New Hampshire v. Massachusetts: Sovereignty or status quo?

Read this if you are a construction company.

I am pleased to introduce 2020 Tax Planning Opportunities: CARES Act, published in conjunction with CICPAC (Construction Industry CPAs-Consultants Association) by a national group of tax professionals focused on the construction industry. BerryDunn is proud to be one of CICPAC’s 65 member firms across the US, and one of only two in New England.

Within the document you’ll find an abundance of useful insights on the following topics and more related to the Coronavirus Aid, Relief and Economic Security (CARES) Act:

• Paycheck Protection Program (PPP) loans
• Net operating losses and excess business loss limitations
• Qualified Improvement Property (QIP)
• Payroll cash flow opportunities and employer tax credits

Every business has been impacted by COVID-19 in some form. The CARES Act offers opportunities galore for virtually every business. Now, perhaps more than ever, it’s time to work closely with your BerryDunn tax professional to ensure recovery through this difficult time. 

Read the entire document. 

Read this if you are a business with employees working in states other than their primary work location.

The COVID-19 pandemic has forced many of us to leave our offices to work remotely. For many businesses, that means having employees working from home in another state. As telecommuting become much more prevalent, due to both the pandemic and technological advances, state income tax implications have come to the forefront for businesses that now have a remote workforce and employees that may be working in a state other than their primary work location. 

Bipartisan legislation known as the Remote and Mobile Worker Relief Act of 2020 (S.3995) was introduced in the US Senate on June 18, 2020 to address the state and local tax implications of a temporary or permanent remote workforce. The legislation addresses both income tax nexus for business owners and employer-employee payroll tax responsibilities for a remote workforce. Here are some highlights:

Business income tax responsibility

The legislation would provide a temporary income tax nexus exception for businesses with remote employees in other states due to COVID-19. The exception would relieve companies from having nexus for a covered period, provided they have no other economic connection to the state in question. The covered period begins the date employees began working remotely and ends on either December 31, 2020 or the date on which the employer allows 90% of its permanent workforce to return to their primary work location, whichever date comes first.

The temporary tax nexus exception is welcome news for many business owners and employers, as a recent survey by Bloomberg indicated that three dozen states would normally consider a remote employee as a nexus trigger. Additional nexus would certainly add further income tax compliance requirements and potentially additional tax liabilities, complications that no businesses need in this already challenging environment.

Employee and employer tax responsibility

The tax implications for telecommuting vary wildly from state to state and most have not addressed how current laws would be adjusted or enforced due to the current environment. For example, New York implements a “convenience of the employer” rule. So if an out-of-state business has an employee working from home in New York, whether or not those wages are subject to New York state income tax depends on the purpose for the telecommuting arrangement. 

New York’s policy is problematic in the current environment. Arguments could be made that the employee is working for home at their convenience, at the employer’s convenience, or due to a government mandate. It is unclear which circumstance would prevail and as of this writing, New York has not addressed how this rule would apply.

If enacted, the Remote and Mobile Worker Relief Act would restrict a state’s authority to tax wage income earned by employees for performing duties in other states. The legislation would create a 90-day threshold for determining nonresident income tax liability for calendar year 2020, enhancing a bill in the House which proposes a 30-day threshold.

The 90-day threshold applies specifically to instances where the employee work arrangement is different due to the COVID-19 pandemic. For future years, the bill would put in place a standardized 30-day bright-line test, making it easier for employees to know when they are liable for non-resident state income taxes and for employers to know which states they need to withhold payroll taxes. 

What do you need to do?

With or without legislation, the year-end income tax filings and information gathering will be very different for tax year 2020. It’s more important than ever for business owners to have proper record keeping on where their employees are working on a day-to-day basis. This information is crucial in determining potential tax exposure and identifying a strategy to mitigate it. The Remote and Mobile Worker Relief Act would provide needed guidance and restore some sense of tax compliance normalcy.

If you would like more information, or have a question about your specific situation, please contact your BerryDunn tax consultant. We’re here to help.
 

Editor’s note: read this if you are a Maine business owner or officer.

New state law aligns with federal rules for partnership audits

On June 18, 2019, the State of Maine enacted Legislative Document 1819, House Paper 1296, An Act to Harmonize State Income Tax Law and the Centralized Partnership Audit Rules of the Federal Internal Revenue Code of 1986. 

Just like it says, LD 1819 harmonizes Maine with updated federal rules for partnership audits by shifting state tax liability from individual partners to the partnership itself. It also establishes new rules for who can—and can’t—represent a partnership in audit proceedings, and what that representative’s powers are.

