strategies-init

I Make Sales to Customers in Multiple States. Do I Owe Tax?

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VideoBG117

Key Takeaways

  • Topic: I Make Sales to Customers in Multiple States. Do I Owe Tax?
  • Read the full article below for complete details on this topic.

I Make Sales to Customers in Multiple States. Do I Owe Tax? Well you might owe tax and the reason for it is a lot of us are used to the old way which was shipping products into another state and not charging tax because you’re not in that state why would you charge tax but the way that the legal framework has really shifted is in allowing States to collect tax against companies even if they don’t have physical presence within their borders there’s been a lot of lost revenue for states with the proliferation of business being done on the internet you know we’re talking about billions and billions of dollars in lost revenue so the states have responded by creating these very broad statutes that are designed to allow them to collect tax against out-of-state businesses if they have a certain level of activity in their state so it’s really important from a state perspective that you go through your business activities and figure out if you have sufficient minimum contacts with that state and whether those minimum contacts would obligate you to collect either state income tax or state sales tax.

Have a Tax Question or Notice?

If you’re dealing with an IRS audit, collection action, California state tax matter, or any other tax issue, we can review your situation in a free 15-minute call.

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Is Applying for a Tax Amnesty or Going Through a State’s Voluntary Compliance Program a Good Idea?

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VideoBG116

Key Takeaways

  • So it’s difficult for me to answer that question for everybody because it’s a highly fact-specific question but generally the way that I view state amnesty plans or state voluntary disclosure plans…
  • The states have created this great deal for themselves.
  • They’re not going to waive any of the interest or they may waive the interest but basically they don’t have to do anything and they have all these people coming forward and saying we owe tax pay ov…

So it’s difficult for me to answer that question for everybody because it’s a highly fact-specific question but generally the way that I view state amnesty plans or state voluntary disclosure plans is kind of like a sucker’s bet. The states have created this great deal for themselves. They lack enforcement mechanisms to go after a lot of multi-state taxpayers and so what they’ve done is they’ve created a program that if you come forward and you pay all the tax that you owe for let’s call it three years, they’ll be kind enough to waive the penalty portion. They’re not going to waive any of the interest or they may waive the interest but basically they don’t have to do anything and they have all these people coming forward and saying we owe tax pay over the tax. In some cases it’s a great way of mitigating liability, particularly if you have Nexus or minimum contacts in a state that exceed or greatly exceed the disclosure period for the voluntary disclosure. So it’s not like a pocket no, but at the same point it’s not a pocket yes either. It’s all these companies that tend to think that by going through voluntary disclosure and just paying over all this tax it’s the best thing and the problem is from a financial perspective, that may not be the best course of action for the business. You might not want to go through voluntary disclosure. It may not make sense to go through voluntary disclosure, it may not make sense to participate in the amnesty, so before you make that decision, before you jump into “I’m gonna go through voluntary disclosure,” “I’m gonna go through amnesty,” “I’m gonna subject myself to jurisdiction in this particular state,” back up. Look at the landscape of the company, look at all of its sales activity, look at all the places that it potentially is exposed to and then make a plan based on what the best thing for the company is. It’s not a great thing for the company if the company has to pay all these past due sales taxes and state income taxes and go insolvent. You’re not helping anybody so the important thing is build a plan, create that plan and then strategically use voluntary disclosure programs and amnesty programs to accomplish your objectives. That’s the much better way to leverage those and it’s the better way to know if they make sense for your business.

Have a Tax Question or Notice?

If you’re dealing with an IRS audit, collection action, California state tax matter, or any other tax issue, we can review your situation in a free 15-minute call.

Schedule a Free Call →    Or call: (619) 378-3138

What Is Nexus? Do I Have Nexus in California?

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VideoBG115


Nexus is a legal term and what it means is essentially a code for the level of minimum contacts that you have in a state.  Minimum contacts can include:

Key Takeaways

  • Nexus is a legal term and what it means is essentially a code for the level of minimum contacts that you have in a state.
  • Third party contacts can be independent contractors or vendors.
  • These contacts would tend to trigger Nexus in a particular state so if you have that level, you meet the Nexus threshold.

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How Is Nexus Created in California?

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VideoBG114


Key Takeaways

  • How is Nexus created in California?
  • So there’s a concept called click-through nexus or affiliate nexus.
  • So those are ways that you trigger nexus with the state of California, and that’s how you would obligate yourself to pay tax.

How is Nexus created in California? Well, Nexus is created in California in a variety of different ways. So the first way is through physical contacts. Physical contacts could be through employees that are in California, independent contractors that are operating on a company’s behalf within California. It could be through third parties.

