Archive for the ‘Minnesota’ Category

1700 Miles and a 7% Difference

Sunday, April 28th, 2013

One of the most difficult things to explain to a non-tax practitioner is the tax concept of domicile. For most individuals, your domicile is your residence. I reside in Las Vegas, Nevada. It’s my only home. In my case, my domicile and residence are identical (as is the case for most people).

However, some individuals have multiple residences. Take Ken Mauer. Mr. Mauer has a home in Afton, Minnesota (just east of the Twin Cities). He also has a home in Fort Meyers, Florida. They’re both residences, so which is his domicile? If Mr. Mauer’s had residences in Nevada and Florida, this wouldn’t be a big issue (neither state has a state income tax). However, Minnesota has a state income tax so being considered a Florida resident would save Mr. Mauer thousands of dollars in state income tax.

Shock of shocks, Mr. Mauer declare himself a Florida resident and didn’t file Minnesota tax returns for 2003 or 2004. After the Minnesota Department of Revenue objected, he filed a part-year 2003 return. Mr. Mauer was audited by the Department of Revenue and lost. He appealed the decision to the Minnesota Tax Court and lost. He then appealed to the Minnesota Supreme Court. That court upheld the previous decision.

I’m not going to into Minnesota’s 26-factor test, or the factors that led to Mr. Mauer being considered a resident of the Gopher State rather than the Sunshine State. One factor, though, is key: Mr. Mauer spent more time in Minnesota than Florida. Few tax agencies will consider you a resident of the other state if you continue to spend a lot of time in their state. Suffice to say, it you are in such a situation it’s best to cut all ties to your old state…or at least spend 183 days in your new home. In Mr. Mauer’s case, he’s liable for Minnesota state income tax for 2003 and 2004.

Hat Tip: How Appealing

Bad States for Gamblers

Monday, October 22nd, 2012

It’s been a while since I’ve listed out the bad states for gamblers. Here’s an updated list. Make sure you read the notes because while all of these states have tax systems that are problematic for gamblers, some impact amateurs while others impact professionals. Note that I do not cover the laws that impact gambling here (such as Washington State’s law that makes online gambling a Class C felony).

Connecticut [1]
Hawaii [2]
Illinois [1]
Indiana [1]
Massachusetts [1]
Michigan [1]
Minnesota [3]
Mississippi [4]
New York [5]
Ohio [6]
Washington [7]
West Virginia [1]
Wisconsin [1]

NOTES:

1. CT, IL, IN, MA, MI, WV, and WI do not allow gambling losses as an itemized deduction. These states’ income taxes are written so that taxpayers pay based (generally) on their federal Adjusted Gross Income (AGI). AGI includes gambling winnings but does not include gambling losses. Thus, a taxpayer who has (say) $100,000 of gambling winnings and $100,000 of gambling losses will owe state income tax on the phantom gambling winnings. (Michigan does exempt the first $300 of gambling winnings from state income tax.)

2. Hawaii has an excise tax (the General Excise and Use Tax) that’s thought of as a sales tax. It is, but it is also a tax on various professions. A professional gambler is subject to this 4% tax (an amateur gambler is not).

3. Minnesota’s state Alternative Minimum Tax (AMT) negatively impacts amateur gamblers. Because of the design of the Minnesota AMT, amateur gamblers with significant losses effectively cannot deduct those losses.

4. Mississippi only allows Mississippi gambling losses as an itemized deduction.

5. New York has a limitation on itemized deductions. If your AGI is over $500,000, you lose 50% of your itemized deductions (including gambling losses). You begin to lose itemized deductions at an AGI of $100,000.

6. Ohio currently does not allow gambling losses as an itemized deduction. However, effective January 1, 2013, gambling losses will be allowed as a deduction on state income tax returns. Unfortunately, those gambling losses will not be deductible on city or school district income tax returns, so Ohio will remain a bad state for amateur gamblers.

