June 28, 2018

More Businesses Subject to State Economic Nexus Following South Dakota v. Wayfair

Businesses may have to start looking at sales and use tax in a much different light.  While the term “nexus” may not be the most commonly used word in your vocabulary, it is certainly one that may be about to make an impact. On June 21, 2018, the United States Supreme Court overruled the landmark case of Quill v. North Dakota.  The overruling of Quill in the South Dakota vs. Wayfair case may have tax ramifications for your business.  Quill provided that a company must have an actual physical presence in a state in order for a State to require an out-of-state business to charge that state’s sales tax.  However, the case of South Dakota vs. Wayfair determined that physical presence is no longer needed to have “substantial nexus” in a state, as required by constitutional law.

Enacting Economic Nexus Standards

There are a number of states that have already enacted an economic nexus standard. These economic nexus standards usually hold a retailer liable to charge sales tax if they sell items into a state and meet certain thresholds.

As of today, 24 states have enacted economic nexus laws, notice & reporting requirements or announced their impending decisions on economic Nexus:

Alabama                                                        Minnesota

Colorado                                                        Mississippi

Connecticut                                                   North Dakota

Georgia                                                          Ohio

Hawaii                                                            Oklahoma

Iowa                                                               Pennsylvania

Illinois                                                             Rhode Island

Indiana                                                           South Dakota

Kentucky                                                       Tennessee

Louisiana                                                       Vermont

Massachusetts                                              Washington

Maine                                                             Wyoming

How Businesses Can Prepare

Although there are currently only 24 states that have enacted or discussed statutes on economic nexus, the South Dakota vs Wayfair decision will most likely start a tumble effect resulting in many more states enacting economic nexus standards.  If your business currently ships tangible personal property out of your home state, this ruling is more than likely going to affect you now or in the future.  It is important that companies track all sales made in each state to further determine if they do in fact have nexus in a jurisdiction where they are not registered. Contact an Anders advisor with questions specific to your business.

Tax associate Connor J. Obermeier was a contributor to this post. 

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June 26, 2018

How Not-for-Profits Can Focus on the Mission, Not the Financials

Working within a tight budget can cause some not-for-profit organizations to neglect their financial reporting. Office managers may be assigned to do the bookkeeping, but don’t have the time or expertise to do the technical accounting. Having accounting and financial experts to rely on can help not-for-profits focus on what they do best: spreading their mission.

Should I hire internally or outsource?

Small not-for-profits often don’t have enough work to hire a full-time accountant and larger not-for-profits may not have a large enough budget to hire an internal CFO. Some organizations hire part-time staff or bring in volunteers to help with accounting tasks, but this breeds a high volume of turnover, costing the organization in time and funding. Outsourcing can provide the expertise without paying multiple internal salaries and employee benefits.

What are the advantages of outsourcing?

Outsourcing accounting functions provides a huge benefit of allowing individuals within the organization to focus on the mission of the nonprofit instead of the behind the scenes accounting. There are additional short and long-term advantages to outsourcing, including:

  • Access to accountants and advisors experienced in not-for-profit accounting
  • CFO level advisory to help with financial analysis, budgeting and cash projections without paying the C-suite salaries
  • Timely data provided to board and finance committee members to help them make decisions that drive the organization’s mission
  • Accurate financial statements prepared on a regular basis to appeal to potential donors
  • Increased chances of winning grants and government funding when using an experienced professional to provide accounting services
  • Less accounting staff turnover
  • Provides a segregation of duties to prevent fraud and unintentional errors
  • Lowers costs by not having to pay salary and benefits to in house employees

What would outsourced accounting look like for my organization?

When outsourcing with Anders Outsourced Accounting Services, you get staff assigned to you that have experience with not-for-profit accounting. From tracking restricted funds to recording donations, your team of experienced advisors will handle the accounting processes from day one that are specific to your organization. You’ll also have access to CFO-level experienced professionals to help you with your organization’s budgeting process, analyze your current financial position and assist you in making projections so you can strategically plan for the future of your organization based on financial data.

To find out how Anders Outsourced Accounting Services can benefit your organization, contact an Anders advisor.

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June 25, 2018

St. Louis Post-Dispatch Names Anders a 2018 Top Workplace

The St. Louis Post-Dispatch has honored Anders as a 2018 Top Workplace, and #2 in the Midsize Employer Category. The Top Workplaces list is based solely on employee feedback gathered through a third-party survey administered by research partner Energage, LLC. The anonymous survey measures several aspects of workplace culture, including alignment, execution and connection. Anders has been on the Top Workplaces list several times, and was ranked at the top of the Midsize Employer Category in 2016 and 2017.

