Berdon Blogs

SALT TALK:  New York’s Budget Makes Sales Tax Savings through Leasing Company Highly Suspect

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Apr 24, 2017 10:15:00 AM

The plan was simple.  New York State, like many other jurisdictions, allowed a purchaser, to purchase for resale, tangible personal property (TPP) that is subsequently leased to another taxpayer.  The theory is simple.  The sales and use tax (sales tax) is meant to be a tax on the actual use or consumption of goods and is not intended to pyramid on each transaction, but only impose its burden on the end user.  Accordingly, the purchaser – lessor buys TPP from a vendor for resale and doesn’t pay sales tax.  The purchaser – lessor leases the TPP to the lessee and collects and remits sales tax on the monthly lease payments.  So far, all seems in balance.  The sales tax is imposed only once on the intended party, the lessee as end user.

So what is the perceived problem with this arrangement? 

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Topics: SALT TALK

SALT TALK: The Chevy Nova, Betsy Ross and the 2017– 2018 New York State Budget

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Apr 17, 2017 10:00:57 AM

What do one of the most popular cars ever made, the creator of the banner of the U.S.A. and the late, but finally enacted New York State Budget have in common. Nothing, other than that all three are notable for things that didn’t happen.

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Topics: SALT TALK

SALT TALK: New York Budget Bill “Approved” - I’m Now a Law?

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Apr 11, 2017 10:04:00 AM

If last week’s explanation of the federal legislative process seemed daunting, I am even more perplexed by the New York State process.  It all seems logical, according to the explanation offered on the New York State Senate website (https://www.nysenate.gov/how-bill-becomes-law-1). 

The Senate explains that someone has an idea, a bill is drafted, the bill goes through the committee process, the Senate and Assembly pass the bill and the Governor signs it.  Let’s compare this to what really happened with the new budget. The Governor had a plan he released sometime in January, the Assembly, Senate and Governor fought about it for several months, the budget was late and temporary measures had to be passed to keep the money flowing.  The Senate then left Albany to start its vacation and the Governor, Senate Majority Leader, Senate Independent Democratic Conference Leader, and Assembly Speaker announced an agreement.

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Topics: SALT TALK

SALT TALK: "I'm Just a Bill" - Mobile Workforce Legislation (Re)Introduced

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Apr 3, 2017 11:57:00 AM

There is a joke that starts with three mothers sitting around discussing the professions of their respective sons. The first mother bragged about her son the doctor and all were impressed. The second mother chimed in that her son was a lawyer and everyone smiled. The third mother sheepishly stated her son was an accountant. All shrugged and one of the mothers interjected, that's ok, he always was a little slow.

Well, I'm no doctor, but I am a lawyer and an accountant and I still can't explain where or what happened to the mobile workforce legislation we have been promised for so long1. Yet to my surprise, just last month the "Mobile Workforce State Income Tax Simplification Act of 2017" comes barreling down the tracks 2.

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Topics: SALT TALK

SALT TALK: Pennsylvania Tax Amnesty - The I Forgot to Pay Taxes Strategy Works if Timing is Right

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Mar 27, 2017 11:00:00 AM

Who knew the comedian, actor, and musician Steve Martin was also prophetic?  Back in the seventies (sorry again, millennials) Mr. Martin had a plan to be a millionaire and never pay taxes[1].  When the tax man issued a friendly reminder regarding your newly found million, Mr. Martin simply suggested two simple words, “I forgot,” as the remedy to get back on good footing with the government.            

Mr. Martin must have fans at the Pennsylvania Department of Revenue (“Department”).  Their newly issued amnesty program, beginning April 21, 2017 and ending June 19, 2017 (the “Amnesty Period”) is quite generous in scope.  Not only does the program waive penalties on past due taxes, but 50% of the interest as well.  All taxes administered by the Department, whether applicable to individuals or businesses, are eligible.

Eligible taxes include known and unknown delinquencies existing as of December 31, 2015.  Let’s assume a nonresident individual has a PA tax liability unknown to him (or the Department), as long as it is for the tax year ended 2014 or prior (a 2015 delinquency won’t exist until April 2016), amnesty may apply. 

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Topics: SALT TALK

SALT TALK: Inferences, Conclusions, Relationships, and Residency Audit Traps

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Mar 20, 2017 12:50:00 PM

There are two very disparate pursuits in which I have partaken for almost 30 years; marriage and residency audits.  While the burden of proof in relationships and audits may be different, inferences drawn and conclusions reached hastily can be a disaster for both.  While no one knows the rules for lasting relationships, readers of my blog know that many jurisdictions use a two-pronged approach to determining whether an individual taxpayer is a resident for state tax purposes. 

