rex is a principal of hbk cpas & consultants and …...2020/08/03 · rex is a principal of hbk...
TRANSCRIPT
Rex is a Principal of HBK CPAs & Consultants and directs the firm’s Dealership Solutions . He has worked extensively in the dealership industry since 1984 as a department manager, a general manager and an owner, as well as providing tax, accounting and operational consulting services exclusively to dealers as an independent CPA. This experience includes working closely with hundreds of dealers from coast-to-coast since 1987 on creative tax planning and financial statements issues. He provides clients with a wide range of transaction work services and consults for them in specialty areas such as operations, government regulatory compliance, valuations and M&A feasibility studies. Rex is active in many professional associations. He is the current Chairman of the BDO Dealership Industry Group, contributes articles and commentary to dealership industry publications, is frequently called upon to speak to industry associations and conferences, provides expert testimony, and is regularly quoted by industry and the general media.
Rex Collins, CPA, CVAPrincipal
Dealership [email protected]
317-504-7900
Amy Reynallt, MBAManager, Manufacturing Solutions
Amy M. Reynallt, MBA, COVID-19 Business Management Advocate & SBA Loan Specialist
Amy is a manager of HBK's Manufacturing Industry Group located in the Youngstown, Ohio office. She joined the firm in 2019, after spending thirteen years in the manufacturing industry. Amy has experience navigating strategic and financial matters associated with manufacturing companies. She works closely with these companies to help them plan, execute, and meet their short- and long-term goals.
• Cassandra Baubie is a Senior Associate at HBK CPAs &
Consultants and is a member of its Tax Advisory Group (TAG).
She works in the firm’s Youngstown, Ohio office. Casandra has
experience in tax law research and writing. Prior to joining HBK,
she worked for Jurist.org, a global legal news organization, and
was a member of the University of Pittsburgh Tax Law Review
Journal. Cassandra also worked for the University of Pittsburgh
School of Law’s Low-Income Tax Clinic where she performed IRS
litigation and Tax Court work and provided compliance work for
low income individuals and businesses.
• Cassandra focuses on issues pertaining to State and Local
Taxation (SALT), as well as flow through entity taxation. She has
been involved in numerous sales and use tax, franchise tax, and
corporate income tax audits, VDA’s, and refund requests.
Cassandra focuses on complex sales and use tax compliance
planning, nexus studies and on-site review and training for all
SALT related issues. Cassandra has managed various
engagements as the in-charge team member and has significant
experience in multistate tax issues.
Cassandra Baubie, JDSenior Associate
Tax Advisory Group
Coronavirus Crisis
Webinar Series:
The New Stimulus Package
Join HBK Dealership Solutions Group
Next week for another installment of our Third Thursday
August 13th 11:00 – 12:00 EDTRegistration link to be provided
Hill, Barth & King, LLC (“HBK”) is a multidisciplinary financial services firm, offering the collective intelligence of hundreds of
professionals committed to delivering exceptional client service across a wide range of tax, accounting, audit, business advisory,
valuation, financial planning, wealth management and support services.
Copyright © 2020 Hill, Barth & King, LLC. All rights reserved.
This Presentation contains general information only, and HBK is not providing through this presentation accounting, tax, business,
financial, investment, legal or other professional services or advice. This presentation is not a substitute for professional services or
advice, and it must not be used as a basis for any decision or action that may affect you or your business. Please consult a qualified
business advisor before making any decision or taking any action that may affect your business. HBK shall not be responsible for
any loss sustained by any person who relies on this presentation.
Nothing is certain but change…Things are changing on a frequent basis please contact us or check our website.https://hbkcpa.com/covid
Where are we now?
Question: Covered utility payments, which are eligible for forgiveness, include a “payment for a service for the distribution of . . . transportation” under the CARES Act.
Answer:
• A service for the distribution of transportation refers to transportation utility fees assessed by state and local governments. Payment of these fees by the borrower is eligible for loan forgiveness.
