Good News and Bad News From Somerset Accountant
March 15, 2012
As usual, I’m taking a Monday here in Somerset Area to write to you about ways to grow your business.
Yes, we’re in the middle of our final crunch during tax season, but it’s NOW that I wanted to continue to provide this information to you, so that you know how important your success really is to me. As you’ve probably gathered, I’m not a “normal” accountant, because one of my great goals in our relationship is that we not only help you and your team watch and reduce expenses (thereby, of course, increasing profits), but that I would give you real-world tools and strategy for increasing your TOP-line (sales) growth. But this week, I do have some tax information you need to understand. There’s a trap being set for unwary Somerset Area business owners, and this year the IRS is paying close attention. More about that in a moment, but I promised you some good news too, right?
Here it is: This year the IRS is granting a new six-month grace period on failure-to-pay penalties for ‘certain wage earners and self-employed individuals.’ That means that certain business owners can not only extend the FILING of their return, but that penalties can be waived as well. Here’s the condition: if your business shows a 25% (or more) reduction in revenue compared to last year. In that case, the IRS will permit you to delay payment of your tax bill and no penalties will be assessed. (However, interest fees at 3% annually “cannot be waived”.)
Hopefully, you’re not in that circumstance — but if you are, it’s good news. And, if you’re “on the edge”, let us know if we can dig into your books for you and (legally) maneuver them so that you qualify.Now for the bad news …The Most Trusted Somerset Area Accountant Reveals: The Telecommuting TrapIf you think the IRS is your biggest tax concern, think again. States are broke and they’re getting aggressive (and sometimes nasty) in collecting what they think is theirs. In fact, there was a recent tax court case in the state of New Jersey, which caught my eye, and it’s a good way to introduce this issue to you. A company called “Telebright” is incorporated in Deleware, and has primary offices in Maryland. And an unnamed employee worked in Maryland before moving to New Jersey when her husband changed jobs. Since she was a valued employee, according to the court documents, Telebright allowed her to telecommute after she signed an employment contract with a non-compete provision. That was enough for the N.J. court.
In the case of Telebright, the court said that New Jersey is not imposing its corporate tax on Telebright because the company’s employee lives in the state, but because she performs work for Telebright on a full-time basis in the state. “Taxing a business based on its employing one full-time employee in the taxing state does not violate the Due Process Clause,” wrote the court. The company argued that the state’s attempt to collect corporate tax on this business violated the U.S. Constitutional due process and commerce clauses. But the N.J. court noted that previous rulings found that the presence of “a small sales force, plant, or office” could subject a foreign business to taxation. “The fact that Telebright’s full-time employee works from a home office rather than one owned by Telebright is immaterial … She is producing a portion of the company’s web-based product here, and the company benefits from all of the protections New Jersey law affords this employee,” wrote the court.
Since Telebright already withholds and pays New Jersey state income tax from the employee’s salary and it did not offer any explanation as to why the additional effort of calculating and paying the state’s corporation business tax would constitute an undue burden on its conduct of interstate commerce, the court found the commerce clause argument unpersuasive. The bottom line for Telebright? Welcome to the Garden State and its taxes. The bad news?
If you’re a business with telecommuters everywhere but New Jersey, don’t get complacent. Many states have considered whether one employee in a state creates nexus for an out-of-state company and the majority of the reported cases and administrative rulings conclude that just one employee creates nexus, for both income tax and sales/use tax purposes. That finding was similar to the responses Bloomberg media got last year when it asked state tax officials if they would draw a different conclusion if the out-of-state corporation made no sales into their jurisdiction or if the employees telecommuted for only part of their total work time. Arizona, Indiana, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, North Dakota, Pennsylvania, Rhode Island and Tennessee representatives said that in such cases, nexus would still result, leading to taxes.
Don’t be complacent on this issue. Help us help you avoid this, and let’s figure out together how to get ahead of the curve.
After all — paying taxes in ONE state is burdensome enough. Oh, one more thing, though: +++++++++++++++++ “PROCRASTINATORS ONLY” Special Gift Certificate$23 Towards Any Tax Service“Yes, I Have Procrastinated Filing My Taxes This Year … But I Still Want to Protect Myself from All the New Tax Laws and Get MORE Money Back from Uncle Sam with A Peace-Of-Mind Guarantee that’ll Keep Me Sleeping like a Baby when My Taxes are Filed with the IRS!”Deadline April 17thNot valid with any other offer