Archive for the ‘New York’ Category

Update on the Future of Daily Fantasy Sports

Thursday, November 19th, 2015

So far, I’ve been accurate on my predictions. Back in February 2014 I wrote,

Unfortunately, many states look at just an element of chance to determine if something is gambling. And there’s no doubt that daily fantasy sports have such an element. The problem is that these sites are starting to bring in large dollars. That attracts attention, and some state attorney general is going to wonder the same thing that I am. He or she will conclude that the Duck Test applies and that these are gambling sites in violation of his or her state’s laws. [emphasis in original]

Last month I wrote,

I expect DFS to follow two different paths in the majority of states. Some states will simply declare it as gambling, making it effectively illegal in those states. Other states will tacitly declare it as gambling but allow regulation of the activity. There will be a minority of states that allow DFS to continue as an unregulated activity. Where one month ago you could play DFS in 45 of the 50 states, that number is down to 42 to 44 states (depending on the DFS site). I expect that number to continue to fall.

Events have moved faster than I thought they would. The New York Attorney General declared DFS to be gambling, and has asked a court for an injunction. One of the two major sites, FanDuel, has stopped offering contests for New Yorkers. The hearing will be next Wednesday. The Massachusetts Attorney General has proposed regulations.

As for New York, I think FanDuel is operating far wiser than DraftKings. DraftKings is still allowing New York residents to play on the site. Given that there is a non-zero chance that the company will find it outself ordered to stop, and that operating in violation of state law would be a predicate offense for possible federal charges, I think DraftKings is making the wrong decision. (I will point out again that I am not an attorney, and nothing I’m writing should be construed as legal advice.) If you ask me the most likely result of the New York Attorney General’s action, it’s that the sites will find themselves enjoined from serving New York customers. This isn’t a certainty, but if you’re going to place a bet on the results that’s the favored side.

I still think we will end up with a dichotomy within the states. States that are notoriously anti-gambling or have constitutional provisions against gambling (including much of the South: Texas, Florida, and Tennessee; Utah, and Hawaii) will ban DFS, either by Attorney General rulings or by court actions. Other states will regulate DFS. Some states will order the DFS companies to shut down until regulations are in place. A very small number of states will just ignore the issue, and leave DFS in an unregulated state.

DFS proponents need to remember that a regulator’s first instinct when confronted with something new is to ban it. Add that to the fact that DFS is legal by way of a loophole (in the view of regulators) and you get a strong inclination for them to end DFS.

That’s the most likely outcome. However, there is still the chance that DFS could end completely. There are federal investigations of the sites which could, if indictments result, end the industry.

This is a fascinating story–and the greed of the sites has sped up the story line. It was inevitable that DFS would attract scrutiny. The pace of that scrutiny sped up because the sites went overboard in their advertising and had very poor visuals. We’ll all be able to see the future of this product unfold in the next few weeks.

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.

DFS Gets the Boot in New York

Tuesday, November 10th, 2015

New York State’s Attorney General, Eric Schneiderman, sent a letter to DraftKings and Fan Duel ordering them to cease offering their Daily Fantasy Sports (DFS) wagers games to New Yorkers. According to both ABC and ESPN, Attorney General Schneiderman sent a letter to both companies calling contest entries “wagers.”

“Our review concludes that DraftKings’/FanDuel’s operations constitute illegal gambling under New York law,” Schneiderman wrote in the letter, obtained by ESPN’s David Purdum and Darren Rovell, and ABC News.

The two sites are apparently going to fight this action.

“Fantasy sports is a game of skill and legal under New York State law,” FanDuel said in a statement. “This is a politician telling hundreds of thousands of New Yorkers they are not allowed to play a game they love and share with friends, family, coworkers and players across the country. The game has been played — legally — in New York for years and years, but after the Attorney General realized he could now get himself some press coverage, he decided a game that has been around for a long, long time is suddenly now not legal.”

DraftKings said they will look at legal options. (UPDATE: After I first posted this, there is a report that DraftKings will fight this.)

Let me state something that should be obvious to anyone who partakes in DFS: It’s gambling. Sure, it’s skillful gambling, but as I wrote in February 2014 it meets the criteria of what gambling is. And it is quite likely that FanDuel will be proven wrong under New York law.

The problem is that New York and many other states look at whether there’s an element of chance. Sure, skill predominates but there’s no way to honestly state there’s not an element of chance in DFS.

New York is definitely not going to be the last state where DFS gets the boot. I suspect Florida (where an Attorney General opinion makes legal DFS dubious at best) and Texas (where the politicians think gambling is a huge sin) are additional states in deep trouble.

What should DFS players do if they want to continue enjoying DFS? You should call your state representatives now. State legislators do listen to the public. And state legislators can absolutely influence what other elected politicians (e.g. state Attorney Generals) do.

Additionally, DFS players should consider keeping only the amount of money they need on the sites. The New York Attorney General statement used the words “criminal activity” to describe DFS. While I am hopeful that the DFS sites use segregated trust accounts, neither DraftKings nor FanDuel has confirmed that they do. It’s better safe than sorry, and that’s a good course of action today. (UPDATE: With the news that DraftKings will (apparently) fight this action, I now strongly advise that individuals keep just the minimum amount necessary on each site. I suspect that criminal charges are in the near future, and seizure of bank accounts is now a real possibility. The New York Attorney General will look at DraftKings’ continuing to operate in New York State as a slap in the face.)