“Top Workplaces is more than just recognition,” said Doug Claffey, CEO of Energage. “Our research shows organizations that earn the award attract better talent, experience lower turnover, and are better equipped to deliver bottom-line results. Their leaders prioritize and carefully craft a healthy workplace culture that supports employee engagement.”

Attributes that make Anders a top workplace include the open, collaborative work space reflecting the culture of the firm, a generous PTO and benefits package, flexibility and extensive technical and professional training programs. Anders supports and encourages employees to follow their passions in the community, and provides development dollars to help them do so.

The complete list of Top Workplaces can be found in the June 24 issue of the Post-Dispatch. Meet the 2018 St. Louis Post-Dispatch Top Workplaces.

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June 22, 2018

South Dakota v. Wayfair Rules Remote Sellers Obligated to Collect Tax

The Supreme Court of the United States (“SCOTUS”) has made their decision in South Dakota v. Wayfair.  As initially feared, the Court has taken the liberty to overrule Quill v. North Dakota, a case that has driven the sales and use tax world for three decades as it relates to physical nexus and out of state sellers collecting another state’s tax.

Background on South Dakota v. Wayfair

South Dakota is one of the states that enacted legislation that forces a collection requirement on a seller if their sales into South Dakota exceed $100,000 OR consist of 200 or more transactions.  This case quickly climbed the appellate ladder, if you will, to the SCOTUS.  Based on the Justices questions in the hearing, many thought that the Court would find a way not to overrule Quill.  However, that was not the case.

Leveling the Playing Field on Remote Sellers

A number of states have enacted similar laws to South Dakota, referred to by some as economic nexus laws, so this is not an issue related only to South Dakota.  More states are already following suit.  Others likely will, also.  It has long been the law that physical presence, based on National Bellas Hess and Quill, is required under the Commerce clause for a state to enforce a collection liability on the part of a Seller.  In the Wayfair decision, Justice Kennedy points out that physical presence is no longer necessary to create the “substantial nexus” requirement under Complete Auto.

The Court reasons that Quill gives remote sellers a competitive advantage, as they can avoid charging tax, and the purchaser does not pay tax on the transaction, unless they voluntarily accrue use tax.  If the purchaser acquired their goods from a local vendor, that vendor is obligated to charge tax.  Though the purchaser is obligated to pay consumer’s use tax on taxable transactions from out of state, many, or virtually all, purchasers fail to do just that.  Hence, the competitive advantage for remote sellers.  Justice Kennedy states in the Court’s opinion, “The Commerce Clause must not prefer interstate commerce only to the point where a merchant physically crosses state borders.  Rejecting the physical presence rule is necessary to ensure that artificial competitive advantages are not created by this Court’s precedence [in Quill].”  He continues, “It is unfair and unjust to those competitors, both local and out of State, who must remit the tax; to the consumers who pay the tax; and to the States that seek fair enforcement of the sales tax…”

Pursuant to the Court, Wayfair advertises that “’[o]ne of the best things about buying through Wayfair is that we do not have to charge sales tax.’”  The Court stated that this “subtle offer to assist in tax evasion” assumes solvent state and local governments.  State governments are losing billions of dollars of tax revenue on taxable transactions.  The Court articulated further that these state taxes fund the maintenance of the roads and municipal services that give remote sellers access to customers, as well as banking institutions, and courts to ensure collection of the purchase price.

How Businesses Will Be Impacted

The Court’s decision will likely impact your business now or in the future, especially if you operate an online platform in a multistate environment.  It will be important to track your sales in many states to be sure you do not create nexus by reaching the thresholds the state has determined by legislation.  Our State and Local Tax advisors are ready and available to help you remain compliant in all jurisdictions in which you are obligated to collect and remit the tax.  Contact an Anders advisor with questions specific to your business.

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June 19, 2018

Tax Reform for Individuals: Alimony Taxability Changes

The tax treatment of alimony payments after a divorce is changing under the Tax Cuts and Jobs Act (TCJA). Below we discuss the changes going forward, how it’s different compared to the previous law and how individuals will be impacted by the change.

Previous Law

Under the previous tax code, alimony or separate maintenance payments were deductible “above the line” for the individual taxpayer making the payments, and were included in the gross income of the individual taxpayer receiving the payments. The results of this arrangement gave the tax burden to the recipient of the alimony payment.

New Law

Under the new TCJA, signed December 22, 2017, alimony or separate maintenance payments are NOT deductible for the individual making the payments, and are NOT included in the gross income of the individual receiving the payments. The result of this arrangement gives the tax burden to the payer of the alimony payment, the person who earned the income.

Child support payments are not included in this change and remain under the old law. The burden of the tax is with the payer of the child support.