• Updated FAQs released 8/4/2020:
o https://home.treasury.gov/system/files/136/PPP--Loan-Forgiveness-FAQs.pdf
• Legislation still being negotiated in Congress
• We continue to expect additional guidance related to forgiveness.
o If legislation passes, we would also expect revised forgiveness applications and additional guidance / instructions, etc.
Question: What expenses for group health care benefits will be considered payroll costs that are eligible for loan forgiveness?
Answer (summary):
• Employer expenses paid or incurred by the borrower during the Covered Period or the Alternative Payroll Covered Period
• EXCLUDES expenses for group health care benefits paid by employees (or beneficiaries of the plan) either pre-tax or after tax, such as the employee share of their health care premium.
• EXCLUDES expenses for group health benefits accelerated from periods outside the Covered Period or Alternative Payroll Covered Period.
• INCLUDES, for an insured group health plan, insurance premiums paid or incurred during the Covered Period or Alternative Payroll Covered Period as long as the premiums are paid during the applicable period or by the next premium due date after the end of the applicable period.
• Only the portion of the premiums paid by the borrower for coverage during the applicable Covered Period or Alternative Payroll Covered Period is included, not any portion paid by employees or beneficiaries or any portion paid for coverage for periods outside the applicable period.
Question: What contributions for retirement benefits will be considered payroll costs that are eligible for loan forgiveness?
Answer (summary):
• Employer contributions for employee retirement benefits that are paid or incurred by the borrower during the Covered Period or Alternative Payroll Covered Period
• EXCLUDES any retirement contributions deducted from employees’ pay or otherwise paid by employees.
• EXCLUDES retirement benefits accelerated from periods outside the Covered Period or Alternative Covered Period.
C Corporations:
• The employee cash compensation of a C-corporation owner-employee, defined as an owner who is also an employee (including where the owner is the only employee), is eligible for loan forgiveness up to the amount of 2.5/12 of his or her 2019 employee cash compensation, with cash compensation defined as it is for all other employees.
• Other eligible payroll costs for forgiveness:
o employer state and local taxes paid by the borrowers and assessed on their compensation
o employer contributions for their employee health insurance
o employer retirement contributions to their employee retirement plans capped at the amount of 2.5/12 of the 2019 employer retirement contribution.
• Payments other than for cash compensation should be included on lines 6-8 of PPP Schedule A of the loan forgiveness application and do not count toward the $20,833 cap per individual.
S Corporations:
• The employee cash compensation of a S-corporation owner-employee, defined as an owner who is also an employee is eligible for loan forgiveness up to the amount of 2.5/12 of his or her 2019 employee cash compensation, with cash compensation defined as it is for all other employees.
• Other eligible payroll costs for forgiveness:
o employer state and local taxes paid by the borrowers and assessed on their compensation
o employer retirement contributions to their employee retirement plans capped at the amount of 2.5/12 of the 2019 employer retirement contribution.
• Ineligible: employer contributions for health insurance for employees with at least a 2% stake in the business, including for employees who are family members of an at least 2% owner under the family attribution rules of 26 USC 381
• Payments other than for cash compensation should be included on lines 6-8 of PPP Schedule A of the loan forgiveness application and do not count toward the $20,833 cap per individual.
Question: For purposes of calculating the loan forgiveness reduction required for salary/hourly wage reductions in excess of 25% for certain employees, are all forms of compensation included or only salaries and wages?
Answer:
• For purposes of calculating reductions in the loan forgiveness amount, the borrower should only take into account decreases in salaries or wages.
The MLB has been trying to play but keeps having to cancel games as players test positive.
With that in mind do you we will see any NFL games this fall?
❑ Yes
❑ No
❑ Uncertain
❑ I don’t care about football
Poll #1
Coronavirus Crisis
Webinar Series:
Beyond COVID - Collection and Compliance in
a Post Wayfair World
Join HBK Dealership Solutions Group
Next week for another installment of our Third Thursday
August 13th 11:00 – 12:00 EDT
When the April Revenues were reported, it wasn’t good.
The Federal extension of filing to July 15, 2020 that most states followed pushed revenues into the next fiscal year.
