Category: Tax

Restaurant Businesses Entitled to Favorable Employee Retention Credit Treatment

Restaurant businesses have a new opportunity to take advantage of the employee retention tax credit under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, even though Congress terminated the credit Sept. 30, 2021, three months earlier than scheduled. Certain restaurant businesses that thought they were ineligible for this tax credit may be entitled to take advantage of it for wages paid up until this COVID-19 economic incentive ended. Such potential opportunity is a result of IRS guidance that was published in August 2021, the month before the credit ended.

The employee retention credit initially allowed a 50% credit for wages paid for the second through fourth quarters of 2020, and then a 70% credit for wages paid for the first through third quarters of 2021, if the business either had its operations suspended due to COVID-19-related government orders or had a significant decline in gross receipts. Wages paid with a loan under the Paycheck Protection Program were not eligible for the credit. The credit was limited to a maximum of $5,000 per employee for 2020, but this cap was increased to $7,000 per employee per quarter for the first through third quarters of 2021 (total maximum credit of $21,000 per employee for 2021). The credit is applied against the employer’s share of payroll taxes, and to the extent the credit exceeded the employer’s share of payroll taxes, the IRS refunds the difference to the employer.

Impact of PPP Loans and Restaurant Revitalization Grants on Gross Receipts

For 2020, a business satisfied the significant decline in gross receipts requirement for credit eligibility if it experienced a greater than 50% reduction in gross receipts compared to the same quarter in 2019. This test was eased for 2021 quarters to include reductions in gross receipts greater than 20%. When the IRS published its initial guidance, it said gross receipts included tax-exempt income. The assumption was that a PPP loan forgiven or a grant under the Restaurant Revitalization Fund (RRF), both treated as tax-exempt revenue, would nevertheless be treated as gross receipts for determining whether a restaurant business had a significant decline in gross receipts for credit eligibility. Therefore, it would have been understandable if a restaurant owner who had a PPP loan forgiven or received an RRF grant assumed that the amount of the forgiven loan or grant needed to be included in the restaurant’s gross receipts calculation, which may have resulted in not satisfying the decline in gross receipts test. However, the IRS published Revenue Procedure 2021-33 in August 2021, which provides that for purposes of determining whether a business has had a significant decline in gross receipts for a quarter, the business may exclude forgiven PPP loans and RRF grants from its gross receipts. This will increase the likelihood that a restaurant business can pass the decline in gross receipts test to allow the business to claim the credit. Even though this credit ended in September 2021, a company can still claim the credit for prior quarters by filing an amended payroll tax return.

Part-Time Employees

Another important factor in claiming the credit deals with the number of average full-time employees a company had in 2019. The critical thresholds to qualify as a “Small Employer” are 100 or fewer average full-time employees in 2019 for determining the credit for 2020 quarters, and 500 or fewer average full-time employees for 2021 quarters. If the conditions to claim the credit are satisfied – either because business operations were suspended by a government order or the company had a decline in gross receipts – a Small Employer gets the credit for wages paid even though the business is open and the employees are working. On the other hand, larger businesses that surpassed these 100- or 500-employee thresholds could take the credit only if it paid its employees even though they were not working. Note that these 100/500 employee thresholds are determined on a company-wide basis, not on a per-location basis that tested eligibility for PPP loan rules.

In August 2021, the IRS published Notice 2021-49, which states full-time equivalents in 2019 are not counted in determining this 100/500 employee threshold. Some restaurant businesses may have thought they were not eligible to claim the credit because their part-time workers, when aggregated into full-time equivalents, caused the businesses to exceed the 100/500 average full-time employee threshold. However, as a result of this IRS notice, they now may be eligible to file an amended quarterly payroll tax returns to claim the credit.

Better yet, Notice 2021-49 states that wages paid to part-time employees are eligible for the credit – even though part-time employees are not counted toward the 100/500 employee threshold. Some restaurant businesses may have assumed the wages paid to part-time workers were not eligible for the credit, and may be able to file amended payroll tax returns to claim the credit for part-time worker wages.

Cash Tips

Finally, Notice 2021-49 also states that an employee’s cash tips of more than $20 per month are wages eligible for the credit. Some restaurant businesses may have assumed that tips paid by customers were not eligible for the credit, and did not include tips in their claim for the credit. If so, they could file amended payroll tax returns to claim the credit. Of course, to claim the credit for cash tips received by employees, a restaurant business must report the tips as income on the employee’s Form W-2.