7. Washington state has no state income tax. However, the state does have a Business & Occupations Tax (B&O Tax). The B&O Tax has not been applied toward professional gamblers, but my reading of the law says that it could be at any time.

I’m Envious

Monday, September 3rd, 2012

Two stories related to one of my favorite topics appeared over the weekend. The first comes out of Michigan, where the state legislature passed a law to ban “tax zappers.” The only zappers I ever heard of were these:

Bug Zappers, Courtesy of Wikipedia

That’s definitely not what Michigan banned. No, these zappers are used to skim cash from registers in cash-basis businesses so that sales could be under-reported. Who were the customers in Michigan? According to this story, Detroit area strip clubs. It appears that sales of the “Journal Sales Remover” may have been better than thought of. I wrote about this product in 2010; it wasn’t a bright idea then and it’s not one today.

Of course, the new Michigan law is overkill. Anyone violating the new law is also violating various sales tax laws, committing tax fraud against both the IRS and Michigan, and likely violating local ordinances, too.

So from Michigan lets head west to Minneapolis. Last Friday night Envy was raided. That’s Envy, the nightclub. Minnesota State Department of Revenue officers raided the club; the DOR alleges that the owners of the club, James and Susan Beamon, may be skimming cash, grossly underreporting withholding taxes, and not paying all their sales tax. This news story notes that per the search warrant the owners of the club reported negligible income for 2009 and haven’t filed 2010 or 2011 returns. And conspicuous consumption may have gotten the owners in trouble:

“Normally, persons with the income levels reported by the Beamons could not afford a high-priced Cadillac,” the search warrant said.

As a reminder, income is taxable whether you make it in cash, checks, or credit cards. That said, the idea that businesses that deal in large amount of cash would be tempted to skim is normal. That’s why cash businesses such as strip clubs and nightclubs are far more likely to be audited than, say, a jewelry store.

[Image from Wikipedia]

Vikings Score Late TD; New Stadium Appears Certain

Thursday, May 10th, 2012

Pity the poor football fans in Los Angeles. They’re stuck watching the NFL on television, or watching USC at the L.A. Coliseum. The latest team that was looking at possibly heading west was the Minnesota Vikings. Earlier today, the Minnesota State Senate approved the Vikings new stadium; Governor Mark Dayton has promised to sign the measure. The Minneapolis City Council must also approve the measure within the next 30 days, but that approval is expected.

The Vikings didn’t get everything they wanted. The Vikings will have to contribute about $50 million more than they wanted to ($477 million in total) for the $975 million facility. But the Vikings overall share of the cost (49%) tells you that the citizens of Minnesota will be paying for this in one way or another.

The state’s share ($348 million) will come through an expansion of charitable gambling. Gambling may be a “sin” in the view of many but when it comes time to raise money it’s always one of the first things looked at. Minneapolis must also contribute to the stadium ($150 million); that will mainly come from sales tax. Of course, as the Wall Street Journal points out, new stadiums rarely pay for themselves.

The Vikings currently play in the Metrodome, an aging facility whose roof collapsed a couple of years ago. The new stadium (to be build on the site of the Metrodome) is expected to open in 2016. It’s likely the Vikings will play for three seasons at the University of Minnesota’s TCF Bank Stadium.

News Stories: Star-Tribune, Wall Street Journal

Damiani Turns on Wirth

Sunday, May 6th, 2012

Holly Damiani was married to real estate developer Jeffrey Wirth. They were divorced and then the roof fell in: Mr. Wirth, Ms. Damiani and their accountant, Michale Murry, are accused of various tax evasion charges. Ms. Damiani pleaded guilty in a plea bargain on Friday. According to the Minneapolis Star-Tribune:

[She] admitted that from “at least” 2003 through October 2006, she conspired with Wirth and their tax return preparer Michael James Murry to defraud the Internal Revenue Service by failing to report and pay their true income and tax obligations.