Current Fiscal Year/Next Fiscal Year
• States’ losses related to the Covid-19 crisis could reach $500 billion, an analysis by a University of Pennsylvania professor has found.
• California projects a $54 billion deficit.
• NYC is looking at a $9 billion deficit.
• Pennsylvania: According to the Independent Fiscal Office (IFO), April revenue collections were down by $2.16 billion, or 49.8% less than projections released in August 2019.
Current Fiscal Year
Maryland: The Comptroller outlined a shortfall of approximately $2.8 billion during the final quarter of FY 2020. The impact represents a loss of nearly 15% to the states annual general fund. Maryland's withholding tax revenues declined by 22% or an average monthly impact of $185 million in losses. The economic shutdown could also result in a loss of 59% of all sales tax revenue in a month, or almost $250 million.
Florida: The Office of Economic & Demographic Research reported sales tax collection came in $12.4 million or .58% below monthly estimates. General fund revenue collections were $61.3 million, or 2.4% over estimates adopted by the General Revenue Estimating Conference in January 2020.
Current Fiscal year
Delaware: The Delaware Economic and Financial Advisory Council lowered dropped projections for FY 2021 by $94.1 million.
District of Columbia: The Office of the Chief Financial Officer reduced FY 2021 individual income tax revenues projections by $187 million, or a decline of 1.7% relative FY 2020.
New York: The Department of Budget projects a FY 2021 $13.3 billion shortfall, or 14% decline in revenue from January estimates.
Next Fiscal Year
• First, the IRS extended due dates and payment dates.
• States had to react quickly and provide their own information on extensions.
• After the federal government passed the CARES act, taxpayers and practitioner turned their focus to the states.
Impact of COVID-19
.
Impact of COVID-19
.
Impact of COVID-19
Have you had any employees who have had to take time off due to the coronavirus for reasons
other than furloughs or layoffs?
❑ Yes
❑ No
❑ Not sure
Poll #2
Many states have announced extensions of time to file and pay taxes• Most extensions relate to income taxes, not sales or other taxes
• Many states have adopted the federal extension of time to file and pay from April 15 to July 15
In some states, the extension does not apply to all income taxes (e.g. personal income taxes only)
• May not extend payment time until July
• Certain states may not be able to waive interest
Sometimes not clear what types of income taxes are covered (e.g., trusts and estates, bank taxes, etc.)
• Relief for fiscal year filers not always addressed
Extended due dates remain the same currently• Important to read guidance carefully
Business considerations• Are there internal policies around payment of taxes that can’t be exercised
due to COVID-19?
• Is there a debt covenant that governs when taxes must be paid?
Notable state and local tax responses to COVID-19
Sales taxes:
•Filing and payment due date deferral
•Penalty and interest waivers
•Targeted relief for business sectors
•Exemptions for sale and use of medicine and supplies to fight the COVID-19 pandemic
•Electronic filing guidance
Excise and other taxes:
•Filing and payment due date deferral
•Penalty and interest waivers
•Guidance on purchase for off-site use or consumption
Notable state and local tax responses to COVID-19
State income taxes:•Filing and payment due date deferral
•Penalty and interest waivers
•Electronic filing and signature guidance
•Relief for nexus and apportionment impacts
due to remote or “work from home” (WFH)
orders
•Response to CARES Act
•Withholding tax waivers for WFH orders
Property taxes:
•Filing and payment due date deferral,
including for exemptions
•Penalty and interest waivers
•Above-mentioned relief addresses several
property types, including real property,
hotels, tangible personal property and
transfer taxes
•Appraisals and appeals
Nexus is a connection a business has with a jurisdiction that creates taxable presence.
Federal Preemption: P.L. 86-272 preempts states from imposing income tax on businesses if their only business activity in a state is solicitation of orders for sales of tangible personal property, even when the sales in the state are substantial. States narrowly construe this already narrow federal provision.
Businesses that responded to Covid-19 by moving employees out of physical business locations and to remote work may create nexus in new states.
Allowing teleworking employees to work anywhere with an internet connection can create tax obligations or liabilities for businesses because having remote workers in a state where the business doesn’t otherwise have nexus, can create nexus in that state.