Impact on Individuals

The changes will affect divorces and legal separations occurring after December 2018. The changes do NOT apply to existing divorces and separations, or any completed prior to 2019. If both parties would like to apply the TCJA rules to their existing agreement, they may have it legally modified to reflect the new code. This might be beneficial in situations where change of income level has occurred for the payer, the recipient, or both.

Visit our Tax Reform Resource Center for videos, blog posts and resources on how tax reform will impact you, your family and your business. Contact an Anders advisor with questions on how the new tax law will affect you.

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June 12, 2018

Tax Treatment of Shareholder Loans

In some circumstances, a closely held business might advance or loan money to a partner for non-business expenses and is common in construction companies with a small number of shareholders. But it’s important to know how to treat the loan receivable to avoid it being classified as additional taxable compensation to the shareholder, subject to employment taxes, or possibly a constructive dividend subject to ordinary or capital gains tax rates.  First, let’s look into why this situation would occur.

Why would a shareholder borrow money from a company as a loan receivable?

Here are a few common examples of why the loan receivable may occur:

  • The shareholder is using company funds for personal expenses and reflecting them as a loan
  • The shareholder needs to borrow company funds for business or non-business purchases
  • The shareholder wants to ensure there are not distributions in excess of basis at the end of the tax year, so a reclassification as a receivable is booked

How can you avoid a taxable event?

To determine if the receivable is really a loan and to avoid creating a taxable event, certain factors need to be considered, including:

  • How much control does the shareholder have in the corporation?
  • Does the shareholder have the ability to repay the debt without additional corporate funds?
  • Has the corporation setup and documented a formal note with the shareholder taand enforced collection of the receivable?
  • Does the corporation have prior S Corporation accumulated earnings and profits which may be indicative of a constructive dividend distribution rather than a bona fide loan?
  • Does the company history, or lack thereof, for paying dividends indicate the payments could be for dividend distributions rather than loans?
  • Is interest being paid on the loan at market rates? If not, this could also result in additional taxable income to the shareholder.
  • How has the receivable been reported on the company’s financials provided to the surety?
  • Did the shareholder report the liability to the company on their personal financial statements provided to the bank?
  • Is the shareholder receiving reasonable compensation for the services being provided?

Once you’ve determined the loan can be categorized as a loan receivable on the balance sheet, it should be properly documented with a formal note using appropriate interest rates and repayment terms. Most importantly, it should be determined that the loan can and will be fully repaid to the company.

Being able to utilize company funds for various purposes can be a benefit to the shareholders of a closely held business, and are sometimes necessary. If you have questions or would like to discuss your situation, please contact an Anders advisor.

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June 5, 2018

Five Steps to a More Valuable Business: Building, Harvesting and Managing Wealth

Increasing company value should be a core goal for business owners. In part one of our two-part blog series on creating a more valuable business, we explained the importance of identifying and protecting the value of the company. Part two discusses how building, harvesting and managing wealth are key next steps to growing value.

 

 

 

 

 

 

 

 

 

 

Step 3: Build Value

Once you have protected your value, you can focus on building it.

In the build stage, you will take a longer point of view, prioritizing more strategic actions to increase intangible capital over less strategic actions. Building value results from increases in cash flow and improvements to your multiple, which is the number assigned by the private capital market to the value of your tangible and intangible assets and the risks associated with your business.

Intangible assets are “knowledge capitals” and can be divided into four areas:

  • Human – the value of your talent
  • Structural – the value of your systems and intellectual property
  • Customer – the value of your customer relationships
  • Social – the value of your brand and culture.

Step 4: Harvest Value

As some point, cashing in or harvesting the value of business is in your future. Harvesting represents the thought of a growing season, where harvesting marks the end of the growth cycle for your particular crop: your business.

There are many business transition options, from internal exits for intergenerational, key employees and partners, to external transitions for private equity, family offices or strategic buyers. It’s important to explore each possibility.

Step 5: Manage Value

Managing value is the last stage, but not because it comes at the end after you harvest. It’s last because it represents full maturity.

You should obviously be managing value through the entire process, not just at the end. If you have identified, protected, built and harvested value from a personal, financial, and business standpoint, you have managed your value. Managing value begins with identifying it. Remember, to effectively achieve results, it’s not just the value of your business you need to manage. You need to manage your personal value and personal financial net worth as well. If you actively manage value through the entire process, you emerge financially independent of your business, with lots of options when the time comes to transition. It also preserves those options whether or not the transition is on your terms and timeline.

For more information, read part one of the Five Stages of Building Value: Identifying and Protecting Value, or learn more about our Business Transition Planning Services. Contact an Anders advisor to learn how to implement a successful business transition planning strategy for you and your business.

For additional reading, check out Chris Snider’s book, Walking to Destiny – 11 Actions an Owner Must Take to Rapidly Grow Value and Unlock Wealth.

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