Firm Overview section for Capabilities Overview deck · B I G G E S T B U D G E T L O S E R S Gov. Malloy’s Proposed Budget Impact on Municipalities: • Local aid cuts • Redistribution

C o m m o n Ta x R i s k s &

O p p o r t u n i t i e s f o r C o n n e c t i c u t -

b a s e d B u s i n e s s e s

June 28, 2017

Presented by:

Patrick J. Duffany, JD, CPA

Cindy R. Galamgam, JD, LLM

Coral Bernier, EA

June 28, 2017

Connecticut: An overview of taxes collected

Common errors made by Connecticut taxpayers

Corporation Business Tax

Personal Income Tax Audit issues

Income tax credits and other incentives

An overview of state and local tax concepts

Doing business (“nexus”) rules Apportionment concepts

Pass-Thru Entities

Apportionment

Withholding Reporting Requirements

Managing your state and local tax risks

A G E N D A

2

C O N N E C T I C U T: F Y E 2 0 1 4 , 2 0 1 5 &

2 0 1 6 TA X E S C O L L E C T E D

SUMMARY OF STATE TAX REVENUES

• Per the DRS’ Fiscal 2015-2016 Annual Report:

June 28, 2017

Tax Type FYE

6/14

FYE

6/15

FYE

6/16

% of Tax

Personal Income Tax $8.7B $9.2B $9.2B 53%

Sales/Use Tax $4.1B $4.2B $4.3B 25%

Corp. Business Tax $.8B $.8B $.9B 5%

Petroleum & Gas Taxes $.8B $.7B $.6B 3%

Cigarette Tax $.4B $.3B $.3B 2%

All other (32 +/-) $1.6B $1.6B $2B 12%

Total taxes and fees $16.4B $16.8B $17.3B 100%

3

C O N N E C T I C U T: F Y E 2 0 1 4 , 2 0 1 5 &

2 0 1 6 P E N A L T I E S & I N T E R E S T

SUMMARY OF STATE TAX REVENUES (concluded)

• Per the DRS Fiscal 2015-2016 Annual Report:

June 28, 2017

Penalties & Interest

Assessed

FYE

6/14

FYE

6/15

FYE

6/16

% of

Total

Personal Income Tax $79m $72m $70m 54%

Sales/Use Tax $36m $37m $36m 28%

Corp. Business Tax $21m $31m $11m 9%

All other (34 +/-) $12m $10m $12m 9%

Total taxes and fees $147m $150m $129m 100%

4

June 28, 2017

C O N N E C T I C U T: P I T C O L L E C T I O N S

5

C O N N E C T I C U T:

M A L L O Y ’ S P R O P O S E D B U D G E T

Gov. Malloy’s Proposed Budget:

• Increase revenue

* Courtesy of CBIA

June 28, 2017 6


M A L L O Y ’ S P R O P O S E D B U D G E T

Gov. Malloy’s Proposed Budget (continued):

• Union concessions

• Cuts and shifts in local aid

* Courtesy of CBIA

June 28, 2017 7


B I G G E S T B U D G E T L O S E R S

Gov. Malloy’s Proposed Budget Impact on Municipalities:

• Local aid cuts

• Redistribution of local town aid to cities

• Approximately 21 out of 169 municipalities are benefiting under proposed budget

• Towns to reimburse state for teachers retirement

• Towns will be forced to increase property tax to make up

loss in aid

• Cheshire to see an average increase in property tax of

$2,200 over 5 years!

