Berdon Blogs

SALT TALK: Connecticut Fires Back at the TCJA

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jun 18, 2018 1:39:45 PM

As my readers know, I’ve been anticipating strong state responses to some of the more onerous aspects of the Tax Cuts and Jobs Act (TCJA). Well, Connecticut Governor Dannel Malloys “An Act Concerning Connecticut’s Response to Federal Tax Reform” (The Act) is a major shot in what I expect will be a long war.  One key provision of the Act is the Pass-Through Entity Tax (PET).

PET is designed to be revenue neutral to both the State and taxpayers. The TCJA limited the deductibility of state and local taxes paid by individuals to $10,000 and pass through entities (PTE) with Connecticut source income are now required to pay a tax on that income at a rate of 6.99% -- the highest individual tax rate.  Malloy is trying to work around this.   Under the Act, members of the PTE will receive a credit on their Connecticut personal income tax return equal to their pro-rata share of entity income multiplied by 93.01%.

Here’s how it works:

  • AB partnership is owned equally by A, a Connecticut resident, and B a nonresident.  The partnership earns $1,000,000 before taxes in 2018, all Connecticut source.  AB will pay a PET of $69,900 (1,000,000 * 6.99%).  A and B will each have $465,050 of income from AB (($1,000,000 - $69,900)/2).
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SALT TALK: Telecommuting Becomes an Inconvenient Truth in Connecticut

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jun 11, 2018 10:30:00 AM

You’re trying to do your share to stop global warming, so you persuade your employer to let you work from home. Think of the gas you will save and the burden lifted from the environment.  Well, not so fast, if you live in one of the few states with a so-called “Convenience of the Employer” rule.  You are going to be so mad when you realize the consequences that the steam rising from the top of your head is going to create more environmental damage than any reduction in carbon output from working at home. 

Currently only Delaware, Nebraska, New York, and Pennsylvania have a convenience rule.  But effective for tax years beginning on or after January 1, 2019, Connecticut will have one as well, albeit a slightly kinder version. The rule will only apply if the nonresident taxpayer in question lives in a jurisdiction that has its own version of the rule.

The inconvenient part about the convenience rule, simplified for brevity, can be best demonstrated by a simple example. 

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SALT TALK:  “I Wanna Be a Lifeguard” – But Not in New York

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jun 4, 2018 9:35:43 AM

Memorial Day has come and gone. Visions of the beach are swirling through my head and memories from my high school and college summers take over and surmount any state tax concerns I may have at the moment. I had the second best job in the world (SALT Partner at Berdon being number one) back in those days. I was a lifeguard.

Not one of those muscle-bound Jones Beach types, but at a day camp, where I made lots and lots of extra money giving swim lessons after the camp day was done. Since one hundred percent of my income was disposable in those days (thanks Mom and Dad) I had more money to go around than I do now. A typical day consisted of getting to the pool early, commiserating about our previous night out, teaching bright eager minds to swim (to this day, I still bump into doctors, lawyers, accountants, engineers, school teachers and the like, who I taught to do so) and listening to the hit song by the Band Blotto, “I Wanna Be a Lifeguard” over and over.

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SALT TALK: Battle Royal Heats Up Between IRS and States

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on May 29, 2018 9:58:08 AM

Digital or Analog? Mono or Stereo? I’ve never been much for format wars. In the classic 1961 release, “First Time! The Count Meets the Duke” you had your choice. If you bought the mono version, both bandleaders’ orchestras could be heard blaring equally out of both speakers. But if you bought the stereo release, Basie is blaring from the left and Ellington from the right. Even though the very first cut on the record is entitled “Battle Royal,” critics described the release as far from a battle of the bands and more like a mutual admiration society. Stereo or mono, pay no mind. Let’s just get to the music.

Yet since the enactment of the federal Tax Cuts and Jobs Act (TCJA) states have been fighting the format wars, attempting to repackage lost state and local tax deductions into charitable contributions and deductible business taxes. Who sounds better? In my opinion I would sooner go back to eight-tracks.

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SALT TALK: Beatles Norwegian Wood (This Bird(y) Has Flown) is Homage to Golf

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on May 21, 2018 12:06:57 PM

The byline for this week’s blog is simply not true.  As are many things you might hear on the golf course, especially as they relate to changing one’s residency for income tax purposes.

I’ve written about this topic many times before, but it can’t be repeated often enough.  Spending less than 184 days in certain jurisdictions (New York, New Jersey, Connecticut, Pennsylvania, and most others) is not going to be enough in and of itself to break a long-standing taxing relationship with the jurisdiction. 

