to collect taxes from in-state customers, as well as purchases out-of-state consumers make via the Internet. There are a few key differences between the RTPA and the MFA, such as how a "small seller" is defined, however the broad idea is the same: the concept of Internet sales tax isn't going away anytime soon. Our colleague, Sylvia Dion, recently penned a blog post comparing the two pieces of proposed legislation in detail.
Why the RTPA is a Bad Idea
Why exactly is the RTPA a bad idea? These are our top reasons!Read more
State Tax Exposure and M&A
A few months ago I posted a blog about how we at Miles Consulting Group often work with other service providers. I’m proud to work with fellow CPAs, temporary CFOs, bookkeepers, enrolled agents, etc. who don’t specialize in multi-state taxes (often sales tax) to help them maximize client value by bringing issues to the attention of their clients. When we are brought in to assist, we can often take care of the pain the client is feeling as a result of an audit from state taxing authorities OR determining potential tax exposure for proper financial statement reporting. That said, much of what we do is on the remediation side – once a problem has already been created. We work on quantifying the problem (sometimes many years of retroactive taxes) and then remedies to bring the company into compliance and giving them peace of mind.
One particular area in which we can provide value on the front end of a transaction is in the case of a proposed merger or acquisition (M&A). And this is definitely an area where a consulting partnership between us and an attorney, CPA or other service provider is a huge value.
If your client is the seller
In a case where your client might be looking to sell his/her business in the upcoming years (or even months), they should ask some questions about the their multistate activities. For instance:
- Does the company make multistate sales?
- Does the company have a mobile sales team, such that salespeople travel to various regions regularly? If so, how often do they travel into any given state and what is the revenue generated by those sales calls?
- If the company has a salesforce, when did they begin entering the states?
- Are there employees living in other states, working on behalf of the company?
- Does the company store inventory or own property in states beyond their “home state”?
Is Moving the Answer to High CA Taxes? Beware!
As any business owner knows, taxes in California can be high. But should you relocate your company to another state? We get this question a lot, and there’s a two-part answer: It depends, and make sure you do it correctly.
Whether or not you move is dependent on your business’ specifics: credits and incentives you’re eligible for, if you can run your company effectively somewhere else, etc. Relocating your organization is a big ordeal; it takes much more than opening a PO Box in the neighboring state. It means picking up and moving your entire life.Read more
Focus on Utah
This month, we decided to put our focus on the Beehive State! Utah leads the way as one of the best states for business and economic development. One reason the state is ideal for business is due to tax incentives for companies that create jobs. In addition, cost of living and doing business are 10% below the national average. The state also has the 10th lowest tax burden in the country; the corporate tax rate has not risen in 15 years!
Business Climate
Utah is very pro-business, and companies benefit from the state having the third lowest energy costs in the nation. Over the last few years, the state has become a technology hub, adding locations for companies such as EBay, Oracle, Microsoft, Twitter, and Adobe. It has been said that the talent pool in Utah is very good with the availability of software engineers and Mormon missionaries with foreign language skills. Since their expansion into Utah last year, Oracle alone has added more than 300 jobs. Financial services are another targeted area for Utah. Goldman Sachs has 1,700 employees in Salt Lake and expects significant growth in the next two to four years.
Taxes
According to the Tax Foundation’s 2015 State Business Tax Climate Index, Utah ranked favorably at 9th out of 50. Utah's corporate income tax system consists of a flat rate of 5%. That rate ranks 12th lowest among states levying a corporate income tax. Utah's state and local corporate income tax collections per person were $91 in 2012 which ranked 14th lowest nationally.
Utah's personal income tax is also a flat rate of 5%. That rate ranks 20th lowest among states levying an individual income tax. Utah's state and local income tax collections per person were $870 in 2012 which ranked 22nd lowest nationally. Utah levies a 5.95% general sales or use tax on consumers, which is the same as the national median of 5.95%.Read more
Tax Credits vs. Tax Incentives [How They Help]
Recently, Vox posted an article in which a research firm argued that tax breaks cause more harm than good, especially for small businesses. At Miles Consulting, however, we have a different take on tax credits and incentives.
For years, Miles Consulting has worked with a variety of clients (of varying sizes) to help them take advantage of tax credits and incentives. But before we can really get to the core of the issue here, we need to take a look at these two different types of benefits.
Tax Credits
To quickly summarize, tax credits are generally statutory, which means that a state or federal law, or corresponding regulation, details what type of company qualifies for a tax credit, how it’s calculated and how it can be utilized. Statutory tax credits by their nature tend to be objective. That is, if a company meets the qualifications, they can benefit from the credit. Note that some credits have annual maximums and there can be significant compliance involved in taking advantage of the benefits. The tax credits are generally reported on annual tax returns.Read more
A French Vacation is Just Like State Tax Consulting
I just got back from an amazing vacation to France. Great, you say! And what in the world does that have to do with multi-state tax consulting? Well, it depends on how you look at it.
Here are some things I learned in France that might relate a little bit to state tax consulting:
- The laws of wine-making (and labelling) in France’s Burgundy wine region are every bit as complicat
ed as dealing with state tax laws. In Burgundy, it is very important to know how to read a label. It will tell you whether the grapes come from the most prestigious areas (a “Grand Cru” or a “Premier Cru”), or simply from the Burgundy region or “Village”. Even within the villages, there are specific plots of vines that have specific names and must be labeled on the bottles accordingly. Two plots next to each other may produce very different wines. So, it’s important to sample many different ones to determine which one you like the best! - In France, there are still many chateaux (castles) dotting the landscape. Some are very large and stand high on hills as the main landmark of a little town. And some are smaller and within the villages themselves, not as ostentatious, but often still operating as people’s homes (or converted to hotels or B&Bs). We stayed in a lovely chateau like that for a few nights. And it had a moat! The whole concept of a moat (and staying in a castle with a moat) made me smile each time I went outside. Back here in the real world, we deal with states offering tax credits and incentives. And I couldn’t help but wonder, would states like California be happier if we could just build a moat around our state to keep others out (and our companies in)?
- Monet’s garden at Giverny, with its water lilies, famous bridges and weeping willow trees was like stepping out of (or into) a painting. To be able to witness Monet’s water lily paintings in the Musee d’Orsay and the L’Orangerie and then also witness the actual garden that inspired thos
e works was amazing. Art and poetry in motion. Do you suppose anyone out there ever thinks, “Wow, I read a state tax statute one day and applied it to a client situation the next day and it’s true poetry in motion.” Of course they do!
OK, I admit it! I still have a little bit of vacation-brain. And the examples above are huge stretches to try to convince anyone that my trip to France had ANYTHING to do with multi-state tax consulting. However, probably the most important thing that I did learn about my business while on vacation was that it’s OK to go on vacation. We all know that it’s important to get away and “sharpen the saw” on occasion, but we tend to forget that, so it’s good to be reminded. I have a great team of people that kept the lights on, took care of clients, and fielded phone calls and solicitors in my absence. You know that feeling you get when you know you’ve got it handled? I truly did. And it enabled me to experience amazing things that I don’t see every day. And, perhaps notwithstanding that stretch on the above items, it has truly enabled me to come back sharper and ready to put those state tax statutes back to work for my clients. Bonjour! It’s a new day!
