Archive for the ‘New Jersey’ Category

State Financial Health: Alaska, Dakotas on Top, Illinois, New Jersey, Massachusetts and Connecticut on the Bottom

Tuesday, July 7th, 2015

The Mercatus Center at George Mason University released a study today ranking the 50 states on their financial health. Here are the top six states:

1. Alaska (8.26)
2. North Dakota (2.97)
3. South Dakota (2.84)
4. Nebraska (2.75)
5. Florida (2.74)
6. Wyoming (2.67)

These six states have “Fiscal Condition Index” scores that are significantly higher than all the other states. Of course, where there’s good there’s also bad; here are the bottom seven states:

50. Illinois (-1.86)
49. New Jersey (-1.86)
48. Massachusetts (-1.84)
47. Connecticut (-1.83)
46. New York (-1.49)
45. Kentucky (-1.42)
44. California (-1.41)

Why are states ranked low?

High deficits and debt obligations in the forms of unfunded pensions and health care benefits continue to drive each state into fiscal peril. Each holds tens, if not hundreds, of billions of dollars in unfunded liabilities—constituting a significant risk to taxpayers in both the short and the long term.

Think unfunded pensions and you have one of the huge issues facing states. Illinois leads the way (which isn’t a good thing for the Land of Lincoln). There’s a reality: Whatever you make, spend less. Some states follow that creed; others give it lip service. California may have a “surplus,” but when you look at unfunded pensions things don’t look so good. Sooner or later, that bill will come due.

It’s an interesting analysis, and well worth your perusal.

New Jersey Tries Hail Mary on Sports Betting; Will IRS Intercept?

Tuesday, September 9th, 2014

Yesterday, Governor Chris Christie of New Jersey announced that New Jersey would not prosecute any casino or race track that offered sports betting. This is in spite of a federal court ruling that New Jersey’s sports betting law was unconstitutional. My suspicion is that the federal courts will not look favorably on this, and Governor Christie’s actions will be for naught. Indeed, the attorney crAAKer posted on his blog that this is unlikely to succeed.

But let’s assume that somehow the courts allow this. There’s an issue that will put New Jersey at an extreme disadvantage to Nevada’s legalized sports betting: taxes. Specifically, the Excise Tax on Wagering.

Yes, there are a whole bunch of federal excise taxes. And there’s an IRS publication dedicated just to them. One day you might need to know about the tax on arrow shafts (I’m not making this up). But I digress….

The excise tax on wagering is summarized as follows:

IRC 4401(a)(1) imposes a 0.25 percent tax on the amount of any wager authorized under the law of the state in which accepted.

IRC 4401(a)(2) imposes a 2 percent tax on the amount of any wager not described in IRC 4401(a)(2) (i.e., those not authorized by state law).

This doesn’t apply to all betting in the US; it applies to:

IRC 4404 provides that the tax applies to wagers:

• Accepted in the United States, or
• Placed by a person who is in the United States with a U.S. citizen or resident, or in a wagering pool conducted by a U.S. citizen or resident.

As noted in an IRS analysis on this tax, this tax applies just to sports betting (and wagering that involves a sports bet). An interesting issue is whether this tax applies to fantasy sports, such as daily fantasy sports. I suspect it does, but that’s another issue for another day.

So let’s say you place a bet at the Bellagio sportsbook, betting $100 that the Chicago Bears will beat the San Francisco 49ers. Out of the Bellagio’s “juice”–your bet will typically cost you $110 or $120, with the house (Bellagio) keeping that extra money–Bellagio must pay the 0.25% wagering tax. On a bet of $100, that’s $0.25. The Bellagio remits the tax using Form 730.

Now let’s consider if the Borgata Hotel in Atlantic City were to accept the same bet. Again, the federal excise tax clearly applies. However, the tax rate will be the 2% rate rather than the 0.25% rate because New Jersey has not legalized sports betting. Indeed, Governor Christie vetoed such legislation earlier this year. While New Jersey would argue that the previously passed Sports Wagering Act allows for sports betting, federal courts have ruled that it could not be put into effect.