In summary, restaurant businesses should revisit their employee retention credit analysis with their legal and tax advisors in light of Notice 2021-49. The benefits could be substantial.

This article was written by Riley Lagesen, Landes Taylor and Marvin Kirsner of Greenberg Traurig law firm. For more articles about employee retention credits, please click here.

Filing Tax Returns and Making Tax Payments: Best Practices During the Pandemic and Beyond

With staffing shortages and service center closures, it should come as no surprise that the IRS has faced a number of challenges during the pandemic. A couple of the biggest challenges have been in the opening and processing of taxpayer correspondence and in the processing of tax returns. As National Taxpayer Advocate, Erin Collins, stated in her Annual Report to Congress, “Paper is the IRS’s Kryptonite, and the IRS is buried in it.”

Going into 2022, the IRS has a significant backlog of unprocessed taxpayer correspondence and unprocessed returns. The estimates are staggering.

  • Five million pieces of unprocessed taxpayer correspondence
  • Over 11 million unprocessed tax returns, including:
    • Six million individual income tax returns
    • 2.3 million amended individual tax returns
    • 2.8 million business returns (income tax and employment tax returns)

The 2022 tax filing season, which opened on Thursday, January 24 for individual income tax returns, has the potential to create even more challenges for the IRS. Below is a list of best practices taxpayers can follow to ensure timely processing of their payments, tax returns, and claims for refund. These practices apply to individuals and required filing for businesses.

  • File returns and make payments electronically.
  • If you must file a paper return or mail in a payment to the IRS, send the return or payment to the proper address via USPS Certified Mail, Return Receipt Requested. Using this method will assist in resolving timely filing and/or timely payment penalties assessed by the IRS.
  • Properly notate your tax payment and include the form number, tax period and your social security number or employer identification number.
  • Respond to notices from the IRS in a timely manner.

In addition to the above, the IRS has offered a few filing tips for individuals.

  • Fastest refunds by e-filing, avoiding paper returns: Filing electronically with direct deposit and avoiding a paper tax return is more important than ever to avoid refund delays. If you need a tax refund quickly, do not file on paper – use software, a trusted tax professional or IRS Free File.
  • Filing 2021 tax return with 2020 tax return still in process: For those whose tax returns from 2020 have not yet been processed, 2021 tax returns can still be filed. For those in this group filing electronically, here’s a critical point: taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return at time of filing. For those waiting on their 2020 tax return to be processed, make sure to enter $0 (zero dollars) for last year’s AGI on the 2021 tax return. Visit Validating Your Electronically Filed Tax Return for more details.

More individual filing tips from the IRS can be found here.

If you have unpaid taxes or unfiled returns, you need an experienced tax attorney to represent you in your dealings with the IRS or the Department of Justice. An accountant or enrolled agent is not protected by the attorney-client privilege.

© 2022 Varnum LLP
For more articles about tax returns, visit the NLR Tax type of law section.

Maryland Comptroller Adopts Digital Advertising Gross Revenues Tax Regulations

On December 3, 2021, the Maryland Comptroller published notice of its adoption of the digital advertising gross revenues tax regulations (which was originally proposed on October 8, 2021). Per the Maryland Administrative Procedure Act, the final adopted regulations will go into effect in 10 calendar days, or December 13, 2021. (See Md. Code Ann., State Gov’t § 10-117(a)(1).)

The final regulations were adopted almost entirely as proposed, with just two minor changes that the Attorney General (AG) of Maryland certified as non-substantive. Specifically, the changes to the October 8 proposed regulations concern the information that may be used to determine the location of a device and are described by the AG as follows:

  • Regulation .02(C): The Comptroller is clarifying language regarding the allowable sources of information a taxpayer may use to determine the location of a device. Specifically, this final action amendment changes “both technical information and the terms of the underlying contract” to “both technical information and nontechnical information included in the contract.”
    • Regulation .02(C)(2): The Comptroller is amending the non-exhaustive list of technical information to include “industry standard metrics.”

    Practice Note: While “industry-standard metrics” is a nice addition to the list of sources that may be used to determine the location of devices for sourcing purposes, significant and fundamental questions and concerns submitted as part of the comments were not addressed by the Comptroller in adopting the final digital ad tax regulations. The tax is subject to multiple lawsuits (both state and federal court) and pending a court order to the contrary is scheduled to take effect beginning January 1, 2022, with the first filing obligation for large taxpayers in April 2022. Taxpayers grappling with how to comply with this new tax are encouraged to contact the authors.