• 29% increase over the 5 years

June 28, 2017 8


B I G G E S T B U D G E T L O S E R S

Biggest Losers under proposed budget:

• West Hartford: $24 million

• Milford: $18 million

• Groton:$ 18 million

• Wallingford: $14 million

• South Windsor: $13 million

Biggest Winners under proposed budget:

• Hartford: $57 million

• Waterbury: $49 million

• New Britain: $36 million

• Bridgeport: $31 million

• Norwich: $14 million

June 28, 2017 9


T H E C O N N E C T I C U T M I R R O R

For more information on how your town may be impacted,

visit:

• https://ctmirror.org/2017/05/15/how-does-your-town-

fare-under-malloys-revised-budget/#

June 28, 2017 10


TA X F R E E D O M D AY

June 28, 2017 11

DISCLAIMER: The above is a copy of a mailing from a CT state representative. For

more information, visit: http://www.yankeeinstitute.org/2017/04/connecticut-remains-dead-last-in-the-nation-for-tax-freedom-day/

C O N N E C T I C U T: C O M M O N E R R O R S

COMMON ERRORS

• Apportionment

• Capital tax base

• Dividends-received deduction

• Pass-through entities

• Penalty Waiver Form

• Sales/use tax

• Other items

June 28, 2017 12


APPORTIONMENT

• Different rules for entities taxed as corporations vs.

individuals (including partnerships and S corps)

• Different rules across states

June 28, 2017 13


APPORTIONMENT (continued)

• Summary of Connecticut’s rules (2016 tax year)

June 28, 2017

Revenue stream C corp PIT (including S corp)

Sale of TPP Destination Destination

Sales of services Market Sales office

Sale of real estate Exclude unless held for sale to customers

Allocate net gain if in CT

Sale of intangibles Exclude unless held for sale to customers

Source net gain if “employed in a business . . .

carried on in” CT

Sale of pass-through entity owning real property

Exclude unless held for sale to customers

Source net gain if entity owns CT r/e and the FMV is

> 50% of assets at time of sale

Factor weighting Single factor 3 factor

14




June 28, 2017



Sales of services Market Market

Sale of real estate Exclude unless held for sale to customers

Allocate net gain if in CT

Sale of intangibles Exclude unless held for sale to customers


Sale of pass-through entity owning real property


Source net gain if entity owns CT r/e and the FMV is

> 50% of assets at time of sale

Factor weighting Single factor Single factor

15




• Example 1

X Corp is a manufacturer with all its manufacturing locations in CT

and its only customer in MA. X Corp has MA nexus

June 28, 2017



Factor Weighting Single factor 3 factor


X Corp’s CT apportionment

factor (C corp vs. S corp)

0%

(single sales factor)

67%

(Prop/ Payroll 100%; Sales 0%)


MA sales factor 100% 100%

16




• Example 2

X Corp is a service provider with all its offices in CT and its only

customer in MA. All work is done in CT. X Corp has MA nexus

June 28, 2017


Sale of services Market Sales office





0% 100%

Factor weighting Single factor Three factor


17




• Example 3

X Corp is a manufacturer with all its manufacturing locations in CT

and its only customer in MA. X Corp has MA nexus

June 28, 2017







0% 0%



18


APPORTIONMENT (concluded)


• Example 4

X Corp is a service provider with all its offices in CT and its only

customer in MA. All work is done in CT. X Corp has MA nexus

June 28, 2017


Sale of services Market Market





0% 0%



19


CAPITAL TAX BASE –

• Calculation of tax base:

“Surplus reserve”

Definite liability

Estimated reserves

Short-term vs. long-term

• Apportioning tax base:

Sourcing of intangible assets

Accounts receivable

Goodwill/technology

June 28, 2017 20


DIVIDENDS-RECEIVED DEDUCTION

• Eliminated in a combined/unitary return

• Deducted when received from a separate CBT filer

Less “expenses related to [such] dividends”

June 28, 2017 21


PASS-THROUGH ENTITIES

• Must compute the apportionment factor for each type of

taxpayer:

C corp vs. PIT

• Multi-tiered partnerships

C corp

o Aggregate if unitary

o Direct allocation if not unitary

Personal income tax

o Generally, direct allocation up the tiers

June 28, 2017 22


PASS-THROUGH ENTITIES (concluded)

• Withholding taxes

Not paying required withholding tax

Partnerships and other pass-through entities are ultimately

responsible for composite payments

Do not rely on members to pay the tax

Issues we’ve seen . . . .

