Archive for the ‘Nevada’ Category

Kiplinger’s Tax Friendly and Tax Unfriendly States: No Surprises

Saturday, August 27th, 2016

Kiplinger released its list of the tax friendly and least tax-friendly states in the US. There really aren’t any surprises:

Here are the bottom ten:

1. California
2. Hawaii
3. Connecticut
4. New York
5. New Jersey
6. Minnesota
7. Maine
8. Vermont
9. Illinois
10. Rhode Island

And the top ten:

1. Wyoming
2. Alaska
3. Florida
4. Nevada
5. Arizona
6. Louisiana
7. South Carolina
8. South Dakota
9. Mississippi
10. Delaware

Let’s look at my former state (California) and my current state (Nevada) as to the differences. “The Golden State is home to movie stars, beautiful beaches and the highest income tax rates in the U.S., putting it at the top of our list of Kiplinger’s top ten least tax-friendly states. Californians pay lower property taxes than residents of other high-tax states, but, in a state with some of the highest real estate prices in the U.S., they’re no bargain.” There’s not much to add: California is a very high-tax, high-regulation state.

Now let’s look at Nevada. “Another no-income-tax haven, Nevada is one of Kiplinger’s top ten most tax-friendly states. Where does it get its money? Sales tax: the average combined state and local tax rate is 7.98%.” Kiplinger missed another huge source of funding for Nevada: casinos. No matter, Nevada is a low-tax, low-regulation, business friendly environment. I’m happy I’m here.

Nevada Commerce Tax Filing Deadline Is Monday

Thursday, August 11th, 2016

The deadline for filing Nevada Commerce Tax returns is Monday, August 15th. The tax is a modified gross receipts tax on businesses with more than $4 million of Nevada gross receipts. However, all Nevada businesses must file the returns. Impacted businesses should have received a welcome letter from the Nevada Department of Taxation; however, non-receipt of the letter doesn’t exempt you from filing.

Filing an “exempt” return (less than $4 million in revenues) took me about one minute after I registered with the Nevada Department of Taxation. The online form was simple and straightforward; the hardest part was inputting the NAICS Code for my business (though there’s direct searching within the online form).

Yes, Two States Rank Lower than California

Tuesday, November 17th, 2015

It’s not all bad news in the Tax Foundation’s 2016 State Business Tax Climate Index for California. You could always be in New York or New Jersey. Still, it’s better to be elsewhere.

Two excerpts from the article note why states rank at the top of the list or at the bottom:

The absence of a major tax is a common factor among many of the top ten states. Property taxes and unemployment insurance taxes are levied in every state, but there are several states that do without one or more of the major taxes: the corporate income tax, the individual income tax, or the sales tax. Wyoming, Nevada, South Dakota, and Texas have no corporate or individual income tax (though Nevada and Texas both impose gross receipts taxes); Alaska has no individual income or state-level sales tax; Florida has no individual income tax; and New Hampshire and Montana have no sales tax…

The states in the bottom 10 tend to have a number of afflictions in common: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, is hampered by some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance tax and an estate tax, and maintains some of the worst-structured individual income taxes in the country.

So who are the winners and the losers? Here are the top ten states:

1. Wyoming
2. South Dakota
3. Alaska
4. Florida
5. Nevada
6. Montana
7. New Hampshire
8. Indiana
9. Utah
10. Texas

Here are the bottom ten states:

41. Maryland
42. Ohio
43. Wisconsin
44. Connecticut
45. Rhode Island
46. Vermont
47. Minnesota
48. California
49. New York
50. New Jersey

My home state, Nevada, does very well (ranking fifth overall). It ranks first in individual income tax (there isn’t one), fourth in corporate tax (there is no a gross receipts tax on businesses, but only large businesses and the tax rate is low), seventh in property tax, but 39th in sales tax and 42nd in unemployment insurance tax.

Note that it is possible to have every major tax and still rank highly (Indiana and Utah manage that) if the taxes are broad with low rates. Of course, you can be like New Jersey, New York, and California: have broad taxes at high rates. If you do that, you end up on the bottom.

I should point out that it is possible that New York will rise in the rankings. As the Tax Foundation noted, New York enacted corporate tax reform which should improve its standing. Meanwhile, California is apparently considering more and higher taxes for the future. That, combined with the regulatory environment in the Bronze Golden State, should give legislators pause…but probably won’t.

Are Turf Rebates Taxable?