Thus, measures taken by businesses to keep their workforce safe and adhere to government closure orders may create nexus, and thereby new state tax filing and payment obligations.
Teleworking/Remote Employees
Some states announced that a temporary presence of teleworking employees due to the pandemic will not create nexus.
States include: AL, GA, IN, IA, MA, MN, MS, NJ, ND, PA, SC, and the District of Columbia.
Other states announced that they will not change nexus standards regarding teleworking or have not addressed it.
For example, Maryland will not change how it analyzes for nexus, but it "will consider the temporary nature of a business’ interim workplace model and employee deployment in light of the current health emergency in making a nexus determination” [Maryland Tax Alert 04-1420B].
In the absence of affirmative guidance providing an exception to a state’s nexus position due to teleworking, businesses should assume an unchanged nexus standard.
Even when dealing with states that provided nexus exceptions, business should be aware that if teleworking becomes the new normal, any temporary nexus waivers will not provide long-term protection.
States’ Nexus Policies Require Careful Attention
Nexus rules for local taxing jurisdictions may differ from state thresholds.
Employees working in certain localities could create sales tax responsibilities.
Examples include Colorado home-rule jurisdictions and Louisiana parishes.
Remote employees could also trigger gross receipts tax liability.
Oregon's Corporate Activity Tax: $50,000 in payroll in state creates liability.
San Francisco's Gross Receipts Tax: employees in city creates liability.
Critical steps for businesses for managing nexus, for all tax types:
✓ Document employee roles and locations.
✓ Determine whether the work arrangement is temporary or long-term.
✓ Identify timeline and steps to return to the physical office location.
Local Jurisdiction & Gross Receipts Taxes Complicate Nexus
Apportionment is the process multi-state entities use to divide taxable income among states. States lack uniformity in their apportionment formulas and sourcing methods.
• Many states use, or are phasing in, a single-sales-factor apportionment formula.
• Other states use a three-factor apportionment formula that includes a payroll factor.
• A few states continue to use a three-factor apportionment formula but may apply different weights to each of the factors.
An entity in a state that uses a three-factor apportionment formula must include in the payroll factor, income from services performed by its employees teleworking from that state.
Note: Massachusetts and North Dakota will not increase an employers' payroll factor based on the temporary presence of employees teleworking from the state due to Covid-19.
Remote Work May Impact Apportionment at the Entity Level
Businesses with employees teleworking from different states may have to adjust apportionment calculations for state-specific sourcing rules. Biggest issues involve services and intangibles.
Businesses with increased numbers of remote workers in states that use market-based sourcing (a major trend among states and representing a disproportionately high percentage of the GNP) should not face apportionment issues due to their own remote workers.
▪ Note, however, that the location of the businesses’ customers, if they’ve gone remote, may impact the business’s apportionment for market-based states. For example, a seller of cloud services has receipts that are apportioned depending on where its customer’s employees access the service.
States with cost-of-performance sourcing rules for sales of services could prove problematic. Businesses with offices in one state, and a newly remote workforce in other states, may be required to source sales to states where their remote workers perform services for their customers.
While an increase in remote workers may not cause major apportionment issues for many businesses, they should monitor states with a payroll factor or a sales factor that sources receipts based on cost of performance.
Stay Abreast of State Income Tax Sourcing Rules
Employers must pay unemployment taxes to states with jurisdiction over the wages paid to remote employees. States use a multi-step test for attributing unemployment taxable wages.
Multistate Unemployment Tax Interactions
Step 1 Step 2 Step 3 Step 4 Step 5
Primary Jurisdiction
Base of Operations
Directed or Controlled
Place of Residence
Employer Choice
If an employee works primarily in one jurisdiction, attribute there. Remote work wages may be reportable to where work is performed.
If there is no primary jurisdiction and the employee performs work at their operations base, attribute to the base’s jurisdiction
If there is no base of operations, attribute to the jurisdiction from which the employee’s work is directed and controlled
If no jurisdiction contains a place of direction and control, attribute to the employee’s residence if the employee works there.