Classic tunes—The Tax Equity and Fiscal Responsibility Act of 1982

Until recently, the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) set federal standards for IRS audits of partnerships and those entities treated as partnerships for income tax purposes (LLCs, etc.). Those rules changed, however, following passage of the Bipartisan Budget Act of 2015 (BBA) and the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). Changes made by the BBA and PATH Act included:

• Replacing the Tax Matters Partner (TMP) with a Partnership Representative (PR);
• Generally establishing the partnership, and not individual partners, as liable for any imputed underpayment resulting from an audit, meaning current partners can be held responsible for the tax liabilities of past partners; and
• Imputing tax on the net audit adjustments at the highest individual or corporate tax rates.

Unlike TEFRA, the BBA and PATH Act granted Partnership Representatives sole authority to act on behalf of a partnership for a given tax year. Individual partners, who previously held limited notification and participation rights, were now bound by their PR’s actions.

Fresh beats—new tax liability laws under LD 1819

LD 1819 echoes key provisions of the BBA and PATH Act by shifting state tax liability from individual partners to the partnership itself and replacing the Tax Matters Partner with a Partnership Representative.

Eligibility requirements for PRs are also less than those for TMPs. PRs need only demonstrate “substantial presence in the US” and don’t need to be a partner in the partnership, e.g., a CFO or other person involved in the business. Additionally, partnerships may have different PRs at the federal and state level, provided they establish reasonable qualifications and procedures for designating someone other than the partnership’s federal-level PR to be its state-level PR.

LD 1819 applies to Maine partnerships for tax years beginning on or after January 1, 2018. Any additional tax, penalties, and/or interest arising from audit are due no later than 180 days after the IRS’ final determination date, though some partnerships may be eligible for a 60-day extension. In addition, LD 1819 requires Maine partnerships to file a completed federal adjustments report.

Partnerships should review their partnership agreements in light of these changes to ensure the goals of the partnership and the individual partners are reflected in the case of an audit. 

Remix―Significant changes coming to the Maine Capital Investment Credit 

Passage of LD 1671 on July 2, 2019 will usher in a significant change to the Maine Capital Investment Credit, a popular credit which allows businesses to claim a tax credit for qualifying depreciable assets placed in service in Maine on which federal bonus depreciation is claimed on the taxpayer's federal income tax return. 

Effective for tax years beginning on or after January 1, 2020, the credit is reduced to a rate of 1.2%. This is a significant reduction in the current credit percentages, which are 9% and 7% for corporate and all other taxpayers, respectively. The change intends to provide fairness to companies conducting business in-state over out-of-state counterparts. Taxpayers continue to have the option to waive the credit and claim depreciation recapture in a future year for the portion of accelerated federal bonus depreciation disallowed by Maine in the year the asset is placed in service. 

As a result of this meaningful reduction in the credit, taxpayers who have historically claimed the credit will want to discuss with their tax advisors whether it makes sense to continue claiming the credit for 2020 and beyond.
 

Proposed House bill brings state income tax standards to the digital age

On June 3, 2019, the US House of Representatives introduced H.R. 3063, also known as the Business Activity Tax Simplification Act of 2019, which seeks to modernize tax laws for the sale of personal property, and clarify physical presence standards for state income tax nexus as it applies to services and intangible goods. But before we can catch up on today, we need to go back in time—great Scott!

Fly your DeLorean back 60 years (you’ve got one, right?) and you’ll arrive at the signing of Public Law 86-272: the Interstate Income Act of 1959. Established in response to the Supreme Court’s ruling on Northwestern States Portland Cement Co. v. Minnesota, P.L. 86-272 allows a business to enter a state, or send representatives, for the purposes of soliciting orders for the sale of tangible personal property without being subject to a net income tax.

But now, in 2019, personal property is increasingly intangible—eBooks, computer software, electronic data and research, digital music, movies, and games, and the list goes on. To catch up, H.R. 3063 seeks to expand on 86-272’s protection and adds “all other forms of property, services, and other transactions” to that exemption. It also redefines business activities of independent contractors to include transactions for all forms of property, as well as events and gathering of information.

Under the proposed bill, taxpayers meet the standards for physical presence in a taxing jurisdiction, if they:

1.  Are an individual physically located in or have employees located in a given state; 
2. Use the services of an agent to establish or maintain a market in a given state, provided such agent does not perform the same services in the same state for any other person or taxpayer during the taxable year; or
3. Lease or own tangible personal property or real property in a given state.

The proposed bill excludes a taxpayer from the above criteria who have presence in a state for less than 15 days, or whose presence is established in order to conduct “limited or transient business activity.”