Partnerships not required to withhold on behalf of PTP’s

June 28, 2017 23

C O N N E C T I C U T: C O M M O N A U D I T

I S S U E S

CBT/PIT

• Apportionment

• Credits

Including credit for income taxes paid to other states

• Nexus

Independent representatives

Traveling employees

• Unitary

Designated members must have nexus in Connecticut

June 28, 2017 24


SALES/USE TAXES

• Exemption certificates

• Clearance certificates

Successor liability to purchaser of existing business

Significant risks in cash businesses

• Collecting sales tax

Business analysis/management and advisory services

Computer and data processing services

MRA (Manufacturers and R&D)

Management fees

New construction vs. renovation

Personnel services (temporary help)

• Remitting use tax

June 28, 2017 25


SALES/USE TAXES (continued)

• Business analysis/management and advisory services

In order to be taxable, services must be related to either:

o Core business activities

Directly related to lines of business involving sales of products,

property, goods or services

Directly related to capital structure

Budgeting

Short-range, long-range or strategic planning

o Human resource management activities

Relating to the hiring, development, job-related training,

compensation & management of personnel

Employee relations, including labor-management relations,

collective bargaining, affirmative action

The design and implementation, but not ongoing administration,

of employee benefit plans

June 28, 2017 26




Business analysis:

o The examination of data followed by the furnishing of conclusions

& recommendations

o Excludes property valuation & appraisal alone

Business management:

o The day-to-day management of activities

o Not the mere rendering of advice to a recipient that itself

maintains day-to-day control (though that might be taxable as

business analysis or consulting)

June 28, 2017 27




Business management consulting:

o Furnishing advice on management issues

o Excludes specialized consulting in areas such as investment

banking and insurance

Business public relations:

o Preparation of materials, written or otherwise, designed to

promote the recipient’s interests and influence the general public

or other groups

o Excludes market research & analysis

June 28, 2017 28




It is the nature of the services being rendered, and not what those

services are called or termed by the service provider or service

recipient, that determines whether taxable services are being

rendered.

June 28, 2017 29




Excludes:

o Environmental consulting services

o Business analysis/management services related to aircraft

o Training services provided by an institution of higher education

o Services customarily rendered by attorneys, accountants &

actuaries

o Services rendered to corporations by board members

o Marketing, investment, investment banking, engineering,

insurance and auditing services

o Services rendered by an employee to the employer

Conn. Gen. Stat. § 12-407(a)(37)(J); Conn. Gen. Stat. § 12-407(a)(2)(I); Conn.

Agencies Regs. 12-407(2)(i)(J)-1; Connecticut Special Notice, No. 90-2, 05/01/1990

June 28, 2017 30



• Computer and data processing services

Include:

o programming

o code writing

o modification of existing programs

o feasibility studies

o remote access to information

o payroll processing

o installation and implementation of software programs and

systems, even when rendered in connection with the

development, creation or production of canned or custom

software

o the creation, development, hosting, and maintenance of an

Internet website (effective October 1, 2015)

June 28, 2017 31



• Computer and data processing services

Reduced rate (1%)

An entity providing computer and data processing services is

considered the consumer of tangible personal property used in

rendering the services and therefore must pay sales or use tax

on its purchases.

Conn. Gen. Stat. § 12-407(a)(37)(A); Conn. Agencies Regs. 12-426-27

June 28, 2017 32



• On-line Retailers

CT law requires on-line retailers who do not maintain a place of

business in the state and engage in “regular or systematic

solicitation of sales of tangible personal property” to collect and

remit sales tax.