Wednesday, September 23rd, 2015

The Los Angeles Times has an article asking this question. Because of the drought in California, the Metropolitan Water District had a $340 million incentive program so that homeowners would replace grass (which takes a lot of water) with bark, rocks, and other drought tolerant (xeriscape) landscapes. (The Southern Nevada Water Authority has a similar program.) The MWD has no idea if they have to issue 1099s to rebate recipients under federal law. (It is exempt from California taxation, though.) The article notes that the MWD suggests talking to a tax professional, so I’ll helpfully give an answer.

Any accession to wealth is taxable unless Congress has exempted that from taxation. One such exception are rebates on purchases. If you buy, say, a new car for $25,000 and receive a $1,000 rebate, you really bought the car for $24,000. A car rebate isn’t taxable income. Is the MWD (or SNWA) program a rebate?

No, it’s not. There’s nothing being purchased from the water agency. Instead, you’re tearing out grass, and replacing it with something else. The agency paying the “rebate” isn’t the same agency that’s doing the work. You might do it yourself, or you might higher a landscaping firm to do the work. The landscaping firm isn’t giving you a rebate.

If this isn’t a rebate (for tax purposes), then what is it? Well, the IRS could rule it’s not taxable since it is a lowering of the cost of doing the grass replacement and this is good for the environment. However, that’s not likely. There’s nothing in the Tax Code that says if something is done that’s good for the environment it’s not taxable. Instead, this looks like income–“Other Income” that would be reported on line 21 of Form 1040. You’re receiving a reward (income) for doing something. It’s not a rebate of a purchase. It’s not exempt from taxation under any other of the exemptions under the Tax Code. Thus, it’s taxable income.

Kiplinger’s Tax-Friendly and Least Tax-Friendly States: Bring Me (Mostly) the Usual Suspects

Monday, September 21st, 2015

Kiplinger has come out with their list of most tax-friendly and least tax-friendly states. There aren’t many surprises on the list, and readers of this blog definitely won’t be shocked with the least friendly state. The most friendly state was a little different. Do note that Kiplinger looked at all the taxes in a state, not just income tax.

Most Tax-Friendly States:
1. Delaware
2. Wyoming
3. Alaska
4. Louisiana
5. Alabama
6. Mississippi
7. Arizona
8. New Mexico
9. Nevada
10. South Carolina

Why Delaware? It has a relatively low income tax, no sales tax, low property taxes, and low a excise tax on alcohol. My state, Nevada, is noted for its non-existent income tax.

Here is Kiplinger’s least tax-friendly states:

1. California
2. Connecticut
3. New Jersey
4. Hawaii
5. New York
6. Rhode Island
7. Vermont
8. Maine
9. Minnesota
10. Illinois

Why California?

If you’re moving to the Golden State, plan to take short showers (to conserve water) and to pay the highest state income tax rates in the U.S. Worse, capital gains are taxed as regular income.

California also has the highest statewide sales tax, at 7.5% (it’s scheduled to drop to 7.3% at the end of 2016). The average state and local combined rate is 8.4%; in some cities, the combined rate is as high as 10%.

There’s actually more bad news about California’s taxes noted in the short article.

Kiplinger also has a tax map so you can find your state and whether it is tax-friendly or not.

Bozo Tax Tip #5: Ignoring California

Monday, April 6th, 2015

Perhaps I should call this Bozo Tax Tip “Forming a California Trust.” Why? Let me explain.

Let’s assume John and Jane, two California residents, form a trust to benefit their children, Ann and Bob. Ann lives in Florida; Bob resides in California. The trust is an irrevocable trust, so it files its own tax return (a Form 1041). The income to the beneficiaries is reported on Schedule K-1s. Ann is surprised and calls her accountant when she receives both a federal K-1 and a California K-1.

The issue is simple: The trust is a California trust, so the income is California-source. California requires that a Schedule K-1 for Form 541 (California’s trust tax return) be included. Yes, Ann must pay California tax on the income. Ann’s CPA called me and asked me why I included the K-1 from California. My response was succinct: I have to and Ann has to pay the tax.

California’s desire to have anyone and everyone pay California tax has led to many trusts relocating to Nevada (which has no state income tax) and other trust-friendly states. California isn’t one of those states. Ann’s parents, John and Jane, could have formed the trust in Nevada but because they didn’t Ann is stuck in the Hotel California. You can check out any time but you can never leave.

Ignoring the California K-1 is a Bozo idea. Instead of just paying tax, you will get the joy of paying tax, penalties, and interest. If your parents are in California and thinking of forming a trust to benefit you, it may be worth your time to talk about Nevada to them. Otherwise, welcome to the Hotel California.

Bozo Tax Tip #6: Nevada Corporations

Sunday, April 5th, 2015

As we continue with our Bozo Tax Tips–things you absolutely, positively shouldn’t do but somewhere someone will try anyway–it’s time for an old favorite. Given the business and regulatory climate in California, lots of businesses are trying to escape taxes by becoming a Nevada business entity. While I’m focusing on California and Nevada, the principle applies to any pair of states.