The “I heard it on the golf course” approach to changing residency just doesn’t work. For those of you who don’t play golf, that approach usually consists of buying a home in a low or no tax jurisdiction, changing your voter registration and driver’s license, and going to the county clerk to declare your domicile in that new jurisdiction.  Some golf buddies even go as far to suggest that it doesn’t matter if you are in the jurisdiction for more than 183 days, as long as you don’t sleep at the house or apartment. 

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SALT TALK: New York on My Mind – Sourcing on New York’s Mind

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on May 14, 2018 11:06:28 AM

Did you know that Hoagy Carmichael was an attorney? That’s right, the coauthor of the song “Georgia on My Mind" received his law degree from Indiana University in 1926. While he very briefly hung up a shingle in West Palm Beach, the composer, singer, actor, and bandleader apparently pursued other interests. I’ll bet you didn’t know that Georgia Code Title 50, State Government Section 3-60 (50-3-60) designates the song as the official song of the State of Georgia and proceeds to list the lyrics. One more diversion before we talk tax; I’ll bet you also didn’t know that the State of Georgia successfully pursued a copyright infringement action asserting that the Georgia Code is copyrighted and payment must be made for its reproduction. 

The connection you’ve been waiting for — on one day in April (the sixth), the New York State Department of Taxation and Finance released not one, but three Technical Memorandums, all addressing the sourcing of income to New York. Interestingly enough, the first and second address New York State Tax Law changes made in 2017, while the third addresses the sourcing of income related to a federal law change (Internal Revenue Code Section 457A) enacted during the Bush administration and effective as of January 1, 2009.

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SALT TALK: Use Caution Navigating State Tax Credits

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on May 7, 2018 11:30:00 AM

Just like the beautiful Sirens luring nearby sailors to a rocky shipwreck, those aimlessly navigating the waters of state tax credits can end up with a similar fate. The Sirens, in this case, are certain purveyors of state tax credit services. They will sing you songs of promises to provide you free money that your accountant doesn’t know about. And best of all, at no cost to you.

While state tax credits are a great resource as are a handful of practitioners that specialize in securing them, many have a rudimentary understanding of federal and state tax planning in general, let alone your specific circumstances. While a taxpayer may be able to secure a tax credit from a particular state, surprisingly this may have little or no impact on your overall tax burden. In fact, it may end up costing you.

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SALT TALK: Where You Rest Your Weary Bones May Have No Impact on Tax Residency

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Apr 30, 2018 9:20:00 AM

As avid readers of my blog already know, most states have a two-pronged approach to pulling you in as a resident and consequently taxing you on worldwide income. The first way is domicile, the test that generally looks to your intentions. The second and the focus of this post is statutory residence.

If you have a permanent place of abode and are in the jurisdiction for more than 183 days, with limited exceptions, you will be held in the same regard as a domiciliary of the jurisdiction. You will be taxed as a resident. What many taxpayers fail to appreciate is that you don’t ever need to sleep, visit, drive by, look at or be within 500 miles of the so called living quarters that may constitute a permanent place of abode.

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SALT TALK: Take My Tax … Please (California)

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Apr 23, 2018 11:30:00 AM

I’ve addressed real estate transfer tax traps before (February 21, 2017, July 11, 2016, October 12, 2015, October 5, 2015) and the concept of the controlling interest transfer. Simply put, state real property transfer taxes used to be simple; if you transferred title to the property, the tax applied. Life got more complicated and taxpayers got smarter. What about the sale of a business that owns real property? If the buyer were to purchase the existing business entity, the deed stays in the name of the existing business and no transfer tax would apply. Clever property owners came up with the idea to put the property in a special purpose entity specifically to hold title to the property they wished to sell. The buyer would purchase the entity, real property and all. Under the old simplistic transfer tax statutes, the tax wouldn’t apply.

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SALT TALK: The Day We Have Been Waiting For

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Apr 16, 2018 12:29:56 PM

It is April 16th, a day that most accountants hate but gleefully look forward to, nonetheless.  Since April 15th, “Tax D-Day” fell on a Sunday, midnight tonight is when it all comes to a screeching halt.  But if you are a state and local tax geek, this is certainly the week we have been waiting for our entire careers.

The Supreme Court of the United States is going to hear the potentially landmark case of South Dakota v. Wayfair, which may in fact overturn the physical presence standard established by the Court over 25 years ago in Quill.  With that introduction and my full attention required to assist with last minute tax filings (mainly, my own) and the need (as well as the desire) to monitor every possible development regarding Wayfair, I leave you with a very relevant blog “rerun” that sums up the problem. 

Readers should note, Amazon now collects sales tax in every state that imposes one.

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