Archive for the ‘Sales Tax’ Category

Massachusetts Has a New Software Sales Tax

Saturday, August 17th, 2013

Taxachusetts, er, Massachusetts has had for years a reputation of being a high tax state. Lately, Massachusetts has become a somewhat better locale (based on taxes). It’s not that Massachusetts has improved; rather, other nearby states have enacted or increased taxes. Just when you thought you could throw away the Taxachusetts label, out comes a new sales tax.

Last month, the Massachusetts legislature passed a new sales tax on computer software services. At 6.25%, it’s the highest sales tax rate on this in the country. The tax applies to all “computer software, including pre-written upgrades, which is not designed and developed by the author.” The law was effective July 31, 2013.

One website has published a piece about how confusing this new tax is. Consider:

This added levy is not only cumbersome, it’s super confusing. For example:

  • if you install software (Microsoft Office, Constant Contact, Drupal, etc.), it’s taxable
  • if your client clicks the mouse to install it, it’s not taxable
  • training your client to use this software is not taxable
  • but if you “customize” or configure the software in any way, it’s taxable
  • if you don’t actually make any changes, but just discuss them and plan them, it’s consulting and not taxable
  • if you create graphic design mockups, it’s not taxable
  • but as soon as you implement that design (i.e. program it), it becomes taxable if you’re using “prewritten” software “not developed” by you (such as WordPress)

At least, that’s how we think it works.

The Massachusetts high-tech community is up in arms over the new tax. As Christopher Anderson, president of the Massachusetts High Technology Council, said in an interview on WBZ-TV (as reported in the Boston Globe,

“When we impose a tax that no other state in the country imposes as broadly as this, it is going to have an impact on those small and midsize companies, initially, in terms of their ability to win and retain business or add or retain employees,” he said.

“In fact, a number of them are telling me they may have to shed employees just to maintain the business load they have,” Anderson added in the interview with WBZ’s Jon Keller.

Democratic state Senator Karen Spilka has filed a bill to repeal the measure. Meanwhile, Florida Governor Rick Scott has urged unhappy Massachusetts companies to consider moving to the Sunshine State. I am certain that if this tax remains law Massachusetts will see some companies move out-of-state. Taxes matter, and when a business in Massachusetts faces a confusing 6.25% tax while a business in neighboring New Hampshire doesn’t, a business owner might just move.

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:

Zappers OK in B.C. but Using Them Isn’t

Friday, July 19th, 2013

A Richmond, British Columbia firm marketed an interesting computer program. As I noted when I first wrote about this (in 2008):

Bradley Alvarez of the Canada Revenue Agency told The Province that, “Businesses are suspected of having hidden thousands of transactions and millions of dollars in sales across Canada.” The software, from InfoSpec Systems in Richmond, BC, will save an owner taxes. The RCMP noted in its application for a search warrant that an InfoSpec spokesman allegedly said that the software can be used for “deleting cash sales.” Additionally, the software vendor claimed that you can take the cash and “pay kitchen staff.” There’s no reason to stop at one felony when you can commit two, eh?

Well, the software vendor won a victory at the B.C. Court of Appeal. As the Vancouver Sun reported:

Four years after a Richmond computer company was charged and a year after it was convicted of tax fraud, the province’s highest bench has ordered the company acquitted…

“It is noteworthy that the law does not prohibit the making, possession, or sale of a zapper,” Justice Frankel said, even though a number of criminal code provisions target and restrict other instruments of crime used, for instance, in counterfeiting or falsifying credit cards.

“I do not accept the Crown’s submission that InfoSpec ‘engaged in a course of dealings that was by its very nature dishonest.’ InfoSpec participated in commercial transactions involving the sale of a computer program that is not prohibited by law; the restaurants got what they paid for. Whatever reasonable people might think about the propriety of such a sale, I am unable to say they would consider the vendor to have acted dishonestly.”

However, using the software to evade taxes was and still is a crime in Canada. It is likely that the Canada Revenue Agency will appeal this decision to the Canadian Supreme Court.

It’s 6,219 Miles from Calumet City to Amman

Saturday, March 2nd, 2013

What does Calumet City, Illinois have in common with Amman, Jordan? To be honest, not very much at all. However, this story begins in Calumet City and takes a detour through Amman before ending in Chicago (with a probable side trip to Springfield, Illinois).

Samer Farhan owns a gas station in Calumet City, along with another in Chicago. Gas stations have to collect lots of taxes: State sales tax, state gasoline tax, and federal gasoline tax. Of course, most people would prefer not paying taxes. Mr. Farhan is accused of taking this a bit too far on remitting others’ money that he collected.

Remember, when a business collects sales tax they become the agent of government. Like with employment trust fund taxes, sales tax agencies don’t like it when some of the money doesn’t end up where it belongs. Sales tax agencies regularly audit many businesses.

Mr. Farhan is accused of 28 counts of filing phony sales tax returns, two counts of mail fraud and five of money laundering. Mr. Farhan is alleged to have lowered the amount of sales so he didn’t have to pay nearly $1 million in sales taxes. That’s a lot of gasoline. However, he’s accused of going further–literally. Mr. Farhan allegedly took some of the profits of his scheme and sent them to a bank in Amman, Jordan; that money then supposedly returned to him. If proven, that’s money laundering. The Illinois Department of Revenue had the help of the US Secret Service in that aspect of the case.