Nevada is doing everything it can to draw businesses from California. Frankly, California is doing a lot to draw businesses away from the Bronze Golden State. But just like last year you need to beware if you’re going to incorporate in Nevada.

If the corporation operates in California it will need to file a California tax return. Period. It doesn’t matter if the corporation is a California corporation, a Delaware corporation, or a Nevada corporation.

Now, if you’re planning on moving to Nevada forming a business entity in the Silver State can be a very good idea (as I know). But thinking you’re going to avoid California taxes just because you’re a Nevada entity is, well, bozo.

Semenza Gets 18 Months

Friday, January 16th, 2015

Last year I wrote about Lawrence Semenza. Mr. Semenza with the US Attorney for Nevada back in the 1970s. He was the youngest US Attorney at that time and has had a long and successful career since as a defense attorney. Unfortunately, he forgot about the law requiring a tax return to be filed; he didn’t file his corporate or individual returns from 2006 to 2010. He pleaded guilty last year, and was sentenced this week to 18 months at ClubFed. He has already made restitution.

California at Bottom of Small Business Entrepreneurship Rankings

Wednesday, December 31st, 2014

While I was on vacation, the Small Business & Entrepreneurship Council released its 19th annual “Small Business Policy Index 2014: Ranking the States on Policy Measures and Costs Impacting Small Business and Entrepreneurship.” (Hat Tip: Joe Kristan) The listing measures the costs, both in taxes and regulations, on small businesses. As noted in the report,

Some elected officials, policymakers and special interests believe that taxes, regulations and other governmental costs can be increased with impunity. Economic reality tells a different story. Ever-mounting burdens placed on entrepreneurs and small businesses by government negatively affect economic opportunity. People go where economic opportunity is, in turn, bringing more opportunity with them. The “Small Business Policy Index” tries to make clear the relative governmental burdens placed on entrepreneurship among the states, so that business owners and their employees, elected officials and citizens in general can better grasp the competitive position of their respective states.

Here’s the listing of the best states:

1. South Dakota
2. Nevada
3. Texas
4. Wyoming
5. Florida
6. Washington
7. Alabama
8. Indiana
9. Colorado
10. North Dakota

And here are the bottom ten:

41. Connecticut
42. Maine
43. Iowa
44. Oregon
45. Vermont
46. Minnesota
47. Hawaii
48. New York
49. New Jersey
50. California

In looking at the actual factors, California is near the bottom on most tax and regulation rankings. (interestingly, California had the best score on unemployment tax.) Contrast that with Nevada, which doesn’t have a state personal income tax, doesn’t have a corporate income tax, and doesn’t have the regulatory burden of California. It’s no wonder that Nevada ranks higher than California.

Nevada Goes Deep Red

Wednesday, November 5th, 2014

Do you remember 1928? Well, that was the last time Nevada had a Republican governor, a Republican State Assembly, a Republican State Senate, and Republicans holding all major statewide offices. Well, 2015 will see that. As part of the tsunami nationally, any Republican that had a chance of winning won in the Silver State.

Coincidental with that, any measure which had the appearance of increasing taxes lost. The Margins Tax, supported by the Nevada Teachers Unions, was expected to lose by a 60% no vote. It got crushed, as the no vote was 78%. Nevadans don’t like the idea of state income taxes of any sort.

There was no Nevada senator on the ballot, but Democrat Harry Reid can’t be liking the results. He’ll remain Senate Majority Leader for the rest of 2014, but he will soon be Minority Leader. The GOP will likely hold 54 Senate seats come the next Congress.

The Nevada Congressional delegation to the House was split two Democrats, two Republicans. It will now be three Republicans as Democrat Steven Horseford lost his race.

The biggest shock was the State Assembly. No one predicted that the GOP would pick that up. The thoughts were that if this was a ‘wave’ election, Republicans might get to 21 of the 42 seats. The State Assembly will have at least 25 Republicans.

There was no surprise in that Republican Governor Brian Sandoval coasted to reelection. In the primary, “None of the Above” did better than his Democratic opponent. Governor Sandoval is hugely popular here in Nevada, and he is definitely a likely future Senator. Governor Sandoval won over 70% of the vote.

The Nevada legislature only meets every-other-year, so this election will have a big impact on coming policies. Nevada does have major issues: an education system that is poor, tax revenues that do need to grow, and major water issues. In the past, partisan bickering has been at a minimum in Carson City. We’ll see if having the GOP in charge of everything in the next term changes anything.