On April 25, 2019, the Governor of California approved Assembly Bill No. 147, which sets the economic nexus threshold at $500,000 in sales or deliveries to California, cumulative over 12 months. This will come as some relief to many out-of-state retailers affected by last year's U.S. Supreme Court case, South Dakota v. Wayfair, Inc., the case that overturned the long-standing principle set in Quill Corp. v. North Dakota requiring physical presence for a retailer to be subject to state sales and use taxes.
Beginning in 2010, the Panera Bread Foundation, a non-profit related to the popular restaurant chain, piloted a limited experiment in the "gift economy," whereby customers could "pay it forward" or "pay-what-you-can" at select cafes. The experiment, unfortunately, failed due to lack of financial viability. In a double-hit, the Internal Revenue Service (IRS) now claims the experimental cafes owe back taxes to 2012 on annual revenues exceeding $7.5 million.
Arizona Attorney General Mark Brnovich recently asked the U.S. Supreme Court for permission to file suit against the State of California over the $800 minimum business tax imposed on investors in certain LLCs. Brnovich contends that the California minimum tax, and California's related collection efforts when investors or businesses do not pay, is illegal because the investors have "purely passive investments in California companies." In addition, since the $800 minimum tax is deductible on Arizona tax returns, the California practice is costing Arizona more than $484,000 annually.
The Internal Revenue Service (IRS) recently issued final regulations and related guidance on the new qualified business income (QBI) deduction created by the 2017 Tax Cuts and Jobs Act. Eligible business owners and taxpayers can now deduct up to 20 percent of their qualified business income or real estate investment trust dividends on their federal tax return beginning after December 31, 2017.
The California Department of Tax and Fee Administration (CDTFA) announced this week that, starting April 1, 2019, out-of-state retailers whose sales for delivery into California exceed $100,000 or 200 deliveries will be required to register with California and collect and pay over sales tax. Businesses that meet these thresholds for a single local jurisdiction will also need to collect and pay over that district's use tax, in addition to the state tax.
The Treasurer of Ohio announced this week that taxpayers in his state will be able to pay business taxes with cryptocurrency - making Ohio the first state in the U.S. to do so.
The California Legislative Analyst's Office (LAO) released a fiscal outlook report recently that indicates California will soon be implementing changes to sales and use tax collection for out-of-state businesses in the wake of the June 2018 Wayfair decision. "The administration plans to start registering out-of-state taxpayers soon," the LAO wrote, and anticipates increases to state revenue from related changes starting around $100 million or more in the next couple years. To read the full report, click here.
A California real estate professional was recently sentenced to 2 years in prison for filing false income tax returns that failed to report over $1 million in cash earned through marijuana sales made between 2012 and 2014. In addition, he was ordered to serve one year of supervised release and pay $466,707 in restitution to the IRS.
California taxpayers who ceased doing business but continue to get requests for unpaid taxes or unfiled returns from the Franchise Tax Board (FTB) may benefit from a new bill, AB 2503, which goes into effect January 1, 2019, and provides two options for an administrative dissolution of qualified domestic corporations and LLCs. The FTB will be able to administratively dissolve a business that has been suspended for 5 years or longer, or has ceased doing business, and meets other qualifications. Otherwise, taxpayers may request that the FTB abate unpaid, qualified taxes, interest, and penalties for years for which the entity certifies under penalty of perjury that it did not do business and has no remaining assets.
On September 13, 2018, a bill was introduced in the U.S. House of Representatives "to prohibit States from retroactively imposing a sales tax collection duty on a remote seller," among other purposes. H.R. 6824, also called the Online Sales Simplicity and Small Business Relief Act of 2018, seeks to limit the impact of the recent Wayfair decision, which eliminated the need for a business to be physically present in a state in order to have economic nexus in that state.