Archive for the ‘Arizona’ Category

Arizona vs. California Franchise Tax Board

Monday, June 10th, 2019

Legal authorities in the Grand Canyon State are not amused by California’s view that indirect interests in California LLCs mean that the entities are doing business in California. And they’re mad enough to take action, asking leave to sue California in the United States Supreme Court.

The issue involved is not new. California’s Franchise Tax Board believes that indirect ownership of an entity doing business in California, or even indirect ownership of an entity that indirectly owns another entity that does business in California, is enough to make all such entities be considered to do business in California. Arizona calls this an “illegal scheme” and wants it to end. The only way is to ask the Supreme Court for permission to take the case; Arizona filed the request in February. California objects to the characterization and states that impacted business owners have ways of fighting the $800 charge.

The problem is that the charge is $800, and the cost to fight is in the thousands of dollars, so few do. There are cases (such as Swart) where business owners fight back, but they take years, are expensive, and require extraordinary deep pockets. Arizona estimates the damage to Arizona business at $10.6 million a year.

Disputes between the states are subject to judicial review by the Supreme Court; however, the Supreme Court must agree to take the case. The Supreme Court is scheduled to decide whether or not to review this in the coming weeks. If the Supreme Court takes the case, it would likely be heard next winter.

Arizona Asks Supreme Court to Stop California From Imposing California Tax on Passive LLC Investments

Tuesday, March 12th, 2019

We’ve highlighted this issue before. Suppose you are an Arizona resident, and you form Primary LLC in Arizona. Its main purpose is owning a warehouse in Phoenix. But you have some extra money in the LLC, so you invest in Secondary LLC, a Nevada LLC. Secondary invests in various things, including Tertiary LLC, a California LLC. Would the Franchise Tax Board, California’s income tax agency, allege that Primary LLC is doing business in California? You bet. Would they come after you for California’s minimum $800 a year LLC tax? Absolutely. Would they then assess late filing penalties, filing fees, and interest if you don’t pay, and issue payment demands through banks? Of course they have and will do so.

Arizona’s Attorney General, Mark Brnovich, doesn’t like this. He alleges that California is illegally going after Arizona LLCs, and illegally demanding payments from Arizona banks. Mr. Brnovich is asking the US Supreme Court to allow Arizona to sue California at the Supreme Court, as there’s no other venue for such a lawsuit. The Supreme Court will likely rule on the first issue–whether the lawsuit can proceed–before the end of June. If the Supreme Court allows the lawsuit, it would likely be heard next fall or winter in Washington.

By the way, those entities who have fought the FTB in California courts have won their cases. The problem, though, is it costs just $800 to pay the LLC tax; it costs thousands of dollars to fight the FTB. Mr. Brnovich is absolutely correct that it doesn’t make sense for most companies to fight California.

Perhaps She’ll Cover the Guilty Plea in the Second Edition

Sunday, November 2nd, 2014

Perhaps we should have known this was going to happen. Her book, The Prosperity Principles: Secrets to Developing and Maintaining Generational Wealth, notes that business should be run, “…where everything you can do can be deducted from your reportable income as a business expense.”

Of course, you as readers of this blog know that the above quote is true as long as those deductions relate to necessary and ordinary business expenses. And you do have to include all of your income on your tax return, including income from drug traffickers.

It appears that Tanya Marchiol of Phoenix forgot those minor points. She was accused of not paying tax on $1.4 million of income from 2008 to 2010. Last week, Ms. Marchiol pleaded guilty to three counts of tax evasion. A story in azcentral.com states, “A number of Marchiol’s former employees told authorities she engaged in money laundering for personal profit, according to court documents.” The case began when Ms. Marchiol allegedly took money from drug traffickers to purchase a home in Phoenix but then commingled the funds with proceeds from other clients (professional athletes). This led to the indictment on tax evasion and money laundering charges.

As usual, if it sounds too good to be true it probably is. For Ms. Marchiol, she’ll likely have some time at ClubFed to ponder the truth of this.

The Flow of AGI from One State to Another

Saturday, July 20th, 2013

From watchdog.org comes an interesting interactive map showing how money has flowed from state to state. Back when I moved to Nevada from California, I noted this issue. Here’s yet more verification that this is real.

The five biggest losers were:
1. New York ($68.10 billion in annual Adjusted Gross Income (AGI))
2. California ($45.27 billion in annual AGI)
3. Illinois ($29.27 billion in annual AGI)
4. New Jersey ($20.62 billion in annual AGI)
5. Ohio ($18.39 billion in annual AGI)

The five biggest winners were:
1. Florida ($95.61 billion in annual AGI)
2. Arizona ($28.30 billion in annual AGI)
3. North Carolina ($25.12 billion in annual AGI)
4. Texas ($24.94 billion in annual AGI)
5. Nevada ($18.17 billion in annual AGI)

Sure, some of this is retirees moving from the snow belt to the sun belt. But California is anything but part of the snow belt; it’s clear that successful individuals are fleeing high tax states for low tax states. We here in Nevada are appreciative of the $9.59 billion in annual AGI that has moved from the Bronze Golden State to the Silver State.