I’d say Mr. Wirth’s defense just became a lot more difficult: Ms. Damiani is working with the US Department of Justice. The trial of Mr. Wirth and Mr. Murry is scheduled for May 29th.

Vikings May be Tossed for a Loss

Sunday, April 29th, 2012

The Minnesota Vikings play at the Hubert H. Humphrey Metrodome. The Vikings have played in the stadium since 1982, and the stadium used to host the Minnesota Twins and the University of Minnesota football team. Before playing at the Metrodome, both teams played at Metropolitan Stadium. The Twins now have their own new ballpark, Target Field and the Golden Gophers have their own new stadium, TCF Bank Stadium.

The Vikings want a new stadium, too, and have periodically threatened to move to Los Angeles or anywhere else that doesn’t have a professional football team. The Vikings also want to have their stadium built in part with public (taxpayer) money. And therein lies the rub.

Minnesota has a Democratic governor (Mark Dayton) [technically, he's a member of the Democratic-Farmer-Labor Party, or DFL] and Republican leaders in the state legislature. The two parties appear to mirror the problems in Washington: They don’t agree on much. The Vikings want a nearly $1 billion stadium. They’d contribute around $427 million. The remaining funds would come from the city of Minneapolis (where the stadium would be located) and from the state of Minnesota.

Vikings fans want a new stadium, of course. The problems include:

- The GOP wants a reduction in the state business property tax (Governor Dayton opposes this);
- Democrats want a bond measure (the GOP opposes this);
- Minneapolis would like other cities (e.g. St. Paul) to help pay for the Vikings’ stadium;
- Rehabilitation of the Target Center (where the Minnesota Timberwolves of the NBA play) is somehow in the middle of this;
- The deal includes exclusivity for the Vikings to bring in a soccer team to the new stadium; and
- Rarely do new stadiums pay for themselves.

The Minnesota legislature is set to end their session tomorrow, but there’s a good chance they’ll head to overtime. There’s probably less of a chance of the Vikings getting their stadium this year.

News Stories:
Star-Tribune, Pioneer Press, MinnPost, and Bemidji Pioneer.

Best States for Entrepreneurs: South Dakota, Texas, and Nevada Lead the Way

Sunday, April 22nd, 2012

The Small Business & Entrepreneurship Council released last Monday their 2012 Business Tax Index. There aren’t many surprises when you look at the list of best and worst (at least, for regular readers of this blog). The top seven states have no income tax on individuals. Meanwhile, the usual suspects (with one exception) are on the list of the bottom ten.

First, the top ten:
1. South Dakota
2. Texas
3. Nevada
4. Wyoming
5. Washington
6. Florida
7. Alaska
8. Alabama
9. Ohio
10. Colorado

The bottom ten has a lot of the usual high-tax “Blue” states:
42. Connecticut
43. Hawaii
44. Vermont
45. California
46. Maine
47. Iowa
48. New York
49. New Jersey
50. Minnesota
51. District of Columbia

I was surprised to see Minnesota so low on the list. Minnesota has a high capital gains tax rate; that, combined with its relatively high personal income tax rate, inheritance tax, and the state’s AMT, led to it being near the bottom of the list.

I also need to compliment Michigan. I’ve been down on the state–at times, saying it has been worse than California–but the SBEC ranks the Great Lakes State number 12. Under a Republican governor, Michigan has improved its tax policies.

For those wondering why I’m now in Nevada rather than California, this is just another measure of the problems with the Golden State. Governor Brown and Democrats in the state are discussing measures to further increase the state’s taxes. Well, there are six more spots to go before reaching the top (worst) position!

The SBEC has a nice interactive map showing the 50 states (plus DC); you can view the map here.

A Question of Wirth

Monday, August 22nd, 2011

Jeffrey Wirth was the sole owner of the Wirth Companies, a Minnesota commercial real estate company. Mr. Wirth developed numerous trophy properties in the Twin Cities, including the Grand Hotel in Minneapolis, the Grand Rios Hotel & Waterpark in Brooklyn Park, and the Grand Lodge Hotel & Waterpark in Bloomington.