DFS is in deep trouble, and the most likely outcome is a regime very similar to the current state of online poker in the United States–four to six states where DFS is legal. This doesn’t have to be how it winds up, but the arrogance of how the companies have been perceived to act (and are continuing to act) along with how gambling is traditionally regulated in the US makes that the most probable result.

UPDATE #2: Here is a link to a New York Times article that includes the letters to FanDuel and DraftKings. (Link to FanDuel letter; link to DraftKings letter. Note that the letters have basically identical content.) These letters warn that if the two sites do not cease operations, they will be subject to prosecution under various New York statutes. If these sites continue to operate in the face of the New York Attorney General notice, things are likely to get very ugly very fast.

The Real Impact of the Wynne Decision

Tuesday, May 19th, 2015

Yesterday’s decision in Comptroller of the Treasury of Maryland v Wynne Et Ux generated some reporting in print media. Yet much of what I saw was incorrect in part or in whole.

New York does give full tax credits for individuals with out-of-state income; I do not believe they will be impacted. However, many states do not give credits for local taxes. Joe Kristan highlighted Iowa today; Kentucky is another state that does not currently offer such tax credits. Under Wynne I believe they’ll be required to offer such credits. (I only know about Kentucky because I had a client impacted by this.) Joe noted that Tax Analysts saw that North Carolina and Wisconsin (along with a host of local governments) also don’t offer such credits. That’s where I think the real impact will be.

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.

There Are Better Methods of Paying Off the IRS than Bungling a Burglary

Sunday, September 1st, 2013

Let’s assume you owe the IRS $10,000 in back taxes. What would you do? Perhaps obtain a payment plan? Maybe you can negotiate an Offer in Compromise? Or maybe you have so little funds on hand than you can go into Currently Uncollectible Status. Or maybe you will elect to attempt to steal welding equipment, and then become the prototypical demolition derby driver. And yes, someone actually did this.

Joel Grasman (and his wife) apparently owed the IRS $10,000. Instead of doing one of the obvious things to resolve the tax debt, he first stole welding equipment from the MTA (New York’s transit system), then on his way out drove his truck into power lines. That caused thousands of Long Island power customers to be powerless.

This New York Post article notes that Mr. Grasman has confessed. He faces a multitude of charges; frankly, his tax debt is the least of his current problems.

Nite Moves Asks Supreme Court to Rule on Constitutionality of Taxing Pole Dances in New York

Sunday, August 11th, 2013

When I think of “Night Moves” I think of a Bob Seger song. That’s not what this post is about. It seems that the upstate New York adult entertainment facility named Nite Moves isn’t happy with a New York state sales tax on pole dancers. The essential question: Is a tax on just certain kind of music or entertainment legal?

New York’s highest court, the Court of Appeals, held in a 4-3 decision that a sales tax on pole dancing is just fine. The owner of Nite Moves, Stephen Dick, has filed a writ of certiorari with the US Supreme Court asking the Court to overturn the tax. The question of whether pole dancing is a form of art or something that doesn’t promote culture (and so can be taxed) might be argued next Spring in Washington.

Speaking of Night Moves:

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.

What Happens When Cigarette Taxes go Through the Roof?

Sunday, December 16th, 2012

While Alan Greenspan noted, “Whatever you tax, you get less of,” the New York legislature seems to not understand. In one of the least shocking reports I’ve seen, the New York Association of Convenience Stores (NYACS) noted that the state is losing $1.7 billion of tax revenue each year and 6,700 jobs because of cigarette tax evasion. Why would this be?

New Yorkers who can buy cigarettes elsewhere. The study found that many are buying cigarettes from surrounding states, military bases, Indian reservations, and duty free shops. Add in smuggling from low-tax states (there’s undoubtedly a black market) and you have tax avoidance.

Meanwhile, Cook County, Illinois (Chicago) is conducting cigarette raids to enforce the $2 county cigarette tax. A picture is coming into my mind, that of prohibition, where organized crime prospered when alcohol was banned. I’m sure the similarities are just superficial…or maybe they’re not.

Of course, the NYACS would like New York to begin raids like those in Chicago; after all, convenience stores that are obeying the law stand to sell more cigarettes than most other locations. Still, the unintended consequences of increased taxes are obvious to most of us.

Ref Fouls Out

Wednesday, December 12th, 2012

Last year I reported on the rather brazen scheme of some referees at New York’s Chelsea Piers. Instead of reporting their $40 income per game, they decided to commit identity theft and use false names for reporting their income. This isn’t the identity theft that normally makes the news–fraudsters using someone else’s identity to obtain a tax refund. Rather, this was a scheme to avoid paying taxes on income the referees clearly earned. And this wasn’t a one-time thing: The scheme ran for twelve years.

It was judgment day yesterday in Manhattan
. Peter Iulo was one of the individuals who committed the fouls, er, crimes. Besides his involvement with the referee scandal, he also elected to not file his own tax returns. That didn’t sit well with Judge Barbara Jones: He was sentenced to two years at ClubFed and must make restitution of $80,000. All told, the four individuals involved in the scheme must make restitution totaling $200,000. As always, it’s far, far easier to just pay the tax you owe…but that thought rarely occurs to the Bozo mind.