Interestingly, the interactive map allows you to look county-by-county. The areas that one would think would show AGI growth are losing AGI. The area around Silicon Valley has lost AGI; so have Los Angeles and Orange County. Sure, some of this is retirees moving to the desert (Riverside County, which includes Palm Springs, showed an increase in AGI). However, there is no chance that this is just caused by retirees.

Taxes matter, and individuals absolutely do relocate because of taxes.

Phoenix Woos California Businesses

Sunday, November 18th, 2012

“For every action, there is an equal and opposite reaction.” That’s Sir Isaac Newton’s Third Law of Motion, something I learned in physics years ago. It’s also true about what happens when taxes increase. Options that businesses would rather not look at become things businesses start considering.

For years I’ve noted that as California increases taxes, businesses start looking at moving to Las Vegas, Denver, and Phoenix. Shock of shocks, with Proposition 30 passing in California, the Greater Phoenix Economic Council decided that now is a good time to actively pursue California businesses. Yes, Phoenix’s summer climate is brutal (just like Las Vegas), but there’s a good workforce, low taxes and regulations, and plenty of housing.

A hint to California: As you continue making the state more and more hostile to businesses, businesses are forced to react. No business wants to move (it’s expensive and disruptive), but like my business that moved last year, eventually the desert wastes of Las Vegas or Phoenix start looking really attractive.

The Cubs Tax

Sunday, February 7th, 2010

I’m a Cubs fan. I grew up in Chicago, and I loved going to games at Wrigley Field. The Cubs will start spring training in a couple of weeks in Mesa, Arizona. And that’s what this story is all about.

The Cubs stadium in Arizona, Hohokam Stadium, is old (by Cactus League standards). The training complex isn’t up-to-date either. So the Cubs want to modernize, and the estimated cost is $119 million. The Cubs and other private entities would contribute $60 million; the public (in Arizona) is being asked to contribute $59 million.

That $59 million would come through bonds and be paid back through new taxes: a higher car rental tax and a surcharge on spring training tickets. Legislation to put this into law will be introduced in the Arizona House on Monday by Majority Leader John McComish (R-Ahwatukee Foothills).

The legislation is opposed by 14 of 15 Cactus League teams according to Derrick Hall, the President of the Arizona Diamondbacks. (Presumably, the Cubs are in favor of it.) The Cubs are the biggest draw in the Cactus League, with games at Hohokam drawing nearly 11,000 fans while the average Cactus League games draws 6,400.. “The Cubs are the linchpin of the Cactus League, McComish told the Arizona Republic.

Of course, there is some irony in all of this. Jerry Reinsdorf, owner of the Chicago White Sox, criticized the Cubs’ deal. Scott Smith, Mayor of Mesa, noted, “Is this the same Jerry Reinsdorf that skipped out on Pima County taxpayers who had spent tens of millions of dollars to provide him with a taxpayer-funded stadium, to come to Glendale, where Maricopa County taxpayers provided him a Taj Mahal spring-training facility?”

Given the current budget and anti-tax increase climate, it will be interesting to see how this plays out.

A Cardinal in Tax Trouble

Tuesday, January 26th, 2010

The Arizona Cardinals didn’t make it to this year’s Super Bowl. But Safety Antrel Rolle has made it into the news today.

Forbes is reporting that Rolle has sued the IRS in US Tax Court. Mr. Rolle was recently audited, and his audit was held in Sacramento rather than in the Los Angeles area (where his advisors were). He is claiming that the IRS violated his due process and didn’t follow the Taxpayer Bill of Rights.

Underlying the Tax Court case is an audit that apparently didn’t turn out so well for Mr. Rolle. Mr. Rolle is a resident of somewhere. His tax return said Fair Oaks (a suburb of Sacramento). Or maybe it was a light industrial park in Granada Hills (a section of Los Angeles in the San Fernando Valley). He gave substantial donations to churches. One church’s address was in a copy shop maildrop…”We’re not even open on Sundays,” a worker joked to Forbes. Another church’s address is a dermatologists office. Mail sent to the address of his business in Chandler, Arizona (a suburb of Phoenix) is returned as “undeliverable;” that address apparently doesn’t exist. Given the dollar amounts involved (charitable contributions in the millions, income discrepancies in the millions, etc.), I can see how the audit might have turned very unpleasant.

In any case, Mr. Rolle will, eventually, get his day in Tax Court. His attorney is annoyed that Forbes was able to read the complaint. As Forbes noted, Tax Court records are public documents. This case figures to be quite entertaining.

Hat Tip: Tax Prof Blog