Do You Know When You Need State Tax Advice?
Just like people, companies often experience life events during the course of their existence. Often times these events can trigger multi-state filings and registration requirements.
The following list is a sample of possible business transactions that could trigger the need for additional state filings.
- Buying, leasing or building a facility (i.e., manufacturing, distribution, office, etc.) in other states.
- Hiring employees and/or sales reps in other states (including employees working from their home in other states).
- Soliciting sales across state lines.
- Hiring independent contractors in other states to perform work for your company.
- Shipping products across state lines.
- Selling goods online.
- Storing goods (inventory) in a third party warehouse in other states.
- Servicing or repairing previously sold products in other states (using employees or third parties).
- Installing goods in other states.
- Selling software or digital products. (Including online software and services/SaaS/Cloud Computing).
- Providing services for the benefit of customers or projects in other states.
- Forming additional entities or acquiring companies operating in other states.
- Drop shipping products from out of state locations to customers.
- Attending trade shows in other states.
- Using leased employees in other states.
- Picking up raw material in other states using company-owned trucks.
Each one of these events could easily have state and local tax consequences that could positively or negatively impact your business. Companies should be proactive and address these issues with their accountant on an annual basis to avoid headaches when an auditor or potential buyer of their business comes calling.
Effective for the 2015 tax year, Indiana is no longer allowing non-resident shareholders and partners to “opt-out” of the composite filing. All non-resident shareholders and partners are to be included on the Schedule Composite. Non-residents of Indiana are still able to file an individual non-resident Indiana return, but they will need to include a copy of their Indiana K-1 with their Indiana tax return filing to substantiate the composite taxes paid on their behalf. Beginning with the 2015 returns, non-resident shareholders/partners that are trusts are now required to be included in the Indiana composite return.
Ohio Municipal Taxation Reform
Ohio’s Municipal Tax Reform took effect beginning January 1, 2016.
Highlights of the reform include:
- All Corporations and Pass-Through Entities are to be taxed as if they were a corporation with the owner needing to file only in their city of residence. (Except for the 119 municipalities who previously voted to tax resident S corporation owners at the shareholder level who may continue this treatment.)
- Municipal corporations may tax an individual resident on his or her distributive share of a pass-through entity’s net profits, but at their discretion, a municipality may grant a partial or full credit to resident for taxes paid on their behalf by the pass-through entity.
- A municipal corporation may tax all of the taxable income of a resident individual, but it may tax only the compensation of a non-resident individual earned in the municipal corporation (subject to limitations) and net profits from business activities that are apportioned to the municipal corporation.
- Workers on jobs in cities where they are not domiciled will not have to start paying income tax in that municipality during their first 20 days (increased from 12 days).
- Employees of businesses with an annual income of $500,000 or less are subject to withholding only in the municipal corporation where the individual’s employer has its sole, fixed location.
- Businesses that reasonably anticipate that they will be providing services in a municipality for 21 days or more in a calendar year are required to withhold municipal income taxes in that city for all employees from day one.
- Due dates for municipal income tax returns must conform to Federal due dates as well as Federal extension due dates.
- A municipal income taxpayer may receive a refund of overpaid tax only if the amount overpaid is more than $10. Likewise, municipal income and net profit taxpayers will not be required to remit tax due that is less than $10. However, tax returns must still be filed.\
Kentucky Small Business Tax Credit Expanded and Simplified
The Kentucky Small Business Tax Credit (KSBTC) program is designed to push for small business growth and job creation. Small business owners may be eligible to claim credits for corporate income tax, limited liability entity tax (LLET), and personal income tax paid if the small business created and maintained one or more qualifying jobs in Kentucky (paying $10.88/hr. or more) and purchased $5,000 or more in qualifying equipment or technology within the last 24 months. The credit ranges from $3,500 to $25,000 per year depending on the number of jobs created and the cost of equipment purchased.
A qualifying small business typically needs to have 50 or fewer full-time employees at the time of application with some exceptions. Small businesses can learn more about and download an application for this credit on the Cabinet for Economic Development’s Office of Entrepreneurship (OOE) website at http://thinkkentucky.com/ksbtc/. Applications submitted after November 20, 2015, will be reflected on tax returns for 2016 and beyond.
Kentucky – Angel Investment Credit
Detailed information and applications for the 2016 personal income tax angel investment credit are now available on the cabinet’s website at http://www.thinkkentucky.com/Entrepreneurship/KAITC.aspx. This credit allows qualified angel investors to receive a tax credit of up to 50 percent of their investment in counties with high unemployment rates, or designated “enhanced” counties (list available on website), and 40 percent in all other counties. This is a nonrefundable credit and may be claimed by Kentucky investors who invest a minimum of $10,000 in certain Kentucky small businesses with high-growth potential that are engaged in knowledge-based activity that will further the establishment or expansion of small businesses, create additional jobs, and foster the development of new products and technologies.
Out of state investors can also take advantage of the program. Although out-of-state investors may not have a Kentucky tax liability, they can recover a portion of their investment by selling their tax credits to a buyer within the state.
The program was established by the Cabinet for Economic Development and offers a total of $3 million in tax credits, available on a first-come, first-served basis. Individual investors are limited to $200,000 in credits annually.
Tennessee Business Tax
Companies conducting business within any county and/or municipality in Tennessee should register for and remit business tax. This includes businesses with a physical location in Tennessee, as well as an out-of-state businesses that performs services that are received by customers in Tennessee, lease items in Tennessee, or deliver items to customers in Tennessee using company-owned vehicles.
Many municipalities and counties have also enacted a local business tax in addition to the state business tax. If you have a business location in one of these municipalities or counties, you will need to file a separate return for each location, in addition to the state return.
The Tennessee Business Tax is based on gross receipts. There are a few deductions available, including a deduction for amounts paid by a contractor to subcontractors. Tax rates vary depending on entity classification. However, there is a minimum tax of $22. The tax return must be filed electronically and is due the 15th day of the 4th month following the end of the entity’s fiscal year.
Texas Franchise Tax Update
Each taxable entity formed in Texas or doing business in Texas must file a Franchise Tax return.
For reports due on or after January 1, 2016, if a taxable entity has zero Texas receipts, or the entity’s total revenue is below the adjusted $1,110,000 threshold, or the entity qualifies as a passive entity, the entity may file a “No Tax Due Report.” No Tax Due Reports must be filed electronically beginning January 1, 2016.
For entities above the No Tax Due threshold, entities may elect to calculate their franchise tax based on the entity’s margin using the lowest of four allowable calculations. When electing to calculate the margin using the “Total Revenue minus Compensation”, the limitation for deductible compensation has been increased to $360,000 per person.
Reminder: Texas Franchise Tax Reports are due on May 16, 2016. In addition, taxable entities that paid $10,000 or more in franchise tax during the preceding state fiscal year (September 1 through August 31) are required to electronically transmit their franchise tax payment.
If you have questions regarding the above articles, please contact your Somerset advisor or a member of Somerset’s SALT team.