New Jersey argues that federal law sort of allows any state to conduct sports betting. From crAAker’s analysis:

New Jersey seeks to avoid the licensing problem by asserting that the licensing provisions can be severed from the statute. Severability is a common law doctrine which permits a court to invalidate one section of a statute while leaving the remainder in force. In this case, the statute contains an explicit legislative endorsement of severability (Section 5:12A-2(g)), which expresses the legislature’s intent to have a court attempt to enforce the statute in the event the statute was found to violate PASPA and creates a legal presumption in favor of severability.

Since New Jersey has not authorized sports betting–the only law that was passed by New Jersey was not allowed to be put into effect by the federal courts–the higher 2% rate applies. That means that the Borgata would owe $2 to the IRS rather than the $0.25 that Bellagio owes on a $100 sports bet.

A fundamental principle of economics is that all government fees and taxes are passed on to the consumer. The additional $1.75 that a New Jersey sportsbook would have to pay would be passed on to the New Jersey sports bettor. That will make betting more expensive in New Jersey than Nevada. Even if somehow the courts were to allow sports betting in New Jersey, it will be at a higher price to the consumer than in Nevada.

I suspect the courts are going to throw buckets of cold water on the idea of legal sports betting in New Jersey. However, even if they don’t the IRS would make it a bad bet.

Former Chairman of Woodland Park, NJ Democratic Committee Bribes His Way to ClubFed

Sunday, March 2nd, 2014

The IRS has its problems, but accepting bribes isn’t one of them. The former chairman of the Woodland Park, New Jersey Democratic Committee found that out the hard way.

Michael Kazmark didn’t pay his 1997-2005 federal taxes; he owed just under $100,000 (including interest and penalties) by 2010. When you owe a large amount and cannot pay one avenue that’s open to you is an Offer In Compromise (OIC). In an OIC, you ask the IRS to settle your debt for pennies on the dollar. About 15% of OICs make it through and are accepted; it usually takes over a year for the process to play itself out. Mr. Kazmark offered to pay $48,800 of the $98,046 he owed; he sent the required deposit of $9,800 with his OIC application.

Mr. Kazmark wanted to make sure his OIC went through. Now, most of us might consult with a tax professional who could make sure the OIC had the best chance of being approved. Mr. Kazmark had another idea: bribery. From the Information in his indictment:

5. It was part of this bribery scheme that on or about October 5, 2010, in Passaic County, defendant MICHAEL KAZMARK offered, promised to make and made a $1,000 bribe payment to UC1 and UC2 in exchange for their official assistance in transferring MICHAEL KAZMARK’s offer in compromise file to UC2 so that UC2 could accept defendant MICHAEL KAZMARK’s April 18, 2010 offer in compromise.

6. It was a further part of this bribery scheme that on or about October 5, 2010, in Passaic County, New Jersey, defendant MICHAEL KAZMARK offered and promised to make a $17,500 bribe payment to UC1 and UC2 in exchange for their official assistance in accepting defendant MICHAEL KAZMARK’s April 18, 2010 offer in compromise, and thereby resolving defendant MICHAEL KAZMARK’s federal tax liability, for the amount of the check that he had already paid to the IRS, namely $9,760, as opposed to the $48,800 that defendant MICHAEL KAZMARK had initially offered.

Mr. Kazmark pleaded guilty last year; he was sentenced on Friday to two years at ClubFed. He was lucky in that federal sentencing guidelines suggested a three-year term. In any case, bribery is a strategy that is a very poor choice.

The Flow of AGI from One State to Another

Saturday, July 20th, 2013

From 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.

Hurry Up and Wait: What the New Jersey Online Gambling Bill’s Passage Really Means

Tuesday, February 26th, 2013

New Jersey Governor Chris Christie signed into law a bill authorizing online gambling in New Jersey. I’ve seen tweets from friends saying things like, “Great! Christie legalizes online poker in New Jersey.” Well, that’s not exactly what happened. While I’d prefer not to throw some cold water on the party, I’m afraid I have to.

What was signed into law is a bill authorizing the New Jersey Casino Control Commission to authorize licensees to run games online. The NJCCC will authorize which games can be run online. While it is virtually certain that poker will be allowed online, the NJCCC still has to vote for it.

