State and Local Taxes Flashcards
State and Local Taxes
State Sales Tax: business collects and remits to the right state
Use Tax: Use of Tangible Property not purchased in state, paid once (purchase car in TX but register in VA - use in VA)
Property Tax: based on value of home, commercial building, paid each year (imposed)
State Income Tax: derived from income based on fed taxable income and adjusted , paid on that years income
Excise Tax: Based on quantity purchased rather than price - ex cigs, alcohol, gas (charged to manufacturer or customer) i.e. luxury goods over $100,000
Ad Valorem - imposed each year, on personal property like car. Some states tax intangible assets like technology
Incorporation Tax: newly licensed incorporation - paid one time
Franchise Tax: paid to jurisdiction for ‘privilege’ of having corp in that state - based on stock plus APIC plus retained earnings times a factor - annually
State Unemployment: based on the first $8000 of wages
Jurisdiction Tax
Domestic Corp - Corp doing business in same state as Organized in
Foreign Corp - Doing business in a state that is different than incorporation
NEXUS - can the state tax activity going on in that state?
4 tests - (complete auto transit vs brady)
1. Substantial NEXUS - Activity must have substantial NEXUS with the state to have power over the activity
2. Fairly apportioned - Fairly appointing the % of activity in relation to other states
3. Non-Discrimination - Laws set up by that state cannot discriminate against interstate commerce
4. Fair Tax - fairly related to services that state provides
When would Nexus exist?
- approving/accepting orders within a state
- hiring/supervising employees other than sales staff
- installation
- maintaining an office or warehouse (not independent contractor)
- providing maintenance or engineering services
- making repairs
- investigating creditworthiness or collecting delinquent accounts
- providing training for employees other than sales staff
NEXUS does NOT Apply:
limited to –
- soliciting sales of tangible personal property, sales are approved and property is shipped out of state
- advertising
- determining re-order needs of customers in that state
- furnishing autos to sales staff in a state
State Income Tax
- starts with Fed Taxable income and plus or minus adjustments
- each state has own adjustments
Common additions and deductions
Additions:
- Municipal Bond Interest
- expenses for US Savings Bonds
- State Income Tax paid
- depreciation in excess of Fed
Deductions
- expenses related to muni bond
- interest on US Savings Bonds
- federal income taxes paid
Foreign Branch vs Foreign Subsidiary
US Persons, Corp, etc are taxed on ALL income earned anywhere in the world
Corp taxed on Branch (not separate legal entity)
Corp NOT taxed on Subsidiary until income is repatriated in form of dividends to parent company (separate legal entity from parent, even if owned by parent)
Business Income Apportionment
Business income vs Non-Business Income:
- non business: dividends, interest (home state only)
- business: generated from regular business income - sale of inventory, performance of services (apportioned among all the states)
- rental income can be business if its a real estate developer or broker
Apportionment factors (can be any or all)
- sales
- payroll expense
- avg total property
Sales Tax from Internet
2018 Supreme Court Decision “Wayfair”
- states have Nexus for sales and use tax even if seller has no presence in state
- overturned 1992 decision where they were exempt without physical presence
