Archive for the ‘Nevada’ Category

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.

Happy Nevada Day, Especially If You’re a Performer at a Gentleman’s Club

Friday, October 31st, 2014

Today is Nevada Day! Exactly 150 years ago Nevada was admitted as a state. The Nevada Supreme Court yesterday ruled on a case that may make this day more celebratory for workers at adult entertainment facilities (strip clubs).

Several performers at Sapphire Gentleman’s Club sued the club alleging they were employees and not independent contractors. The district court ruled that they were independent contractors. They appealed to the Nevada Supreme Court.

The Nevada Supreme Court reversed the district court decision. The Court noted that the performers sign a contract, and the Court ruled that even though the contract states they won’t be employees, the actual relationship “is an express contract of hire.”

The Court then ruled that the Fair Labor Standards Act (FLSA) economic realities test should be used to determine who the employer of the performers is. The Court noted that while it might appear that the performers weren’t under the control of the club (they could choose their own schedule, whether to dance or not, etc.), appearances were deceiving.

But by forcing them to make such “choices,” Sapphire is actually able to “heavily monitor [the performers], including dictating their appearance, interactions with customers, work schedules and minute to minute movements when working,” while ostensibly ceding control to them. This reality undermines Sapphire’s characterization of the “choices” it offers performers and the freedom it suggests that these choices allow them; the performers are, for all practical purposes, “not on a pedestal, but in a cage.” [citations omitted]

The Court noted that other economic realities test factors made the performers appear to be employees rather than independent contractors. The Court unanimously reversed the district court decision, and remanded it back to the district court for a trial on damages.

The attorneys representing the performers note that they could be looking at $40 million of back wages. However, Nevada’s minimum wage law allows employees who receive tips (and clearly the performers at these facilities receive tips) to be paid well under the minimum wage, so damages could be far smaller.

The 2015 State Business Tax Climate Index: Not Much Has Changed

Tuesday, October 28th, 2014

I guess I could have called this, “Bring me the usual suspects,” but I’ve been using that phrase over and over. Yet not much has changed, so the usual suspects have good tax climates and the usual suspects have bad tax climates. That’s according to the Tax Foundation and their 2015 State Business Tax Climate Index.

Let’s look at the ten best states for business:

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

This list is remarkably similar to last year. The only state dropping out is Washington. The Evergreen state fell from 6th best to 11th; it was hurt by its sales tax ranking (48) and corporate tax ranking (28). While Washington does not have an individual or corporate income tax, it does have a Business & Occupation Tax. That’s a gross receipts tax on business income.

The bottom ten is also mostly unchanged:

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

Why are states ranked poorly? Here’s what the Tax Foundation says:

The states in the bottom ten suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst structured individual income taxes in the country.

Maryland and North Carolina rose out of the bottom ten, while Iowa and Ohio fell into the bottom ten. North Carolina’s improvement was dramatic: from 44th to 16th. Why?

In this year’s edition, North Carolina has improved dramatically from 44th place last year to 16th place this year, the single largest rank jump in the history of the Index. The state improved its score in the corporate, individual, and sales tax components of the Index, and as the reform package continues to phase in, the state is projected to continue climbing the rankings.

As for why states rank where they do, consider my old home of California. The Bronze Golden State has complex taxes for individuals (it ranks worst in the country), corporations, and also has a complex sales tax system. If the Tax Foundation looked at flow-thru entities, California would rank even worse. In most states a single-member LLC does not have a state tax filing requirement. That’s not the case in California.

Kudos to the Tax Foundation for their annual report. It’s clear that policy makers do read this report. North Carolina saw drastic improvement. There’s improvement forthcoming in New York, with a major corporate tax reform implemented this year which should have a dramatic impact on at least one New York tax in the future.