So vendors or anybody who’s classified as an agent operating within the state of California is sufficient enough to create nexus within California. Then we have a group of criteria called, call them economic contacts. So if you’re doing a certain amount of business in California, if your sales revenue meets an appropriate threshold or you have other economic contacts with California, then you could be triggering nexus within California and obligating yourself to pay tax. And then the third category that I would generally use is what I call internet contacts.

So there’s a concept called click-through nexus or affiliate nexus. And so for businesses that principally operate online, you have to get into trouble that you’re not overly marketing to customers that are located in California by using any one of common internet marketing tools.

So those are ways that you trigger nexus with the state of California, and that’s how you would obligate yourself to pay tax.

Have a Tax Question or Notice?

If you’re dealing with an IRS audit, collection action, California state tax matter, or any other tax issue, we can review your situation in a free 15-minute call.

Schedule a Free Call →    Or call: (619) 378-3138

What Are the Risks From a Tax Perspective From Doing Business in Multiple States?

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VideoBG113


Key Takeaways

  • The same thing with vendors.
  • The next part that’s really complicated and that creates a lot of risk is the changing laws.
  • So the laws are changing in these areas, but it’s not like you’re dealing with one set of laws either.

What are the risk factors for doing business in multiple states? Well, when you operate in one state, your circumstances are pretty easy to control. The facts of just your business, you have control over how those change. You’re only worrying about your state’s law. And it’s a much smaller scale. The problem is with a growing number of businesses today, a growing number of businesses are reaching out and having contacts with multiple states. So there’s a number of different ways that this creates risk for businesses.

Number one is shifting facts. So as you widen your net, as you get broader and bigger, and as your level of contacts increases with different states, you can’t always control the facts of your situation. So for example, if you have an employee in your company and they move to a different state, well, now you’ve just created nexus in that state for circumstances that are really kind of beyond your control.

The same thing with vendors. If you’re using vendors in multiple states, then you have to be worried about their contacts and their practices to make sure that their activity is not creating nexus for you in a state that you didn’t intend.

The next part that’s really complicated and that creates a lot of risk is the changing laws. So
nexus laws and the laws around multi-state businesses, number one, they’re very actively changing at this moment because a lot of states are trying to broaden their tax base. They’re trying to create as many taxpayers as possible to fund the revenue coffers of their state.

So the laws are changing in these areas, but it’s not like you’re dealing with one set of laws either. You’re dealing with laws for all 50 states. And while a lot of states do things similarly, there are some very pronounced differences between the different states. There’s not only difference from the law side of things, but there’s also differences from the enforcement side of things.

So you take a state like California, California is very, very aggressive towards out-of-state businesses and very unforgiving when an out-of-state business claims ignorance to California’s laws.

So that’s kind of the overall landscape of why multi-state taxation creates risk for businesses that operate in multiple states. And the best thing that you can do is try and protect yourself from that risk by understanding it and taking actions to mitigate it.

Have a Tax Question or Notice?

If you’re dealing with an IRS audit, collection action, California state tax matter, or any other tax issue, we can review your situation in a free 15-minute call.

Schedule a Free Call →    Or call: (619) 378-3138

IRS and CA State Enforcement Action Rising 5/11/2020

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VideoBG111

Key Takeaways

  • Topic: IRS and CA State Enforcement Action Rising 5/11/2020
  • Read the full article below for complete details on this topic.