In March 2017, Commissioner Sullivan issued a media release

stating that the DRS will be more aggressive with collecting sales

tax from on-line retailers that have a significant volume of sales in

CT

DRS estimates that at least $70 million is being evaded

annually

Conn. Gen. Stat. § 12-407(a)(12)(G)

June 28, 2017 33



• Manufacturing Recovery Act “MRA” (Manufacturers and

R&D)

CT gives full exemption for machinery, material, tools and fuel

used directly in manufacturing

Common errors

o Full exemption does not apply to processes related to, but not

considered direct manufacturing (e.g. R&D or testing)

Those processes qualify for MRA 50% reduction

o No tax benefit under full exemption or MRA for repair services to

machinery

Conn. Gen. Stat. § 12-412i

June 28, 2017 34



• New construction vs. renovation

Contractor’s services for commercial renovation work: taxable

Contractor’s services for commercial new construction work: not

taxable

What qualifies as new construction:

o Building a new building

o Certified historic rehabilitation

o Complete gut (rarely used since all internal structure of building

must be removed)

o Initial fit out for first tenant in a building (no use may be made of

tenant’s space before fit out, including storage of material)

o Putting unimproved land to new use (not enhancing existing use)

o Adding cubic footage to existing building (only addition qualifies)

June 28, 2017 35



• Personnel services

2 necessary elements of taxable personnel service:

o A service provider must directly employ employees who will furnish

temporary or part-time help to a service recipient; and

o While an employee is with the service recipient, the service

recipient must have control over the work the employee does as

well as how the work is done within the general parameters of the

type of personnel service contracted for (for example, clerical or

accounting).

June 28, 2017 36




Different from employment agency services (which are also

taxable)

Employment agency services – 2 common examples occur when

an agency attempts to:

o Obtain a job for a job seeker; or

o Find an employee for an employer

June 28, 2017 37




The amount subject to sales tax is the entire charge by the service

provider to the service recipient

o Includes compensation of the employee and all expenses related

to the compensation, whether or not separately stated by the

service provider in its contract/invoice to the service recipient

There are limited statutory exclusions on charges for leased

employees, worksite employees of professional employer

organizations and property managers

Conn. Gen. Stat. § 12-407(a)(37)(C); Conn. Agencies Regs. 12-426-27;

Connecticut Policy Statement 2006(7), 03/30/2007

June 28, 2017 38


SALES/USE TAXES (concluded)

• Personnel services – Risks:

Temporary help is the most problematic

o If the service provider (instead of the service recipient) has control

over the temporary personnel, taxability depends on the specific

service(s) performed by the personnel (is it an enumerated

taxable service?)

Service providers subcontracting services

o If ultimate service being sold to service recipient is enumerated,

service provider can buy temporary help on a resale basis

o If ultimate service being sold to service recipient is not

enumerated, service provider must pay tax on subcontracted

temporary help

June 28, 2017 39


I S S U E S

SALES/USE TAXES

• Missing records

• Use of procurement cards

• POS system not being used for tax purposes

Using bank records is not as accurate or reliable

• Use tax

• Nexus

June 28, 2017 40


I S S U E S

PROPERTY TAX

• Manufacturing equipment

Exempt, but only if form M-65 is timely filed

If not filed, taxable

If late, taxable

Can be significant tax

• Classification of leasehold improvements

Real vs. tangible vs. duplicate assessment

• Yearly income and expense report

Must be filed by June 1 (certified mail recommended)

10% penalty for 1 day late!

• General mailings

Certified mail

Hand delivery with receipt (copy stamped by the assessor)

June 28, 2017 41

C O N N E C T I C U T: I N C O M E T A X

C R E D I T S A V A I L A B L E T O P A S S -

T H R O U G H E N T I T I E S

CREDITS:

• Angel Investor Credit

Credit allowed against the personal income tax

Credit applies against the personal income tax and equals 25% of

the amount taxpayers invest in technology-based businesses*, up

to $250,000

*The CT Legislature passed a bill that is waiting to be signed by

the Governor which would extend the credit to all industries

The budget bill signed June 2, 2016 extends the sunset date for

the angel investor tax credit from July 1, 2016 to July 1, 2019, and

now permits taxpayers to sell or transfer all or part of the credit

June 28, 2017 42

C O N N E C T I C U T: I N C O M E T A X

C R E D I T S A V A I L A B L E T O P A S S -

T H R O U G H E N T I T I E S

CREDITS:

• The following credits, while generated by pass-through

entities, cannot be applied against personal income tax

for individual owners of pass-through entities:

Rehabilitation of Certified Historic Structure for Residential,

Nonresidential or Mixed Use

Employment Expansion Project Pass-Through Credit

Apprenticeship Training in Manufacturing

June 28, 2017 43

C O N N E C T I C U T: C R E D I T S

AVA I L A B L E T O C O R P O R AT I O N S

MOST POPULAR CREDITS:

• Research and Development

• Fixed Capital Investment

• Machinery & Equipment Expenditure

• Human Capital Investment

• Film, Television and Digital Media

• Historic Rehabilitation

• Electronic Data Processing (EDP)

• Credit limitation

Currently 55% limit 2016

60% limit January 1, 2017



June 28, 2017 44

A N O V E R V I E W O F S TAT E & L O C A L

TA X C O N C E P T S

June 28, 2017 45



DOING BUSINESS IN OTHER STATES

• “We impose our tax to the full extent of the U.S.

Constitution.”

June 28, 2017 46



DOING BUSINESS CONSIDERATIONS (continued)

• Two primary state tax questions: Do I have a taxable presence?

Do I care?

• Primary taxes – sales, income, property, employment

• Which taxes do I need to care about? California

Gross receipt-type taxes (OH, sales tax)

Personal income taxes??

• How do I manage state tax risk?

June 28, 2017 47




• Question 1: Do I have a taxable presence?

• For states to impose tax on a taxpayer, the taxpayer must

establish a taxable presence (e.g., nexus) in the taxing jurisdiction Physical (including “Amazon”)

Economic

June 28, 2017 48




• Question 1: Do I have a taxable presence?

• Any physical presence is generally sufficient to establish

nexus Employees or representatives entering a state

o Traveling employees

o 3rd party representatives

Solicitation or services activities

“Amazon”

Property located within a state

o Inventory

o Equipment

June 28, 2017 49




• Sales tax nexus vs. income tax nexus

• There is a difference!!!

• Sales tax: Physical presence – Quill

“Amazon” rules

• Other taxes (including corporate income taxes): Physical presence

Economic presence

• What’s going on: Income tax: Expansion of “economic” nexus

Sales tax: Expansion of “Amazon” nexus

June 28, 2017 50




• Remote seller/Affiliate nexus – varies by state

** Notice required

June 28, 2017

Jurisdictions

Alabama** Illinois Missouri Pennsylvania

Arkansas Kansas Nevada Rhode Island

California Kentucky** New Jersey South Dakota**

Colorado** Louisiana** North Carolina Tennessee**

Connecticut Maine New York Texas

Georgia Michigan Ohio Vermont**

Iowa Minnesota Oklahoma** Washington

51




• Use Tax Notice Requirement

• States require noncollecting out-of-state vendors that meet

a threshold to inform customers that purchases may be

subject to use tax

• Vendors must file an annual statement with the State which

includes total amount paid by purchaser in past year

* Eff. 7/1/2017

June 28, 2017

Jurisdiction Threshold

Alabama* No threshold

Colorado* $100,000

Kentucky $100,000

Louisiana $50,000

Oklahoma $100,000

South Dakota $100,000

52





• Colorado:

1) Retailer must notify CO customers that retailer

does not collect CO sales tax and customer is

obligated to self-report and pay use tax

2) Retailer must provide CO customers* an annual

report detailing purchases, including dates and

amounts and remind customers they are obliged to

remit use tax

3) Provide CO DOR an annual report with customers

names, address and total purchases from retailer

4) CO will assess small file ($5-$10) on each failure to

file any of the above notices

* Who purchased more than $500 of taxable goods from retailer

June 28, 2017 53





• Louisiana:

1) At time of purchase retailer must notify LA

customers that purchases are subject to use tax,

unless specifically exempt and purchasing over the

internet is not an exemption

2) Retailer must provide LA customers an annual

notice by Jan 31 with total amount paid by

purchaser as well as dates of purchase and

amounts, if possible, and whether purchase is

exempt or not. Must also include name of retailer

and that use tax may be due

3) Retailer must provide by March 1 to LA DOR an

annual report for each purchaser which includes

total amount paid by customer

June 28, 2017 54




• Sales and Use Economic Nexus

* Eff. 7/1/2017

** Being challenged in court

*** Enacted but not effective until Quill is overturned

June 28, 2017


Alabama** $250,000

Indiana* $100,000

Massachusetts* $500,000

North Dakota*** $100,000

South Dakota** $100,000

Tennessee** $500,000

Vermont*** $100,000

Wyoming* $100,000

55




• Economic nexus

• Sales vs. property/payroll bright-line standards

June 28, 2017


Alabama $500,000

California $547,711

Colorado $500,000

Connecticut $500,000

Michigan $350,000

New York $1,000,000

AZ, MA, MN, others No threshold

OH, NV, TN, WA Gross receipt taxes

56




• How to manage “nexus” risk Identify the jurisdictions in which you have significant customers

Identify the jurisdictions in which you have property

Identify the jurisdictions in which you have employees or “representatives”

June 28, 2017 57



June 28, 2017 58




• Question 2: Do I care? Income tax

Sales tax

Gross Receipts tax

Property tax

Employment taxes

June 28, 2017 59




• Question 2: Do I care – Income tax?

• Limitation on a state’s right to impose its income tax – PL

86-272: No State, or political subdivision thereof, shall have power to impose, . . ., a

net income tax on the income derived within such State by any person

from interstate commerce if the only business activities within such State . .

. during such taxable year are [limited to] . . .the solicitation of orders . . .

[for] sales of tangible personal property, which orders are sent outside the

State for approval or rejection, and, if approved, are filled by shipment or

delivery from a point outside the State. . . .

Services are not protected

Protection only applies to income taxes

June 28, 2017 60




• Question 2: Do I care – Income tax?

• Do I owe tax? Taxable loss?

Apportionment results in no state sourced income?

o Service business vs. tangible personal property

o Throwback and throwout considerations

Am I losing any potential tax credits?

• If you have “nexus”, a return is typically due, even if no

tax

June 28, 2017 61




• Typical apportionment rules Tangible property

o Destination (but can be sales office for individual income tax

purposes)

Services (SaaS, software, etc)

o Market (i.e., where is the benefit received)?

o Cost of performance (i.e., where is the work done – all or nothing

test)

o Relative cost of performance

o These rules are changing

June 28, 2017 62




• Typical apportionment rules for services

• 21 Market States in 2017 vs. 13 Market States in 2012

June 28, 2017

Jurisdiction Individual Corporation

California Market Market

Connecticut Sales office or RCOP

*Until 1/1/17, then

Market

RCOP

*Until 1/1/16, then

Market

Massachusetts Market Market

New Jersey Sales office COP

New York State RCOP if sold from a NY

office

Market

63




• Case Study #1 Facts

o XYZ Partnership is a CT based service business with offices in CT

and MA and has only individual partners

o CA based corporate client contacts XYZ

o Project is to develop an IT infrastructure for use in CA

o 60% of the costs are incurred in CT and 40% in MA

o Fees for this matter are $1,000,000

2016 result 2017 result

o CA sales factor: 100% CA sales factor: 100%

o CT sales factor: 100% (could be 60%) CT sales factor: 0%

o MA sales factor: 0% MA sales factor: 0%

Risks?

o Sales tax?

o Credit for taxes paid

June 28, 2017 64





o CT based law firm, taxed as a P.C., with CT and MA offices

o NY based corporate client

o Litigating an employment law matter in MA for an employee who

lived in MA, but worked in CT

o Managed by the corporate client’s Boston office

o Billed to client’s NY office

o Fees for this matter are $1,000,000

2017 result

o Where is the “benefit” – CT vs. MA vs. NY?

o Tiering rule for services

June 28, 2017 65





o ABC Partnership is a CT based service business with offices in CT

and NY

o ABC has clients all over the country and visits each client for

meetings/presentations

o Filed returns in CT and NY only

o NY apportionment was not correct

Result

o Nexus study identified 2 states with most risk

o VDA’s in 2 states

o Amend partners’ home state returns for credit for taxes paid

Risks?

o Credit for taxes paid

June 28, 2017 66




• Question 2: Do I care – sales tax?

