So I Want to Talk About the Recent Case history that has impacted the multi-state landscape and how we got to the place that we’re at today so the first case I want to talk about is complete auto transit versus Brady so complete auto transit versus Brady basically set up a system where the states are free to make independent judgments about what goes on in their state borders absent any sort of federal preemption so what that means is if the federal government hasn’t ruled that something is a national activity and it falls under the Commerce Clause of the Constitution that essentially the states can control what’s in their own borders so that was the first major case because it gave the states the power to basically operate as they see fit within their borders the second case is a case called quill quill was a Supreme Court case in the nineties and quill is significant because well basically ruled that unless a company or an individual had sufficient minimum contacts with a state that the state couldn’t charge sales or use tax and so this was significant because for the first time it mandated that company at least had to have some basic physical presence or some substantial contact in order for a state to mandate that a charge sales and use tax so quell was an extremely unpopular decision it states.
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Multi State Tax Issues
Multi state tax issues don’t just impact businesses. In fact they impact people probably a lot more than they impact businesses. The reason for that is people move around a lot more than businesses do. So think of it this way. You have a situation where you have a client who’s in one state and they travel back and forth frequently between let’s say California and Texas, California has a 13.3% individual income tax rate, Texas has a 0% individual income tax rate. So the amount of tax that the taxpayer pays based on their movements between different states is going to depend on the residency of the particular taxpayer. Now residency is closely tied with domicile, which is a legal term. The domicile is essentially somebody’s home base so once you move into a home and take steps to establish your domicile in one state, that state becomes your tax home however until you establish a domicile in that state or until you more specifically move your domicile outside of a state, that’s where you run into problems. So take for example California that’s been super aggressive in dealing with some of these issues.
I Make Sales to Customers in Multiple States. Do I Owe Tax?
The legal framework has really shifted is in allowing States to collect tax against companies.
Is Applying for a Tax Amnesty or Going Through a State’s Voluntary Compliance Program a Good Idea?
Is Applying for a Tax Amnesty or Going Through a State’s Voluntary Compliance Program a Good Idea?
What Is Nexus? Do I Have Nexus in California?
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:
What Are the Risks From a Tax Perspective From Doing Business in Multiple States?
What Are the Risks From a Tax Perspective From Doing Business in Multiple States?
IRS and CA State Enforcement Action Rising 5/11/2020
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.
I Think I May Have Tax Liability in Multiple States, What Are the First Things I Should Do?
I talk to where somebody has reached out to state Collections officer.
I Got a Notice in the Mail From California Asking Me to File a Tax Return. What Should I Do?
The state of California at least not yet the very first thing you want to do.