Good Morning it’s Monday May 11th and I wanted to talk to you today about the collection and enforcement efforts that are ramping up across the country with the IRS and the state of California so I’ve spent a lot of time talking with collection agents and with auditors over the last few weeks and although there’s a moratorium on collection and examination activity through the middle of July it’s going to be open season after that let me explain why so the federal government gave away three trillion dollars in fonts and we all know nobody in their right mind is goin to raise taxes this year given the coronavirus climate so the government just gave away a lot of money they aren’t going to raise taxes so the natural conclusion is they’re going to get it back through enforcement and specifically they’re going to go after businesses so I want to share a couple of things that businesses can do now to protect themselves in the current coronavirus climate so the first thing that a business can do to protect itself is to get its finances in order and to come up with a projection for how the rest of the year is going to lock I realize that we’re dealing with a lot of uncertainty right now a lot of us are either stay at home orders we don’t know exactly when the lights are going to go back on but using a reasonable projection you should be able to track kind of what your revenue is going to be for the rest of the year and if you’ve got up you need funding or if you’ve got idle funding how that’s going to impact your decision to carry your business so the very first thing you need to do whenever you’re in a hole is you need to stop digging and figure out where you’re at having a longer projection at least through the end of the year is going to let you know number one how much cash is gonna come in number two what you project your expenses are and number three how much you’re gonna have left over a profit to devote to any back liabilities whether they be taxes or other obligations so you can get your arms around the situation the second thing you’re going to do is you’re going to stop being so not all liabilities are created equal so for example if you accrue payroll tax liability or sales tax liability in particular those are deemed as trust fund taxes those are money is that you hold in trust for somebody else so when you run a coffee shop and you sell a cup of coffee and you collect the sales tax that is your customer paying sales tax on a product you are holding that money in place for the state and you are remitting those funds so you are not allowed to spend that money and if you spend that money and you both with that tax liability later the government will come after you personally for those liabilities so you need to draw a line between the liability is that you could be held personally responsible ie trust fund taxes and other liabilities that your business only may be liable for and then you need to start prioritizing those liabilities based on who gets paid first but the important part about this is don’t spend money right now that’s not yours and the final thing that you need to do is build a plan so you’ve got your revenue projection you’ve got your expenses going out you know what you’re gonna owe in terms of liability and even if you’ve had cash challenges a lot of businesses have been really hurting by this we’ve had businesses that basically disappeared overnight even if you’re a million or a couple million dollars in debt right now there is a way out of this situation but what it’s gonna take is it’s going to take planning lights are gonna come back on in the IRS to the state as of July 15th so you could take the next three months particularly three months where you’re gonna be out of business and really build your financial situation 2% an offer to the IRS IRS collection agents are basically going to throw people into two buckets there’s the bucket of people that they can’t do anything with and there’s a bucket of people where there’s some meat on the bone they’re going to go after so the more that you can present yourself like bucket one and really minimize yourself as a target for the government that’s the way things are going to go so it’s about building a plan about minimizing your exposure on the collection side and then on the audit side you need to make sure your house is in order it’s finding.

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I Think I May Have Tax Liability in Multiple States, What Are the First Things I Should Do?

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VideoBG110

Key Takeaways

  • So the first thing that you should do is not contact the states.
  • So it’s not a good idea to call them and volunteer information to the states.
  • Rather the first thing that you really need to do is assess what your risk is.

So the first thing that you should do is not contact the states. I can’t tell you how many prospective clients that I talk to where somebody has reached out to a state Collections officer or somebody in the out of state compliance unit and inadvertently stuck their foot in their mouth by something that they said, which the state may or may not have known ahead of time. So it’s not a good idea to call them and volunteer information to the states. Rather the first thing that you really need to do is assess what your risk is. So you want to look at your level of contacts and your sales volume in the states that you think you have liability in. You want to kind of gather that information together so that you can better assess what your risk is and then even after you assess what your risk is, you really want to speak to a multi-state taxation expert. Speak with an attorney and have them go through and outline what your options are. A lot of people are too quick to say, “well we have Nexus in a particular state, we owe money in a particular state so let’s just go ahead and give this state all this past tax liability.” What they do by doing that is they inadvertently subject themselves to more liability and more risk than what they would have owed if we had created a measured multi-state tax strategy and executed that ahead of time. So a lot of people are very quick to jump into action and what I would encourage you to do is measure twice and cut once. Really solidify what your risk is, solidify what your options are and then pick the best option for your organization in order to minimize your liability and create a compliance path so that you have a platform to operate off of in the future. It’s not just the past tax liability you have to worry about, it’s about creating stability for your organization in the future so that they can continue to make sales and not have to worry whether they’re going to get into trouble or not. So number one it’s about mitigating liability and number two it’s about creating a compliance plan going forward.

Have a Tax Question or Notice?

If you’re dealing with an IRS audit, collection action, California state tax matter, or any other tax issue, we can review your situation in a free 15-minute call.

Schedule a Free Call →    Or call: (619) 378-3138

I Got a Notice in the Mail From California Asking Me to File a Tax Return. What Should I Do?

by
VideoBG109

Key Takeaways

  • Okay step one, don’t contact the state of California.
  • The very first thing you want to do when you receive that notice is assess what your minimum contacts are with the state and what your level of risk is.
  • So California, when they send out all those notices that say please file a return, a lot of those are fishing expeditions.