In addition, H.R. 3063 also expands the definition of “net income tax” to include “other business activity taxes”. This would provide protection from tax in states such as Texas, Ohio and others that impose an alternate method of taxing the profits of businesses.

H.R. 3063, a measure that would only apply to state income and business activity tax, is in direct contrast to the recent overturn of Quill Corp. v. North Dakota, a sales and use tax standard. Quill required a physical presence but was overturned by the decision in South Dakota v. Wayfair, Inc. Since the Wayfair decision, dozens of states have passed legislation to impose their sales tax regime on out of state taxpayers without a physical presence in the state.

If enacted, the changes made via H.R. 3063 would apply to taxable periods beginning on or after January 1, 2020. For more information: https://www.congress.gov/bill/116th-congress/house-bill/3063/text?q=%7B%22search%22%3A%5B%22hr3063%22%5D%7D&r=1&s=2
 

Read this if you are a small retailer in Massachusetts.

If you are a small retailer in Massachusetts, it’s likely you are already making efforts to prepare for the upcoming sales tax holiday that’s set to occur on August 14 and 15. Perhaps you have been advertising the savings to your customers, in an effort to generate more foot traffic, or putting additional signage on your door, next to your register, or on the cash wrap.  

All good steps to take, and another essential step is to educate your staff on the additional measures that need to be taken to ensure all generated sales are recorded properly.  

Larger retailers have the ability to program these types of events into their point-of-sale systems, including assigning dates and times of the promotion, types of products effected, and many more. This is nothing new for your local box store, for example. However, for the small retailer, this type of event requires much more manual intervention.  

Small retailer approaches, tips, and tricks

Turning sales tax on and off for your complete inventory is easy for most POS systems. But what if only some of the products you offer are eligible for the sales tax exemption? What is the best approach to take?

For the platform that offers inventory file uploads, a wise approach would be to export your current inventory list, adjust the sales tax as needed in Excel, and then import the new file back into the system. This will ensure the appropriate sales tax is captured for the holiday weekend. Don’t forget to do this once more, after the sales tax reprieve has ended.  

Overriding your products individually as a sale occurs may also be necessary for some POS systems. This option will require your sales associates to intervene on each individual transaction. There is great potential for increased human error, particularly in a fast-paced retail environment.  

Making a list and checking it twice

Another good idea to reduce your chance of errors is to meet with your employees at the start of each applicable shift and remind them of the sales tax holiday. Simple but effective, as is adding a simple note to your register. This can offer an additional layer of accountability.

Any sales tax collected in error during this holiday weekend will require payment to the Mass DOR, which will need to be reported on your sales tax return. If a customer discovers they paid unnecessary sales tax during the tax holiday weekend the retailer will be required to refund the customer for the tax collected. In turn, an amended sales tax return will need to be filed, for the month in question. 

When it comes time to reconcile your sales tax for the month of August, you can expect to see a bump in the exempt sales tax you will be required to report. Setting a reminder about the infrequent holiday event on your calendar can speed up your reconciliation process. Again, by writing a quick little note to remind you that you will see unusual activity could alleviate the need for any undue research.

If you have any questions about the upcoming tax holiday, please don’t hesitate to contact our Outsourced Accounting team. We’re here to help.
 

Read this if you are a timber harvester, hauler, or timberland owner.

The USDA recently announced its Pandemic Assistance for Timber Harvesters and Haulers (PATHH) initiative to provide financial assistance to timber harvesting and hauling businesses as a result of the pandemic. Businesses may be eligible for up to $125,000 in financial assistance through this initiative. 

Who qualifies for the assistance?

To qualify for assistance under PATHH, the business must have experienced a loss of at least 10% of gross revenue from January, 1, 2020 through December 1, 2020 as compared to the same period in 2019. Also, individuals or legal entities must be a timber harvesting or timber hauling businesses where 50% or more of its revenue is derived from one of the following:

• Cutting timber
• Transporting timber
• Processing wood on-site on the forest land

What is the timeline for applying for the assistance?

Timber harvesting or timber hauling businesses can apply for financial assistance through the USDA from July 22, 2021 through October 15, 2021. 

Visit the USDA website for more information on the program, requirements, and how to apply.
If you have any questions about your specific situation, please contact our Natural Resources team. We’re here to help. 

Read this is you use QuickBooks Online.

Whether you sell products or services, you may need to create estimates in QuickBooks Online. Here’s how it’s done.

It would be nice if you could just instantly invoice every sale. But sometimes your customers need to know what a particular purchase will cost before they make the decision to buy. So you need to know how to create an estimate. If the sale goes through, you’ll of course want to send an invoice.