If no jurisdiction applies under the four steps, jurisdictions typically let employers choose to attribute work to one jurisdiction.
Multistate Unemployment Tax Interactions
Many business-related state and local tax credits are dependent upon job creation and retention within a certain geographical area or at a particular facility.
It is unclear whether businesses that allow employees to telework outside of that qualified area or facility due to Covid-19 will maintain eligibility for those credits.
For the most part, states have not yet issued guidance addressing this issue.
A few states have issued guidance indicating that businesses may apply for "force majeure" relief if they are unable to meet certain tax credit requirements due to the Covid-19 outbreak.
Many states will "claw back" or recapture previously granted tax credits if taxpayers fail to maintain eligibility for state tax credits.
As with eligibility, if businesses fail to meet program eligibility due to allowing telework it is unclear whether states will try to claw back or recapture tax credits or if force majeure relief will apply.
Telework May Impact Tax Credits or Lead to “Clawbacks”
Incentives to move
Savanah, Georgia; Tulsa, Oklahoma; Vermont; Topeka, Kansas and the Shoals region of Alabama all launched programs offering workers between $5,000 and $15,000 to relocate to their region.
Telecommuting
Where will the income be taxed. In home state or the employers state?
“Convenience of the Employer” Rule
NY, PA, CT, DE, NE
Income will be subject to tax in home state and the state of the employer
Under New York's convenience of the employer rule, the employer is required to withhold New York state income tax from all wages paid to the employee if (1) the employee spent at least one day in the year in New York and (2) the reason the employee is working from home outside of the state is for the employee's own convenience. If the reason the employee is working from home is for the convenience of the employer, work from home is excluded from the nonresident income tax withholding requirement. (TSB-M-06(5)I.)
Teleworking – Employee Issues
Amnesty, and other dispute resolution technics?
Law changes, permanent or temporary, that expand the tax bases?
Sales tax
Income tax
More states joining Streamlined Sales Tax Agreement?
Expanded role of SST Governing Board?
COVID-19 Long-term
WAYFAIR
• A recent Avalara study found that only 56% of the businesses surveyed had heard of the Wayfair case and were not aware of its implications.
• Fewer than 40% of extremely small businesses—those with fewer than 20 employees—were aware of Wayfair
• 63% for businesses with more than 500 employees were aware of Wayfair
Remote Seller Sales Tax Collection
What is Economic Nexus?
WHAT IS IT?
Economic nexus is a tax collection obligation imposed on sellers based on their level of economic activity within a state.
Unlike physical presence, it is based entirely on sales revenue, transaction volume, or both.
Like most sales tax laws, economic nexus criteria vary by state. All aim to level the playing field between non-collecting out-of-state sellers and brick-and-mortar businesses.
Have you had a formal nexus study performed by HBK Dealership Solutions Group or other
qualified firm?
❑ Yes
❑ No
❑ Not sure
Poll #3
“Remote Sellers” are often believed to be companies who sell goods and services over the internet
However, this term applies to any company that makes sales into a state where they do not maintain physical presence:
• Online Sales
• Purchase Orders
• Drop Shipping
• Telephone Orders
• Automatic Replenishment Orders
Who is a Remote Seller?
W H AT I S I T ?
Remote Seller Sales Tax Collection
❖Hawaii: HB 495 (enacted July 2, 2019) – adopts an economic nexus standard for income tax purposes, setting a threshold of engaging in/soliciting 200 or more business transactions or $100,000 or more in Hawaii gross income, effective stating in 2020.
❖Massachusetts: 830 CMR 63.39.1 (adopted October 18, 2019) – following Wayfair, adopts for purposes of the Massachusetts corporate excise tax and “economic or virtual contacts” standard with a more than $500,000 in Massachusetts sales threshold.
❖Minnesota: HF 5 (1st Special Session, enacted May 30, 2019) – adopts a “Wayfair” nexus standard for purposes of the MinnesotaCare Tax.
❖ Pennsylvania: Corporation Tax Bulletin 2019-04 (Sept. 30, 2019) – in response to Wayfair, the revenue department announced that it will impose economic nexus with a $500,000 gross receipts threshold for corporate net income tax purposes beginning January 1, 2020.