Okay step one, don’t contact the state of California. At least, not yet. The very first thing you want to do when you receive that notice is assess what your minimum contacts are with the state and what your level of risk is. So California, when they send out all those notices that say please file a return, a lot of those are fishing expeditions. So the state may have gotten a piece of information or gotten your name somehow and you might not actually have a filing requirement with the state of California but before you jump out and contact the state, it’s important to assess what your level of risk is and what your level of exposure is. Second after you have done those two things, you want to put together a plan for responding to the state. You want to understand what information that the state has that triggered that notice and why you received that notice and then you want to prepare a response tailored to the information that the state has on you. So that you resolve the issue very quickly, the key thing here is controlling the scope of information. You never want to offer the state more information than it has because it’s like pulling a thread they’ll just keep coming and coming and coming, so you want to address the issue. You want to do so sufficiently and then you want to mitigate your liability and move on. If you do have a filing requirement in a particular state, you want to prepare and organize returns in a manner that will similarly cut off your liability. So again the idea is controlling the scope of information in order to minimize your liability and to eliminate risk.

Have a Tax Question or Notice?

If you’re dealing with an IRS audit, collection action, California state tax matter, or any other tax issue, we can review your situation in a free 15-minute call.

Schedule a Free Call →    Or call: (619) 378-3138

I’ve Registered for Sales Tax or I’ve Registered for a Sellers Permit in a Particular State.

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VideoBG108

Key Takeaways

  • Do I have a state income tax filing requirement in that state?
  • The answer to this question is probably.
  • Now does that mean if you’re registered for seller’s permits in thirty five or forty states that you should just go around and file 35 or 40 state income tax returns?

Do I have a state income tax filing requirement in that state? The answer to this question is probably. By purposely availing yourself to a state, by registering yourself for a seller’s permit and/or registering as a foreign entity and qualifying to do business in a state, more than likely you’re going to subject yourself to state income tax jurisdiction. Now does that mean if you’re registered for seller’s permits in thirty five or forty states that you should just go around and file 35 or 40 state income tax returns? No, the idea with compliance is understanding what your exposure is in different states and then registering or filing returns appropriately in order to meet the needs of your business. So there’s a balance between putting yourself in compliance and then making sure you’re doing the right thing for your business. So the important thing to do is sit down, look at the operations of your company, look at where you’re making sales and craft a multi-state tax strategy and a filing strategy that’s appropriate to that. When we’ve done this for different businesses that we’ve worked with and when we deal with clients on the subject, a lot of times the liability that they have, the filing requirements that they have and what they end up doing is a lot less in scope than they initially thought so it’s important to have a plan in place. It’s important to know that registering in one jurisdiction for a sales tax perspective is probably going to create a filing requirement in that jurisdiction and require managing and mitigating that situation appropriately.

Facing a California Sales Tax Audit?

CDTFA audits can result in significant assessments — especially if records are incomplete. The direction of the audit is largely set by how you respond to the initial document request. If you’re at any stage of a sales tax audit, a brief review can clarify what you’re facing.

Discuss My Sales Tax Audit →    Or call: (619) 378-3138

What is Dropshipping and What Are the Tax Consequences?

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VideoBG107

Key Takeaways

  • We are one of the few tax law firms that focuses on multi-state tax issues. These issues are technical and difficult to address and are a “speciality within a speciality” within the area of tax law.
  • We are a nationally recognized local law firm and what do you get with us? A team small enough to provide individualized and personal service for our clients with the ability to really get to know their business.
  • If you want to identify, manage, and mitigate your risk so you can prevent any unwanted tax problems now or in the future, book your first free 60 min session with us today.

A dropshipping transaction involves a situation where a seller is selling a product to a buyer but shipping that product to the buyer’s customer which may or may not be located in a different state.

Dropshipping is an incredibly complicated thing from a tax perspective because you may have one party or multiple parties in multiple jurisdictions. You could have a California seller, you could have a Florida buyer or you could have a customer in New York where the product is ultimately going to.

So the biggest challenge for tax professionals in this situation is where do you pay the tax to? With customers in different states, this is really important because there are a variety of issues around which state has jurisdiction to collect the tax revenue that make this incredibly complicated.

In a dropshipping transaction, you want to make sure you understand the different types of situations that your company faces and then create a plan around how to address those from a tax filing perspective. Then in your sales process, you want to ensure that you’re collecting the appropriate documentation and you’re doing what you can to mitigate your own risk in this situation.

The problem with a lot of dropshipping transactions is many companies assume that because product is going to one place or because their customer is located outside their state that they’re not obligated to collect tax, and unfortunately the way that most state sales tax laws are written, particularly surrounding dropshipping transactions, is it puts the online business on the hook for liability unless they’re collecting resale certificates from that particular state or they’re taking other appropriate measures to mitigate their risk. So there are a lot of tax consequences to dropshipping.

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