    © 2021 McDermott Will & Emery

    Article by Stephen P. Kranz, Eric Carstens, and Jonathan C. Hague with McDermott Will & Emery.

For more updates on tax regulations, visit the NLR Tax section.

Wealth Planning in 2021: Preparing For a Changing Tax Landscape

Since President Biden took office at the beginning of this year, there has been much buzz and conjecture regarding what the tax policy under the Biden-Harris Administration would look like.  In light of the recently released Department of Treasury’s General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals, commonly known as the “Green Book,” we now have a better idea of the proposed tax law changes that the Administration will focus on implementing in the coming year.

While the Green Book contains various tax proposals that could significantly affect estate planning, it interestingly does not include a proposal to decrease the estate and gift tax exemption, which was a major topic of discussion during last year’s election cycle (click here to review our advisory on Estate Planning and the 2020 Election).  However, some Democrats in Congress nonetheless continue to argue for this reduction.  For example, Senator Bernie Sanders’ proposed legislation, For the 99.5% Act, would reduce the gift tax exemption to $1 million per person and the estate tax exemption to $3.5 million per person and would also impose new progressive estate tax rates ranging from 45% to 65%.

In any event, the Green Book contains the proposed tax laws that reflect the Administration’s top priorities and are more likely to be enacted than those proposals not included in the Green Book.  The Green Book proposals seek to reverse many of the tax laws included in the 2017 Tax Cuts and Jobs Act enacted under former President Trump, such as a proposed increase to individual income tax rates and an end to certain capital gains tax preferences, discussed in further detail below.

Green Book Proposals That Would Affect High Net Worth Clients:

Increase Top Marginal Individual Income Tax Rate for High-Income Earners.  The top marginal income tax rate would increase from 37% to 39.6% for taxable income in excess of the top bracket threshold.  For taxable years beginning January 1, 2022, this would apply to income in excess of $509,300 for married individuals filing jointly and $452,700 for single filers, and thereafter be indexed for inflation.

Tax Capital Gains for High-Income Earners at Ordinary Income Tax Rates.  For taxpayers with adjusted gross income of more than $1 million, long-term capital gains and qualified dividends tax rates would increase to match the proposed ordinary income tax rates.  To the extent that a taxpayer’s income exceeds $1 million, rates would go from 20% (or 23.8% including the net investment income tax (“NIIT”)) to 39.6% (or 43.4% including NIIT).  This proposal currently includes a retroactive effective date of April 28, 2021.

Treat Transfers of Appreciated Property by Gift or at Death as Realization Events.  This proposal would eliminate the so called “step up in basis loophole,” which allows for an asset transferred at death to be “stepped up” to fair market value for cost basis purposes resulting in no capital gains tax imposed on the asset’s appreciation through date of death.  Instead, the transfer of an appreciated asset by gift or at death would be treated as sold for fair market value at the time of the transfer, creating a taxable gain realization event for the donor or deceased owner.  There would, however, be a $1 million per person (or $2 million per married couple) exemption from recognition of capital gains on property transferred by gift or at death, indexed for inflation.  In addition, certain exclusions would apply, including:

  • Residence.  $250,000 per person (or $500,000 per married couple) would be excluded from capital gain on the sale or transfer of any residence.
  • Surviving spouse.  Transfers by a decedent to a U.S. citizen spouse would carry over the basis of the decedent and capital gain recognition would be deferred until the surviving spouse dies or otherwise disposes of the asset.
  • Charity.  Appreciated property transferred to charity would not generate a taxable gain; however, the transfer of appreciated assets to a split-interest charitable trust would generate a taxable gain as to the share of the value transferred attributable to any non-charitable beneficiary.
  • Tangible personal property.  No capital gain would be recognized on transfers of tangible personal property (excluding collectibles).

Although the tax imposed on gains deemed realized at death would be deductible on the estate tax return of the decedent’s estate, deductions are not equivalent to tax credits and in high tax states such as New York, the additional tax could be substantial.

Impose Gain Recognition on Property Transferred to or Distributed from an Irrevocable Trust.  Any transfers of property into, and distributions in kind from, an irrevocable trust would be treated as deemed recognition events subject to capital gains tax.  In addition, while the generation-skipping transfer (“GST”) tax exempt status of a trust would not be affected, gain would automatically be recognized on property held in an irrevocable trust which has not otherwise been subject to a taxable recognition event within the prior 90 years.  The first possible recognition event would be December 31, 2030 for any trust in existence on January 1, 1940.  This proposal would also apply to transfers to, and distributions in kind from, partnerships and other non-corporate entities.  Elimination of Valuation Discounts.  The valuation of partial interests in property contributed to a trust would be equal to the proportional share of the fair market value of all of such property.  In other words, no discounts for lack of marketability or minority interests would be allowed in valuing transfers of partial interests in LLCs, corporations, partnerships or real property.