Further, licensees of the Commission will need to put together proposals for running the games online. They’ll need to demonstrate that they have the systems in place so that everything works smoothly; that the games are fair; that appropriate measures are in place to prevent cheating and underage gambling; etc. Nevada legalized intrastate online poker nearly a year ago; the first real money virtual poker in Nevada has yet to take place. I suspect it will take at least twelve months in Nevada (fifteen is my guess). It may take slightly less time in New Jersey (companies with Nevada licenses will have more of the processes in place), but it’s a good bet that the first game of New Jersey virtual poker will occur in 2014, not 2013.

I’ve heard some say that New Jersey will be able to partner with sites that are in Europe, so that residents of the Garden State will be able to play poker against Europeans. That’s not going to happen–at least, for now. The US Constitution gives the federal government the sole right to make treaties with foreign countries. That’s in Article I, Section 8, Clause 3:

[The Congress shall have Power] To regulate Commerce with foreign Nations, and among the several States, and with the Indian tribes….

New Jersey can’t make a treaty with, say, Italy. That’s not happening.

It’s even debatable whether interstate poker would be legal. Must their be legislation before, say, Nevada and New Jersey can enter an interstate compact for online gambling? Congress has specifically allowed multi-state lottery compacts (such as Powerball). Must Congress specifically authorize the same kinds of compacts for online poker? It is clear that if Congress authorized such compacts they would be legal; without such legislation, it becomes a question of law.

I don’t know the answer to this question. I’ve heard both yes and no from people well versed in this area of law. It’s the kind of case that could be fought in the courts for years. Interestingly, the states where all gambling is required to be run by lottery commissions (such as West Virginia) could make online poker compacts with other such states; those have a higher likelihood of being legal.

Today’s signing of online gambling legislation is welcome news for American online poker players. It is, however, just one step among many that must be made before legal online gambling is available for all Americans (or even residents of New Jersey).

What $4.95 Buys These Days

Tuesday, January 15th, 2013

Living in Las Vegas gives me, at times, a very jaded perspective on life. I see individuals who otherwise pinch pennies spend $100 on bottle service at a club (or $4.95 for a thimble-sized amount of alcohol). You can still find $4.95 meal specials in the late night/early morning hours at many casinos in town. The latter, if you’re hungry, is a far better use of $4.95 than the former.

Another use of $4.95 is to purchase Robert Flach’s My Best Tax Advice. The 27 pages of tax advice within the ebook (a pdf document) are full of good, common-sense advice. While I don’t agree with everything Robert has written, any individual who follows Robert’s advice will be far, far better off than those who don’t. I especially like his comments about notices from the IRS; as Robert states, “Do not ignore an IRS or state tax notice. The problem will not just go away.” I used basically the same line in my book.

In any case, for less than five dollars you can get some common-sense advice that if followed would help most taxpayers. You can order the book through Robert’s website.

New York Extends Tax Deadlines Because of Sandy; Expect the IRS, New Jersey, Pennsylvania and Others to Follow

Monday, October 29th, 2012

The New York State Department of Taxation and Finance announced that they have extended all tax deadlines falling from October 26 to November 14 to November 14th because of Hurricane Sandy. I expect similar actions to be taken by the IRS, New Jersey, Pennsylvania and other impacted areas.

The New York extension directly effects MCTMT tax returns on extension that would be due on October 31st; those are now due on November 14th. Also, third quarter MCTMT estimated payments for 2012 are now due on November 14th. This will likely also impact payroll tax filings.

Why I’m Happy to be in Nevada and Not in California

Tuesday, October 9th, 2012

The Tax Foundation released its 2013 State Business Tax Climate Index today. Last year, I was a California resident; in the 2012 Index, California ranked 48th out of 50 states. I now reside in Nevada, which ranks 3rd out of the 50 states. In this case, 3rd is third best. Here are the top ten:

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

And the bottom ten:
41. Maryland
42. Iowa
43. Wisconsin
44. North Carolina
45. Minnesota
46. Rhode Island
47. Vermont
48. California
49. New Jersey
50. New York

This just a listing based on taxes. If we added in regulations, California might even fall to 49. (Based on what I know of New York, it would be difficult for the Bronze Golden State to hit bottom.) States showing the best improvement were Michigan (which went from 18 to 12) and Maine (from 37 to 30). Michigan is especially notable because its corporate ranking went from 49th to 7th!