The problem is, according to the IRS and the US Attorney’s Office, Mr. Wirth began building a mansion on one of Minnesota’s 10,000 lakes (an island on Lake Minnetonka). There’s nothing wrong with a successful businessman building a mansion, of course. However, there is a major problem with paying for personal expenses (such as a mansion) out of your business and not reporting it on either a corporate or individual return. And that, along with paying personal expenses out of his business, is one of the charges against Mr. Wirth.

Additionally, Mr. Wirth and his ex-wife, Holly Damiani, are accused of understating their wages.

From the indictment: From 2002 through 2006, while they actively managed the business and received substantial distributions from [The Wirth Companies], Wirth and Damiani each claimed wages of $12,000 per year or less…As a result of the understatement of wages reported on their Forms W-2, on the TWC income tax returns, and on the income tax returns for Wirth and Damiani, the amounts of employment taxes paid by TWC, Wirth, and Damiani were far less than should have been paid.

I suspect that the Wirth Companies were organized as an S-Corporation, and this charge in the indictment relates to not paying a reasonable salary. The understatement of wages is part of a conspiracy charge against the defendants (which also include Michael Murry, the tax preparer for Mr. Wirth and TWC). Mr. Wirth also allegedly filed false corporate tax returns for 2004 and 2005.

The three individuals face one count of conspiracy to defraud the United States. Mr. Wirth was charged with two additional counts of filing a false individual tax return and two counts of filing a false corporate tax return. Ms. Damiani was charged with two counts of filing a false individual tax return. Mr. Murry was charged with two counts of procuring a false individual tax return and two counts of filing a false corporate tax return.

Speaking of Mr. Wirth’s mansion, it’s for sale. The home has four bedrooms, six bathrooms, a 15-car garage with a total of 18,000 square feet, and is the largest in the Minneapolis suburb of Greenwood. It is, though a fixer-upper: It’s unfinished.

An Early Nominee for Tax Offender of the Year

Tuesday, January 26th, 2010

It’s only January, and we already have a truly Bozo story to report. We start with a gentleman named “P.M.” who prepared a fraudulent tax return. P.M. apparently prepared the return for the girlfriend of one Orlando Nunn. Mr. Nunn and his girlfriend were apparently going to split the proceeds. Via Joe Kristan and Citypages comes the following:

But apparently Nunn’s girlfriend thought she didn’t get her fair share. She told 21-year-old Nunn about it, and Nunn went for revenge: He and two other men paid a visit to P.M. at his girlfriend’s home and tried to rob him. Nunn allegedly waved a .45-caliber pistol around and told everybody to “get on the floor as this was a robbery and to get on the floor and get out their money as they know what time it is,” according to the complaint. P.M. grabbed the pistol from Nunn, and shot him dead.

The shooting will likely be classified as self-defense, so P.M. won’t get in trouble over that. Unfortunately for him, sooner or later the IRS will come knocking. As for the boyfriend, he’s no longer able to complain about the size of the refund.

Minnesota Democrats Pass Tax Increases, Face Veto

Sunday, April 26th, 2009

California isn’t the only state where the legislature is ignoring the current economic climate. In Minnesota, the Democrats who control that state’s legislature, have ignored Republican Governor Tim Pawlenty’s veto threat and passed a series of tax increases.

Two different packages passed: one in the Minnesota House and one in the Senate. Both contain a variety of tax increases, including increases in the income tax, cigarette taxes, alcohol tax, and an increase in what is covered by the sales tax. The mortgage interest deduction would be limited.

These measures are probably irrelevant, as no Republican voted for them and Governor Pawlenty guarantees they’ll be vetoed. There’s clearly not enough votes for the vetoes to be overridden.

What will be heading to Minnesota and California? Major cuts in government spending. And that’s as it should be.

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