Summary

The legislative text of the Administration’s tax proposals will likely not be available until the fall.  It is important to note that any proposed tax law changes face a split 50-50 Senate, which means that the prospect of passing any tax reform at all is uncertain.  Commentators believe that the Green Book proposals will be the subject of extensive negotiation over the next several months, including significant opposition to large increases in capital gains tax rates.  In the meantime, we at Wiggin and Dana [link to PCS attorneys page] are available to discuss the Green Book proposals in more detail and to make proactive, tailored recommendations in light of the current changing tax law landscape.

© 1998-2021 Wiggin and Dana LLP

Article by Michael T. Clear, Veronica R.S. Bauer, Robert W. Benjamin, Daniel L. Daniels, and Helen C. Heintz with Wiggin and Dana LLP.

For more articles on taxes, visit the NLR Tax section.

Snowy Owls and Constituted Authorities

On January 27, 2021, a snowy owl was seen in New York City’s Central Park for the first time in 130 years.  Nine days later, on February 5, 2021, something almost as rare occurred – the Internal Revenue Service released a private letter ruling dealing with Section 103 of the Internal Revenue Code.[1]  In PLR 202105007, the IRS determined that a nonprofit corporation that amended its articles of incorporation to change its purposes and come under the control of a city became a “constituted authority,” within the meaning of Treas. Reg. 1.103-1(b), of the city that could issue tax-exempt bonds on behalf of the city.

The coincidence of these infrequent events involving ornithology and quasi-governmental entities calls to mind the field guide Johnny Hutchinson prepared on the tax classifications of various species of the latter, which was an homage to Roger Tory Peterson’s Field Guide to Birds, a seminal work in the canon of the former.  February is a good time to brush up on both.      

[1] of 1986, as amended.

© Copyright 2020 Squire Patton Boggs (US) LLP

ARTICLE BY Michael A. Cullers of Squire Patton Boggs (US) LLP
For more, visit the NLR Tax section.

Work from Anywhere? Telecommuting and Tax Obligations for Employers: Practical Considerations and Tips for Human Resources and Management

As a result of the COVID-19 pandemic, there has been a sudden, widespread shift towards remote work arrangements. This shift has provided many benefits, including an increase in the employee talent pool and the ability to recruit without borders, cost savings, and a more flexible employee workday. In response, a number of employees have moved away, or plan to move away, from city centers or to a different state to find a better location in terms of cost of living and personal preference. However, this shift creates concerns for employers regarding labor and employment law compliance, tax compliance, and other business considerations when employees choose to permanently work remotely in a new location. Employers may not be aware of these considerations or even the fact that the employee has moved. It is important to understand these concerns and how they may affect the “workplace” as more businesses prepare for long-term policies on working remotely.

Labor & Employment Considerations

Wage and Hour Laws

 Different jurisdictions impose different wage and hour requirements, such as minimum wage, paid sick leave, overtime, exemptions, pay frequency, and pay statements. Multi-jurisdictional employers must understand these variations to make sure that they are complying with the various wage and hour laws in the states and localities where employees are working. For example, non-exempt employees working from home are still required to be paid based on actual hours worked, and are entitled to overtime. If an employer employs an employee who moves to a state where overtime must be paid for any work over eight hours per day instead of being paid for all hours worked over 40 in a work week, the employer would need to update its payroll system to ensure compliance.

Tracking Hours Worked

With remote work, employees’ actual hours worked can be difficult to track because of variable schedules necessitated by the competing demands of working from home. On August 24, 2020, the U.S. Department of Labor’s Wage and Hour Division (WHD) recognized this issue and published a field assistance bulletin that reminds employers of their obligation to track all hours worked by employees who are working remotely, including addressing authorized versus non-authorized hours of work, hours that the employer knows are being worked, and reminds employers that their processes and policies cannot prevent or discourage the reporting of hours worked.