Taxes and regulations matter. On Monday, the Tax Foundation released a map showing annual income lost and gained due to interstate migration in 2009:

Annual Income Gained or Lost due to Interstate Migration

Shock of shocks, New York and New Jersey are in the top ten of loss of income back in 2009. Michigan was worst off (remember, Michigan’s tax system was horrible); Montana was best followed by South Carolina. Low tax states generally did quite well, with Florida #3, Wyoming #4, and Arizona #5.

Returning to the state business tax climate, taxes matter. Kudos to the Tax Foundation for their vital work. As the Tax Foundation stated in their report,

Taxes matter to business. Business taxes affect business decisions, job creation and retention, plant location, competitiveness, the transparency of the tax system, and the long-term health of a state’s economy. Most importantly, taxes diminish profits…

States do not enact tax changes (increases or cuts) in a vacuum. Every tax law will in some way change a state’s competitive position relative
to its immediate neighbors, its geographic region, and even globally…Entrepreneurial states can take advantage of the tax increases of their neighbors to lure businesses out of high-tax states

Attorney Gets Tax Lien, Then Allegedly Commits Tax Evasion

Sunday, July 22nd, 2012

Lee Gottesman is a bankruptcy attorney in Toms River, New Jersey. He is also facing a heap load of tax troubles for some of the usual reasons.

According to the Department of Justice, Mr. Gottesman allegedly created a sub account within his attorney trust account after he had a tax lien filed against him in 2002. That account was for his wife…but his wife supposedly wasn’t a client. Then he allegedly ran all his expenses — both personal and business — through that sub-account. Adding to his troubles, from 2006 through 2009 Mr. Gottesman supposedly didn’t file tax returns…while allegedly earning more than $400,000. According to the indictment, Mr. Gottesman had a CPA prepare tax returns; he just couldn’t be bothered to file them. That’s tax evasion. The indictment noted that Gottesman, “…created and began to use the Sub Account to deposit business income and to pay personal expenses after the 2002 Tax Lien due to his belief that the IRS could not levy the Gottesman [Attorney Trust Account].”

But the reason he likely got into trouble is something that I’ve mentioned over and over again: Withholding payroll taxes but not remitting them. If you do this, you will be investigated. The indictment states, “He [Gottesman] knew that he was required to pay payroll taxes to the IRS, but that he had not.” Given that he allegedly collected (withheld) taxes on his employees but didn’t remit them, that’s a huge mistake. That’s another 15 counts to go with the four counts of tax evasion.

I look at the press release and the indictment and have to wonder. An attorney knows (or should know) the rules regarding taxes. He apparently had good advice from a CPA. He practices in bankruptcy, so he knows that there are alternatives to simply not filing and paying taxes. Yet Mr. Gottesman allegedly committed numerous felonies–and apparently admitted doing so to investigators.

Another Survey, Another Bad Result for California

Wednesday, May 30th, 2012

Yet another survey puts California among the worst three states from a tax perspective. Alvarez & Marsal Taxand, a consulting and tax advisory firm, surveyed 800 financial executives (302 responded). Among the questions asked was Which states do you view as most competitive from a tax perspective? The usual suspects finished on the bottom: California, New York, and New Jersey. As Alvarez & Marsal Taxand noted, “…the states generally viewed as having complex tax systems and high tax rates are the three states listed (by a wide margin) as the least competitive states.” Alvaraz & Marsal Taxand Managing Director Don Roverto told the the Orange County Register, “The feedback from clients who do business in California is that it has one of the highest combinations of high rates and complex systems and that’s why it’s at the bottom.”

It’s also not a surprise which states finished at the top: Texas, Florida, and Nevada. These states all feature a tax exclusion or non-income tax based system.

Perhaps California will consider tax simplification, lowering rates, and making businesses feel wanted. Of course not–the Bronze Golden State will have one or two tax hike proposals on the November ballot.