Tax

Tuesday, 15 September 2020

Payroll Tax Deferral Guidance

Written by The Rehmann Team

On August 8, 2020, President Trump signed an executive memorandum that directed Treasury to defer the withholding, deposit, and payment of certain payroll taxes through the end of the year. On August 28, Notice 2020-65 was released providing additional guidance for employers. Key Points Deferral applies only to 6.2% social security tax withholding on wages paid during the period of September 1, 2020, through December 31, 2020 Only employees who make less than $4,000 in pre-tax wages on a bi-weekly pay period-by-pay period basis are eligible Executive memorandum only defers the payment of certain payroll taxes – without further action any deferred amounts have to be repaid Employers are responsible for the repayment of the deferred taxes done ratably from January 1, 2021 to April 30, 2021 No penalties or interest will be assessed on the deferred amounts as long as they are repaid before May 1, 2021 Employers can make arrangement with employees on how they choose to collect the repaid amounts but generally it will be through doubling the social security tax withholding during the repayment period The notice does not state whether employers can opt out of deferring payroll taxes, however, prior to the notice release, Treasury Secretary Mnuchin indicated it will not be mandatory Takeaway Factoring in the additional guidance included in Notice 2020-65, we still strongly recommended clients do not consider implementing the deferral option at this time...

Published in Tax
Tuesday, 15 September 2020

The ever-changing landscape of nexus for income and franchise taxes

Written by Michael R. Bannasch, CPA, MST

Economic nexus – a state’s ability to subject a business to tax when the business is not physically present in the state – has been a much-debated topic in state and local income/franchise taxes for more than 25 years. In the sales/use tax realm, the U.S. Supreme Court clearly stated since 1967 that physical presence was required for nexus, until it reversed course in 2018 with the Wayfair case to say that economic nexus is valid for sales/use tax, in addition to physical presence nexus...

Published in Tax
Monday, 31 August 2020

Michigan Neighborhood Enterprise Zone Act

Written by Michael R. Bannasch, CPA, MST

It’s an ideal time to qualify for reduced property taxes on new and rehabilitated residential properties in certain Michigan communities, thanks to the recently enacted Public Act 3 of 2020 that amends an under-utilized property tax break known as Neighborhood Enterprise Zones. While the amendment itself is not that significant, it provides a good reason to look at this tax break in general to see if it could be beneficial. Neighborhood Enterprise Zones (“NEZs”) provide an incentive for residential development in economically-distressed communities in Michigan. This incentive varies depending on whether the development is new or a rehabilitation project, and on whether a rehab project is done in a historical building...

Published in Tax
Friday, 14 August 2020

State trust fund tax penalties: Please don’t rob Peter to pay Paul

Written by Michael R. Bannasch, CPA, MST

As the economic slowdown caused by COVID-19 drags on, many companies are facing extremely difficult decisions about how to stay afloat and keep their employees paid. Some may be tempted to use sales tax collected from customers to do so, instead of remitting that money to the government. We strongly discourage this approach. Consider that when a company withholds federal payroll taxes from an employee but does not remit them to the IRS, individuals responsible for making those remittances can be held personally liable for the unremitted tax...

Published in Tax
Friday, 17 July 2020

Residency and the Sale of a Flow-Through Entity

Written by Michael R. Bannasch, CPA, MST

Editor’s note: this is the second of two articles exploring the potential tax implications relating to residency Read the first one here. For owners of flow-through entities looking to sell their business, selling their ownership interest versus assets of the business is a significant decision with potential tax implications related to residency. While buyers usually prefer to buy assets, selling an ownership interest instead can be done in certain circumstances. In these instances, the owner is selling an intangible asset, and many states view this as being taxable only in the owner’s state of residency...

Published in Tax
Friday, 17 July 2020

How Much Does State Tax Residency Still Matter?

Written by Michael R. Bannasch, CPA, MST

While income tax paid by individuals primarily is based on the state in which they reside, certain forms of post-employment payments may be taxed differently and could lead to significant exposure. First, some background on state income taxation: Generally, a person’s state of residency taxes their income regardless of where that income is generated. To prevent double taxation, the home state will allow a credit for tax paid to other states, but the net result is an individual ultimately paying tax on income from outside their home state at whichever tax rate is higher – their state of residency or the state where the income is sourced. With state tax rates ranging from zero percent (Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming) to 13...

Published in Tax
Wednesday, 10 June 2020

Michigan Supreme Court Resolves Uncertainty of City Income Tax Sales Sourcing

Written by Michael R. Bannasch, CPA, MST

The Michigan Supreme Court recently released an opinion on city income tax sourcing of services that resolves several years of uncertainty about what is relevant – the location of your employees or the location of your clients. We previously wrote an article about this topic in spring 2018, when the Michigan Court of Appeals issued a ruling in favor of the taxpayer. The Court of Appeals’ opinion stated that these sales should be sourced according to the location of a service provider’s clients – not to the location where the service provider’s employees performed the work. A little over two years later, in May 2020, the Michigan Supreme Court has weighed in and overturned the Court of Appeals with its decision of services to be sourced where work was performed...

Published in Tax
Wednesday, 03 June 2020

Michigan expands sales and use tax exemption for prosthetic devices

Written by Michael R. Bannasch, CPA, MST

Michigan hospitals and freestanding surgical outpatient facilities now may purchase prosthetic devices tax-exempt from suppliers, under updated legislation. The new law, effective March 2, 2020, is another step toward clarity of the sales and use taxes for prosthetic devices. Beginning a few years ago, the Michigan Department of Treasury changed its interpretations of law to begin imposing sales and use tax on transactions they previously considered exempt. First they went after dental prostheses – e...

Published in Tax
Monday, 01 June 2020

Michigan Treasury Provides Installment Plan Option for Deferred SUW Taxes

Written by Michael R. Bannasch, CPA, MST

If your business has taken advantage of Michigan’s delays in filing and remitting sales, use, and withholding (SUW) taxes as a result of COVID-19, there is now guidance on when and how those deferred taxes will be remitted. On May 26th, the Michigan Department of Treasury released an 1,800-word notice on this topic, which can be found here: SUW Installment Payment Options Available. We encourage you to read the notice if your business deferred payment of any SUW taxes, but here are the key points. The deferrals were available for February, March, and April SUW taxes, with those taxes now being due by June 22, subject to the newly-announced installment plan option...

Published in Tax
Monday, 01 June 2020

Michigan Unemployment Benefits for Limited Liability Company Members

Written by Michael R. Bannasch, CPA, MST

Self-employed workers can receive unemployment benefits for the first time, under expanded federal and state guidelines put in place during the COVID-19 pandemic. These workers include independent contractors and sole proprietors who report their income on Schedule C of their Form 1040, as well as partners who receive a K-1 from a partnership, even if the sole proprietorship or partnership is legally organized as a limited liability company (LLC). Federal income tax flexibility For federal income tax purposes, an LLC has significant flexibility in how it chooses to be taxed. A single-member LLC owned by an individual can keep its default status as a sole proprietorship or can elect to be taxed as a C corporation or an S corporation...

Published in Tax
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