Workers’ Compensation Insurance

Most employers are generally required to obtain workers’ compensation insurance in the states in which they employ workers. An injury that arises out of or in the course of employment will generally be covered by workers’ compensation insurance. This includes injuries that occur suddenly or over time as well as injuries that may occur when working remotely. For example, due to the COVID-19 pandemic, many employees are conducting business from home-office setups where they may sustain various injuries. Depending on the applicable state law, this may be deemed a work-related injury eligible for coverage under workers’ compensation insurance. An employer that does not abide by a state’s laws requiring workers’ compensation insurance may be liable for noncompliance, resulting in potential fines and penalties.

Unemployment Insurance

Similarly, employers are generally required to pay premiums for state unemployment insurance when at least one of their employees conducts business in the state. Employers must generally register for an account with the state unemployment agency within the states in which they have employees working. A failure to pay these premiums may create liability for the employer, including penalties for noncompliance.

Discrimination Laws

 As a general tenet, the federal and state employment discrimination laws in a particular state apply to employees working in that state and they apply to “workplace,” which includes remote work arrangement, online forums, etc. Employers must be prepared to comply with various local and state employment laws, keeping in mind that localities and states might include different protected characteristics in their laws. Employers also will need to be in compliance with state and federal disability discrimination laws, as employees are entitled to reasonable accommodations even when working remotely. Employers may wish to review and, if appropriate, update employee handbooks to ensure that their procedures for internal reporting are accessible and are reasonable as they relate to remote employees.

Posting Requirements

Employers may be required to display in the workplace posters that discuss employees’ employment rights, such as those granted under the federal Occupational Safety and Health Act (OSHA) or the federal Family and Medical Leave Act (FMLA), as well as under other local, state, and federal laws. If employees are working remotely, employers may be required to send out the postings by mail or email or display the postings on an employee information website, depending on the applicable law. Employers may want to consider providing a manner for employees to acknowledge receipt of the posted information to ensure they are fulfilling their obligations.

State Tax & Registration Implications

The unplanned and exponential increase in the number of remote workers due to the COVID-19 pandemic has raised state tax and registration questions for employers with employees now working in one or more states separate from the states(s) in which the employer normally conducts business. Generally speaking, the presence of an employee in a state may trigger a requirement that the employer register as an entity transacting business, establish nexus for income/franchise taxes and sales and use taxes, and require registration as an employer for purposes of state and local income tax withholding.

This analysis is further complicated by the lack of uniformity in guidance issued by state authorities. A number of state tax authorities have been noticeably silent, suggesting that pre-pandemic rules continue to apply to out-of-state employers. Even with regard to the states that have issued COVID-19 related guidance, that guidance varies, as some states provide relief (generally temporarily waiving registration and reporting issues relating to remote workers created as a result of the pandemic) while others have simply confirmed that their laws are not impacted by the pandemic. The state guidance may also draw a distinction between previously assigned remote workers and those forced to work from home due to the pandemic.

Business Registration

Employers may wish to consider whether the presence of these new remote workers creates a duty to obtain a certificate of authority in order to transact business in states in which employers previously did not have any employees or operations. Failure to comply with these rules can result in significant penalties.

Business Taxes

If an employee performs services in his/her state of residency, this may create substantial nexus between the employer and this state. As a result, employers may be obligated to pay state and local franchise, income, or other applicable business tax in such states solely as a result of their remote workers. For retailers, it would trigger a duty to collect, remit, and report state and local sales and use taxes.

Income Tax Withholding

In the majority of jurisdictions, employers attribute an employee’s wages for income tax withholding purposes to the state in which the employee performs services. These rules would require employers to register with state and local tax agencies and withhold the income taxes according to the laws of those jurisdictions. With regard to other states that utilize a “convenience of the employer” sourcing rule, employers are faced with unique and complex challenges in the current pandemic environment. Generally, in such states, wages are considered earned by a nonresident employee and are allocated to the office location the employee is assigned to, unless the employee performs work that, out of necessity and not convenience, requires the employee to perform work from another location other than their assigned office. Historically, what is considered to be at the “convenience of the employer” has been defined broadly with narrow exceptions, and it remains unclear whether alternative remote working arrangements due to the pandemic would constitute work conducted offsite for the “convenience of the employer.” This situation is further complicated by additional states (most notably Massachusetts) temporarily adopting “convenience of the employer” rules under the guise of limiting disruption to employers.

In many cases, employers are left without clear direction and have no choice other than to review state specific guidance as it applies to their remote workers, including those who may have relocated temporarily or have relocated without any advance notice to their employer. While enforcement activity may be limited at the current time, employers should consider whether states will look to enforcement of these tax rules against nonresident employers in order to balance state budgets deeply impacted by the pandemic.