Mr. Farhan will have a preliminary hearing later this month. If convicted on all charges, he’s looking at a lengthy term in prison (plus restitution).

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]

In the Battle Between the Board of Equalization and the Humble Taco Truck…

Sunday, July 15th, 2012

Entrepreneurs look for niches: Opportunities that aren’t being served well by current businesses. Enter the humble taco truck. These food kitchens on wheels tend to serve business workers looking for a quick and reasonably priced meal. I saw them daily when I was living in Orange County.

What’s the biggest enemy of the entrepreneur? That’s easy: Government. It stifles businesses by adding regulations and taxes. And out of my old stomping grounds of Orange County comes a story about 12 taco truck owners who say that they now must fight the BOE.

One issue is that some items sold by these entrepreneurs are taxable while some are not. Thus, estimates are used to determine the sales tax owed to the state. Apparently, these estimates have now become unreasonable.

In this article in the Orange County Register, Steven Greenhut comes to the same conclusion that I did:

The state Capitol is controlled by liberal Democrats, who frequently invoke concern for the poor, working-class people and immigrants to justify spending schemes. Yet here is another example of how these officials, lawmakers and bureaucrats, put the demands of the well-paid and powerful public-employee unions over the needs of cash-strapped immigrants and working people.

State officials refuse to tackle solutions for the pension debt or rein in public spending. Indeed, they are busy approving fanciful projects such as high-speed rail. Yet, the state has no money. This is the end result of an infantile progressive movement that refuses to make hard choices, always blames the private sector and figures that higher taxes will solve every problem.

Read the entire piece and you’ll understand that California is doing everything it can to drive all business out of state.

Amazon Tax Tossed in Colorado

Sunday, April 29th, 2012

Taxdood has had a good series of posts on the Amazon tax. Amazon.com has negotiated with several states regarding collecting sales tax on purchases made from the online retailer. Amazon will begin to collect sales tax in Texas (beginning July 1st) and Nevada (2014).

Some states have imposed “Amazon” taxes–writing laws that force the online company to collect sales tax in those states. The typical Amazon tax says that affiliates cause Amazon to have nexus to that state. Recent court decisions may make Amazon bolder in fighting the taxes.

This past week a judge in Chicago ruled that Illinois’ Amazon tax was unconstitutional. In Denver, Judge Robert Blackburn ruled Colorado’s Amazon tax unconstitutional because it, “impose[s] an undue burden on interstate commerce…Enforcing a reporting requirement on out-of-state retailers will, by definition, discriminate against the out-of-state retailers by imposing unique burdens on those retailers.” I expect the Colorado Department of Revenue to appeal.

There is the possibility of this case heading to the US Supreme Court in a couple of years, especially if one Appeals Court rules the tax constitutional and another court rules it unconstitutional.

When Buying a Business in Texas…

Wednesday, March 14th, 2012

…ask for the Certificate of No Tax Due from the Texas Comptroller of Public Accounts. Alan Sherman of the Texas State & Local Tax Law Blog explains why.

BOE Updates Top 500 Sales & Use Tax Delinquents in California

Sunday, March 4th, 2012

A few years ago, the California Legislature passed a bill requiring the Board of Equalization (California’s sales tax agency) to publish a list of the top 500 deadbeats each quarter. That list has just been updated. On top of the list is California Target Enterprises Inc. with a debt of $18.4 million; at the bottom of the list is Mega Micro, Inc. with a debt of $404,390.

In scanning the list the one thing that struck me was the number of automobile dealerships on the list. I can’t believe it’s that hard to figure out and remit the sales tax on a new or used car. However, my mother told me about how “honest” used car salesmen are….That said, there are new car dealers on the list, too; a relatively new listing is Auto First Financial Corp. dba Silicon Valley Hummer with a debt of $2.85 million.

To date, the list has caused the BOE to receive $5.3 million in payments, so this is one of the few accomplishments of the California legislature.

Sales Tax on Services Under Consideration in Maryland

Tuesday, February 28th, 2012

For those who haven’t followed Clayton Financial and Tax, we now have an office in Maryland. Our charges for preparing your return aren’t dependent on whether you’re in our Las Vegas or Bethesda office. However, that may soon change.

Shiela Hixson and James Gilchrist, two Democrats in the Maryland House of Delegates (the lower chamber of Maryland’s legislature) introduced legislation that would add sales tax to 29 different services. The services that would be taxed under this proposed legislation include tax preparation, gyms, cable television, consulting, and dating services.

If this tax passes, the added costs to our business will be passed on to our customers. And, yes, there are always added costs in compliance: The time we will have to spend complying with bureaucratic paperwork.

I haven’t been following Maryland’s budget situation, but I’m sure they (like every state) are facing some shortfalls. The typical Democratic response is to increase revenues, not decrease expenses. That may be one of the reasons “Blue” states find themselves with worse budget situations than “Red” states. However, I might just be too cynical.

[Image of Maryland's state flag from Wikipedia]

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