Escheat Laws & Changes in Delaware
If you saw my last post about escheat laws, you understand the basic idea that California requires businesses to report unclaimed property in an effort to get it to its rightful owner. Another state with fairly aggressive escheat laws, Delaware, recently made some changes to the legislation that affect how the rules play out for businesses.
Changes to Escheat Laws in Delaware
In an effort to improve the state's escheat laws, Delaware changed a few of the regulations behind the law:
1. The look-back period for unclaimed property audits was reduced. Those meeting certain requirements will be able to enter into a voluntary disclosure agreement (VDA) which provides a shorter look-back period, meaning that if the State Escheator audits an organization holding unclaimed property, the dates of records reviewed will be years shorter. The VDA program is designed to encourage holders to become compliant without worrying about an unclaimed property audit.
- Moving forward, "For any ongoing audits the lookback period is reduced to begin with calendar year 1986. For any audit initiated from the date of enactment through December 31, 2016, the audit look-back period is reduced to begin with calendar year 1991. For any audit initiated on or after January 1, 2017, the audit look-back period will be 22 years prior to the report year for which the State Escheator provides written notice of examination."
California’s Escheat Laws & How They Affect Your Business
Are you familiar with escheat laws and how they may affect your business? A little-known process in many states (including California), escheat laws transfer “unclaimed property” to the state for safe holding and potentially, if they remain unclaimed, permanently.
How Escheat Laws Work
The theory behind escheat laws is that there is certain property that goes unclaimed by the rightful recipient. The organization with control over this property needs to return it to the rightful owner and, if they aren’t successful, the state government steps in to take control of the property until it’s returned to the owner or enough time passes that it’s forfeited (you can check out this website to see if there’s any property out there that belongs to you). Typical examples of escheatable property include dormant bank accounts, un-cashed payroll (or other) checks from businesses to employees and vendors, certain unclaimed gift certificates without expiration dates, and other property.Read more
Focus on Massachusetts
By being a part of the first 13 colonies, Massachusetts has had a long and rich history. From the arrival of the pilgrims, the first Thanksgiving celebration, to all the patriotic battles in order to form this nation, Massachusetts has been at the forefront of many things. In present day, one might say it is tough to live in this state due to the high costs of living; however its long history has allowed the state to establish solid foundations for the education and health of its citizens. Based on our research, the quality of life in Massachusetts is great, it just comes at a high price.
Business Climate
Whether the business climate of Massachusetts is good or bad depends on your perspective. The state is among the worst when it comes to business costs (labor and taxes) and cost of living, however the state has some very bright spots. In terms of quality of life, education, technology and innovation, Massachusetts is one of the best. Massachusetts has been able to capitalize on the financial and technology industry. The state is the home to many brokerage firms, insurance and tech companies. The state has also taken advantage of its geography as its fishing industry nets more than 2.5 million pounds of fish every year. Despite the high costs of living, the state provides a bountiful supply of highly-educated graduates from top-rated schools, notably Harvard University. The state is seeing an influx of start-up companies due to the skilled labor force. Massachusetts’ ability to provide a high quality of living and innovation likely offsets the cost of doing business.
Taxes
Receiving the nickname “Taxachusetts” in the past, the state of Massachusetts has always ranked largely unfriendly when it comes to state and local taxes. Yet, according to the Tax Foundation’s 2015 State Business Tax Climate Index, Massachusetts sits in the middle of the pack as it ranks 24th out of 50.Read more
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