❖ Philadelphia, PA: amended Business Income and Receipts Tax (BIRT) Reg. Section 103 (approved January 24, 2019) – in response to Wayfair, modifies Philadelphia’s “doing business” provisions for BIRT purposes to establish economic nexus standard with a $100,000 threshold; effective January 1, 2019.
❖ Texas: proposed amendments to 34 TAC Section 3.586 - comptroller proposed amendments to its franchise “margin” tax nexus rule that would establish a $500,000 economic nexus threshold for franchise (margin) tax purposes, starting in 2020.
❖Washington: SB 5581 (enacted March 14, 2019 - effective January 1, 2020 replaces the business and occupation tax factor presence standard with an
economic nexus threshold of $100,000 in cumulative gross receipts.
Nexus challenges for merchants in 2019
Multistate locations
Maintenance /
service /
repairs
Hosted data centers
Licenses /
royalties /
fees
Direct / online sales
Trade shows
Investors / board meetings
Marketing / web advertisingOwned /leased
real property
Field sales /
service staff
Inventory location
Affiliates
Manufacturing Representatives
Several states have used the occasion of Wayfair to substantially increase the requirement to collect local option sales/use taxes.
In some cases this is the result of adopting destination sourcing for at least remote sellers and terming delivery transactions to be sales tax transactions.
In others, it is accomplished by expanding/modifying the local use tax base or redefining who is required to collect local use taxes.
The net result is the same: expanded local tax collection responsibility for remote (and in some cases) non-remote sellers.
States having taken this approach include:
California: Sellers required to collect district use taxes based on meeting state threshold.
Colorado: Remote and non-remote sellers to collect all-state administered local sales taxes based on destination basis.
Illinois: Remote sellers collect local “ROTs” as opposed to statewide use tax.
New Mexico: Remote and non-remote sellers collect new, comprehensive local compensating tax effective July 1, 2021.
Texas: Remote sellers collect local tax on destination basis; sellers (but not marketplaces) eligible for optional uniform local rate; sellers with physical presence collect on origin basis.
Arizona and Ohio: Remote sellers collect on destination; sellers with physical presence collect on origin basis.
Draws attention to local incentives involving origin-based intrastate sourcing – TX and CA.
Remote Seller Sales Tax Collection
Colorado
300 jurisdictions.
Strong constitutional protections for home-rule cities and counties in the state have prevented uniform tax sourcing rules.
A bill extending the life of Colorado’s Sales and Use Tax Simplification Task Force was approved by a legislative committee and will be placed on the state Senate’s consent calendar, moving it one step closer to the governor for his signature.
However, given the state’s coronavirus-related budget woes, the task force won’t be funded and won’t meet in 2020.
Remote Seller Sales Tax Collection
Remote Seller Sales Tax Collection: Marketplace Facilitator
It’s More Than a Change in Rates
Hill, Barth & King, LLC (“HBK”) is a multidisciplinary financial services firm, offering the collective intelligence of hundreds of
professionals committed to delivering exceptional client service across a wide range of tax, accounting, audit, business advisory,
valuation, financial planning, wealth management and support services.
Copyright © 2020 Hill, Barth & King, LLC. All rights reserved.
This Presentation contains general information only, and HBK is not providing through this presentation accounting, tax, business,
financial, investment, legal or other professional services or advice. This presentation is not a substitute for professional services or
advice, and it must not be used as a basis for any decision or action that may affect you or your business. Please consult a qualified
business advisor before making any decision or taking any action that may affect your business. HBK shall not be responsible for
any loss sustained by any person who relies on this presentation.
Coronavirus Crisis
Webinar Series:
The New Stimulus Package
Join HBK Dealership Solutions Group
Next week for another installment of our Third Thursday
August 13th 11:00 – 12:00 EDTRegistration link to be provided
Let us answer YOUR dealer specific questions
Rex A. Collins, CPA, CVA317-504-7900
HBK Dealership Solutions 317-886-1624
Cassandra Baubie, JD