• Do I owe tax? Is product or service taxable?

If taxable, is it an exempt sale

o Sale for resale

o Exempt buyer

Selling TPP

Selling services

o Software

o SaaS

June 28, 2017 67




• Question 2: Do I care – property tax??

• Do I owe tax? Most states impose tax on business personal property

A number of states impose tax on inventory

o Alaska

o Arkansas

o Georgia

o Kentucky

o Louisiana

o Mississippi

o Oklahoma

o Texas

o Virginia

o Vermont

o West Virginia

June 28, 2017 68




• Question 2: Do I care – employment taxes??

• Employee classification

• Traveling employees

June 28, 2017 69



DOING BUSINESS CONSIDERATIONS (concluded)

• Question 2: Do I care – other taxes??

June 28, 2017

State What’s taxable? Rate Other

Delaware Goods & services .1006% - .7543% $100,000 monthly exclusion

Hawaii GET Goods & services .015%-4.5%

Nevada

Commerce Tax Goods & services .051% - .331% $4m threshold

New Mexico Goods & services 5.125% - 8.8675%

Ohio (CAT) Goods & services .26%

Tennessee Business Tax

Goods & services

0005%-.001875% $10,000 threshold

Washington B&O Tax

Goods & services .0474%-1.5% $267,000 threshold for wholesaling and services

70



Pass-thru Considerations

• Corporate Income Tax and Personal Income Tax rules

may vary within a state

June 28, 2017 71

States with different CIT & PIT

Apportionment Rules (2016)

Arizona New Jersey

Arkansas New York

Connecticut Ohio

Delaware Oklahoma

Hawaii Pennsylvania

Maryland Rhode Island

Michigan



Pass-Through Entity Considerations (continued)

• Withholding & Composite Returns

• AL – Certain PTE are exempt from composite

withholding

Tiered structures may exempt a tier from withholding

requirements if they request approval 30 days before original

due date

• CA – Withholding is on distributions not on income

• NJ – Composite return rate of 8.97% which matches

top PIT rate

• CT vs. NY: Withholding Timing Issue

• NY requires estimated withholding while CT does not

June 28, 2017 72

M A N A G I N G Y O U R S TAT E & L O C A L

TA X R I S K S

WHAT YOU NEED TO KNOW:

• Understand your tax profile Where are your customers?

Where do you have a physical presence?

o Need to identify third parties establishing a physical presence on

your behalf

• Determine where you have nexus If you find that you have nexus, that means that you have a filing

obligation. It does not mean that you owe tax

June 28, 2017 73


TA X R I S K S

WHAT YOU NEED TO KNOW (concluded)

• Determine your potential taxes due Understand the rules in the states in which you have significant

customers

Do you owe tax? If yes:

o How much?

o For how many tax years has the exposure existed?

o What should we do?

• Every year do a “nexus review”

• Exemption certificates

June 28, 2017 74


TA X R I S K S

MULTI-STATE BUSINESSES: STATE TAX RISKS

• Sales (and gross-receipt) taxes

• Income tax

• Withholding taxes

• Property tax (some states tax inventory)

• Other Local taxes: LA, Philly, San Francisco, NYC

NYC: Commercial Rent Tax

Unclaimed property

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June 28, 2017

QUESTIONS??

O p e n D i s c u s s i o n :

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Patrick J. Duffany, Partner

[email protected]

(959) 200-7270

Cindy R. Galamgam, Senior Manager

[email protected]

(959) 200-7239

Coral Bernier, Senior Manager

[email protected]

(959) 200-7155

C O N TA C T I N F O R M AT I O N

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Documents

Firm Overview section for Capabilities Overview deck · B I G G E S T B U D G E T L O S E R S Gov. Malloy’s Proposed Budget Impact on Municipalities: • Local aid cuts • Redistribution