First and foremost is domicile.  With certain exceptions, if an individual is domiciled in a state, they will be a tax resident of a state.  The so-called statutory residency test looks to whether one has a permanent place of abode in the jurisdiction and whether more than 183 days have been spent in the jurisdiction.  I have blogged extensively about the intricacies of these tests and browsing through the previous blogs at http://blogs.berdonllp.com/topic/salt-talk is highly recommended.

While I would love to list some of the inferences to be drawn, conclusions (false or otherwise) reached and relationship consequences thereof, my spouse has strongly advised me to stick to what I know best.  Here are some of the inferences, hasty conclusions, and traps I have heard over the years.

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Topics: SALT TALK

SALT TALK: NYC Taxpayer Gets Favorable REIT Transfer Tax Rate - ALJ Rules Everything is Less Than Zero

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Mar 13, 2017 11:00:00 AM

A recent taxpayer victory[1] related to one of the most onerous taxing schemes, the New York City Real Property Transfer Tax and the New York State Real Estate Transfer Tax (Transfer Tax) provides a light at the end of the tunnel for those of us facing the continued administrative assaults on relatively clear and legitimately enacted tax incentives. 

To encourage additional liquidity in the market, both New York State and City have provisions in place that effectively cut the tax rate in half for transfers to real estate investment trusts (REITs).  Without the incentive, combined tax rates can reach as high as 3.025% of the “consideration paid” for the property.  In addition to the rate reduction, the NYC tax has the added bonus of using the estimated market value (EMV), an amount determined by reference to the NYC real property tax assessment.  This amount is usually significantly less than the actual fair market value of the property.

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Topics: SALT TALK

SALT TALK: California Minimum Franchise Tax Refund Opportunity – May the Swart [1] Be With You

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Mar 6, 2017 11:00:00 AM

Here is how the conversation usually goes at Berdon: 

Berdon Person Other Than Me (“BPOTM”): Wayne, I have a client whose only connection to California is a 0.001% non-managing membership interest in manager-managed LLC.  The LLC is doing business in California.  Do I have to pay the $800 minimum franchise tax?

Me:  Well, there is a case with a limited partnership and similar facts that says you don’t have to.  But the Franchise Tax Board (“FTB”) has been interpreting it very narrowly and only applies the case to LPs and not LLCs.

BPOTM:  Wayne, that’s crazy.  The facts and circumstances are exactly the same.  Why should my client have to pay $800 and why should we go to the expense of filing the return?

Me:  Well, I agree with you, but you should explain to your client that the FTB is likely to send a notice indicating that tax is due and ultimately issue an assessment.  In order to clear this up, the cost is likely to exceed $800.  I sympathize, and if it was my own return I would seriously consider not filing, but we need to make a practical business decision here.

BPOTM:  I hear you.  I’ll speak to my client and help them make a decision on how to deal with this nuisance.

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Topics: SALT TALK

SALT TALK: Refund Claims – Be Careful What You Wish For

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Feb 27, 2017 11:00:00 AM

Fame, fortune, and now tax refunds? According to some commentators, the Pennsylvania Department of Revenue is proposing to make the sales tax refund process akin to the regrets many throughout history have claimed to experience upon reaching a long sought after goal.

While the draft Sales and Use Tax Bulletin[1] certainly serves as a reminder of the perils associated with chasing goals not carefully thought through, isn’t the Bulletin nothing more than a reminder to taxpayers to carefully consider both the pros and cons, as well as the timing, of filing any type of refund claim, Sales Tax or otherwise.

The Bulletin states that “large and complex sales and use tax refund petitions” may be addressed through the field audit process. While I can’t speak for others, regardless of the type of tax involved, virtually every large and complex refund claim I have filed on behalf of a taxpayer, has involved some type of field audit associated with it. Did you really think the taxing jurisdiction was just going to hand over a check?

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Topics: SALT TALK

SALT TALK: NYS Proposal Would Have a Major Impact on Real Estate Transactions

Posted by Wayne Berkowitz CPA, J.D., LL.M. on Feb 21, 2017 12:50:00 PM

Housed in the New York State Fiscal Year 2018 Executive Budget is proposed legislation that would significantly impact real estate transactions in the State by expanding the scope of the real estate transfer tax.

Currently, real estate transfers in New York State are subject to a 0.4% tax on the consideration paid for an interest in real property (the “Tax”). The Tax applies to deed transfers as well as transfers of controlling interests in entities that own real property. Generally, a 50% or more shift in ownership in an entity that owns an interest in property located in the State constitutes the transfer of a controlling interest. There is also an aggregation concept that consolidates multiple transfers that are “part of a plan” to determine whether a 50% or more shift has occurred.

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Topics: SALT TALK

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