QuickBooks Online automates this entire process. It even helps you track the progress of your estimates by providing a special report. Here’s how it works.

Just like an invoice, almost

The process of creating an estimate in QuickBooks Online is almost identical to creating an invoice. You click the New button in the upper left and select Estimate. 

Creating an estimate in QuickBooks Online is like creating an invoice, with a few differences.

When the form opens, you’ll notice one difference right away. Directly below the Customer field, you’ll see the word Pending next to a small down arrow. Click it to see what your options are here. You’ll be able to update its status later. Select a Customer to get started. If this is a new customer, click + Add New and enter at least the name. If you want to build a more complete profile at this point, click Details and complete the fields in the window that opens. To send a carbon copy or blind copy of the estimate to someone else, click the Cc/Bcc link.

Next to the Estimate date, there’s a field for Expiration date. Enter that and continue on to add the products and/or services that will be included, just as you would on an invoice. If you’re generating an estimate for a new product or service, click + Add new in the drop-down list. A panel will slide out from the right that allows you to create one. 

You’ll see more options for your estimate at the bottom of the page. You can add a message in the message box (or leave the default message if there is one). You can also Customize it, Make recurring, or Print or Preview it. When you’re satisfied, Save it, and send it to the customer. 

You can preview your estimate to see what the customer will see before saving it.

Updating the status

Your estimate will not be considered a transaction until you accept it. To do this, click the Sales link in the toolbar, then All Sales. Find your estimate in the list by looking in the Type column. Click the down arow next to Create invoice to see your other options there. You’ll see that you can Print or Send it or save a Copy. 

Click Update status. In the window that opens, click the down arrow next to Pending. From the list that drops down, select Accepted. You can also mark it Closed or Rejected. If you choose any of the last three options, another window opens that allows you to enter the name of the individual who authorized the action and the date it was done.

Click Create invoice if your estimate was accepted. You’ll have three options here. You can invoice your customer for:
•    The estimate total.
•    A percentage of each line item.
•    A custom amount for each line.

When you locate your estimate on the Sales Transactions page, you’ll have several options for managing it.

After you’ve made your selection, click Create invoice to open the form with the amounts filled in based on your preference. Complete anything that’s unfinished but do not change any of the product or service line items. Save it, and your invoice is ready to go. You can always check the status of your estimates by running the Estimates by Customer report.

Creating and tracking estimates is as easy as working with invoices. You may run into difficulties, though, if you need to do anything beyond that point with estimates, such as modifying it and re-submitting them. We’re here to answer any questions you might have about this. It’s important that you get your estimates and their subsequent invoices exactly right, so you don’t lose money or sales. Contact our outsourced accounting team if you want to go over these concepts.

Read this if you are a solar investor, developer, or installer.

The IRS recently released Notice 2021-41 that extends the Continuity Safe Harbor requirements for the production tax credit for qualified facilities under I.R.C. Section 45 (the “PTC”) and the investment tax credit for energy property under I.R.C. Section 48 (the “ITC”). The extension is in recognition of the supply chain delays caused by COVID-19 that are impacting completion of renewable energy projects.

In May 2020, the IRS released Notice 2020-41 to address construction delays caused by the COVID-19 pandemic. The requirements for the PTC and the ITC include provisions establishing methods to determine the beginning of construction and include a continuity requirement—that the project show continuous construction or continuous efforts. Per Notice 2020-41, the continuity requirement is deemed satisfied if the taxpayer “places an energy property in service by the end of a calendar year that is no more than four calendar years after the calendar year during which construction of the energy property began” (Continuity Safe Harbor).

The IRS recognizes that the COVID-19 pandemic has caused extraordinary delays in development of renewable energy projects. As a result, many projects would no longer satisfy the existing four calendar year Continuity Safe Harbor. Notice 2021-41 extends the original Continuity Safe Harbor based on the year the property began construction under the Physical Work Test or the Five Percent Safe Harbor as follows:

• Any property that began construction in calendar year 2016, 2017, 2018, or 2019 will satisfy the Continuity Safe Harbor if the taxpayer “places an energy property in service by the end of a calendar year that is no more than six calendar years after the calendar year during which construction of the energy property began.”
• Any property that began construction in calendar year 2020 will satisfy the Continuity Safe Harbor if the taxpayer “places an energy property in service by the end of a calendar year that is no more than five calendar years after the calendar year during which construction of the energy property began.”

If you have questions about your specific situation, please don’t hesitate to contact the Renewable Energy team. We’re here to help.