Berdon Blogs

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

Posted by Wayne K. 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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SALT TALK: California Minimum Franchise Tax Refund Opportunity – May the Swart [1] Be With You

Posted by Wayne K. 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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SALT TALK: Refund Claims – Be Careful What You Wish For

Posted by Wayne K. 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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SALT TALK: NYS Proposal Would Have a Major Impact on Real Estate Transactions

Posted by Wayne K. 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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SALT TALK: Change of NY Domicile Successful by Dumping Old Girlfriend; Keeping Old Dog

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Feb 13, 2017 7:00:00 AM

A recent New York State Tax Appeals Tribunal Decision[1] held that a taxpayer successfully demonstrated, by clear and convincing evidence, a change in domicile from New York City to Dallas, Texas.  The extremely well-reasoned Opinion is notable in recognizing the domicile change occurred through a complex series of events and not simply by one overt act.  Rather than simply reiterating the Tax Department’s own Nonresident Audit Guidelines, (which, despite what an auditor may tell you, are not the law) the Tribunal looked to the precedential jurisprudence and reminded all that a change of domicile is a question of fact, not a question of law.  The circumstances surrounding the changes can vary widely depending on the individual.

The details of the Opinion are way too complex to cover in this short space, but the series of events which evidenced the intent to abandon the old domicile and establish a new one included the termination of a relationship with his long-term girlfriend, changing career goals and circumstances, listing of his $2.4 million New York City apartment, renting a small apartment in Dallas, and culminated with moving his “large, senior dog[2]” to Dallas.

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SALT TALK: As Amazon Goes, So Goes the Nation

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

In the days before Twitter, November 4, 1936 to be exact, James Farley, Franklin Roosevelt’s campaign manager gave us a preview of things to come.  His sound bite to the press, “As goes Maine, so goes Vermont,” was his witty remark commenting on the landslide victory where FDR won every state but Maine and Vermont.  Well under the 140 character Twitter limit, and based on the even earlier Twitter appropriate comment addressing Maine as the first state to enact prohibition (As goes Maine, So goes the Nation), it should be obvious to us all, that 140 character politics is nothing new.  If we could only find a way to legislate and issue all new regulations through Twitter, we might really have something.

While this past November Maine did go as Vermont, prohibition is long gone (Maine allows alcohol in movie theaters, while New York is still working on it) I thought this would be an opportune time to revitalize and put Twitter to good use for some long needed federal action as applied to state tax reform.

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SALT TALK: Governor Cuomo Unveils Executive Budget Proposal

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jan 30, 2017 11:00:00 AM

It’s official.  Governor Cuomo has released his proposed 2017 – 2018 Executive Budget.  And yes, the extension of the “millionaire’s tax” through 2020, is front and center.  The Division of the Budget press release in the “Highlights” section refers to it as “Extends tax rate on millionaires – 45,000 taxpayers impacted, 50% non-residents.”  Should the term “non-residents” be replaced with “non-voters?”

The proposal also takes aim at continuing to limit the charitable contribution deduction for those with adjusted gross income (AGI) over $10 million.  Charitable contributions for those with adjusted gross income over $1 million are limited to 50% of the federal deduction.  Those with AGI over $10 million are presently limited to 25%.  The 25% limit, set to expire at the end of 2017, would be permanently extended.

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SALT TALK: Expiring New York Millionaire’s Tax May Be Extended

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jan 23, 2017 12:50:00 PM

Is Governor Cuomo’s proposal to extend the so-called millionaire’s tax a real budget-maker needed to fill a $4 billion hole he claims exists in the budget? Or is it just another hike through Sherwood Forest on the way to Washington, DC?

Originally enacted in 2009, the millionaire’s tax raised the top New York personal income tax rate on individuals earning over $1 million to 8.82%. Set to expire in 2011, it was extended once again through 2017. Now that the top rate is scheduled to drop back to 6.85% at the end of this year, the temporary surcharge is once again included for extension as part of the Governor’s proposed budget wish list.

Without the extension, New York’s top rate is scheduled to drop to 6.85%. Our neighbors in Connecticut and New Jersey currently have top rates of 6.99% and 8.97%, respectively. Yet the rates don’t tell the whole story. Despite having a lower rate than New Jersey and many other jurisdictions, a 2016 study by the Tax Foundation ranks New York as having the 48th latest tax freedom day. According to the study, New Yorkers must work through May 8th to earn enough to pay all of their tax obligations, while with its 13.3% top tax rate, California residents are all paid up on May 3rd.

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SALT TALK: Who Let the Dog Out? – Legislation by Administration Leads to Confusion

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jan 17, 2017 11:00:00 AM

I’ve never been without a pet and have always considered them to be family members, not tangible personal property.  Apparently, the New York State Department of Taxation and Finance agreed with me when they held “[d]og walking is not among these enumerated services subject to sales tax[1].”  Yet, less than two years later, the Department growled out another Advisory finding that “pet sitting, which includes dog walking, refreshing cat litter boxes, or providing food to the pets is subject to State and local sales and use tax[2].”

The Department reasoned that “. . . maintaining, servicing or repairing tangible personal property . . .” is an enumerated service and the Regulations clearly define animals to be tangible personal property.  Why the sudden shift in opinion?  I would like to think it was the Department’s desire to administratively broaden the tax base and not due to any bias against cats[3].

I’ve blogged several times about the Department’s fiasco regarding protective and detective services [June 27, 2016, March 7, 2016].  It took the Tax Appeals Tribunal to reign in the Department and remind them that receptionists are not trained security guards and their services are not subject to sales tax.  Yet, the Department can’t keep its paws off this issue, despite the lack of any law change. 

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SALT TALK:  Nonresident of Connecticut Subject To Tax on Exercise of Stock Options

Posted by Wayne K. Berkowitz CPA, J.D., LL.M. on Jan 9, 2017 1:00:00 PM

I had a hard time with this decision[1]. Not with the result, but with the fact that it found its way to the Connecticut Supreme Court. Apparently, the Court felt the same way as the opinion uses the word “absurd” five times and “bizarre” two times.

Meet the Allens.

Mr. Allen received significant amounts of stock options during periods when he was both a resident of and employed in Connecticut. The options were exercised and income recognized several years later when the Allens were no longer residents of Connecticut. The Allens argued that since they were no longer residents of Connecticut, they didn’t owe any tax to the State. The State argued (and the Supreme Court agreed) that since the options were given to Mr. Allen as compensation for work performed in Connecticut, tax was clearly owed.

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