Localized Compensation

Many employees who plan to work remotely on a permanent basis are moving to more affordable cities to reduce costs or for other personal reasons. Some employers have responded by adjusting pay for employees based on localized factors, including income tax rates and the cost of labor in the employee’s new location. Some of these employers have made pay adjustments based on a case-by-case basis, while others have implemented a set pay cut when an employee moves away from large city centers, such as New York or San Francisco. While companies have pointed out that it is standard practice for an employee’s location to be a factor considered in determining pay, there has been some push back by remote workers related to this decision.

Conclusion

Due to the legal risks associated with employees relocating while working remotely, employers may wish to consult with legal counsel for guidance on navigating applicable law.

Copyright © 2020 Robinson & Cole LLP. All rights reserved.
For more articles on remote working, visit the NLR Labor & Employment section.

NY’s Gendered Pricing Law: Will It Curb the Pink Tax

Women often pay more than men for similar goods and services.  A shampoo for men may be nearly identical in chemical makeup to a shampoo for women, but the woman will pay more.  This phenomenon is referred to as the “pink tax” – products marketed to women cost more than their counterparts marketed to men.  Recent data analyzing toys, clothing, personal care products and home health products shows that: (1) products targeted at women are higher-priced than those targeted at men 42% of the time; and (2) of those items more expensive for women, the prices are an average of 7% higher.[1] The pink tax thus places a direct cost on individuals who purchase products marketed to women.

Some states are starting to enact laws aimed at curbing the pink tax.  On September 30, 2020, a New York ban on the pink tax took effect under a newly passed gendered pricing law, Section 391-U.[2]  The law prohibits sellers from charging different prices for any two goods or services that are “substantially similar” but are marketed to or intended for different genders.[3]  It applies to goods and services for personal, family, or household purposes.[4]

Where there is discriminatory pricing under the law, the NY attorney general may seek an injunction to enjoin and restrain the upcharges.[5]  The injunction can be issued without proof of injury in fact.[6]  The court may also tag on a civil penalty not to exceed two hundred fifty dollars for a first violation and five hundred dollars for a subsequent violation.[7]

Although the law is aimed at eliminating the pink tax, there are many loopholes and exclusions.

First, only the attorney general is granted a right of action – there is no private right of action.[8]  Individual consumers may, however, demand a complete written price list from service providers.[9]

Second, the law is limited to goods that are substantially similar.[10]  Substantially similar goods are only those that have no substantial differences in (1) the materials used in production, (2) the intended use, (3) the functional design and features and (4) the brand.[11]  This leaves open the possibility that one company, operating under two brands, can sell products to women at a higher price without violating the law.  For example, if a parent company operates under two gendered hair dye brands, could the brands sell similarly crafted dye for women at a higher price than for men, or would that constitute a violation by the company under Section 391-U?

Likewise, substantially similar services include only those that exhibit no substantial difference in (1) the amount of time needed to provide a service; (2) the difficulty in providing a service; and (3) the cost of providing a service.[12]  This creates further loopholes.  For example, a publisher of two magazines, one targeted at men, and the other targeted at women, could argue that providing subscription services and the content that accompanies those services is always more expensive for women readers.  Rebutting this argument could require extensive testimony from experts in the publishing field.

Third, even where substantially similar goods and services are at issue, the law permits price disparities in many situations.  The law specifically carves out an exemption for price disparities based on: “(a) the amount of time it took to manufacture such goods or provide such services; (b) the difficulty in manufacturing such goods or offering such services; (c) the cost incurred in manufacturing such goods or offering such services; (d) the labor used in manufacturing such goods or providing such services; (e) the materials used in manufacturing such goods or providing such services; or (f) any other gender-neutral reason for having increased the cost of such goods or services.”[13]

The personal care industry may rely on this broad list of exemptions to continue charging higher prices for products advertised to women.  Notably, the price disparity for gendered products in the personal care industry is higher than elsewhere – on average, up to 13% more for women.[14] One of the largest price discrepancies is in hair care – products cost women nearly 48% more, with an average difference of $2.71 per set of shampoo and conditioner.[15]

NY has paired this new law with a social media campaign centered around the hashtag #PinkTax to raise awareness, which at the time of this blog’s publish, has 10.8K posts.[16] With the buzzing publicity surrounding this legislation, the retail industry should be prepared for other states to pass similar laws.

FOOTNOTES

[1]https://www.governor.ny.gov/news/governor-cuomo-unveils-10th-proposal-20…, referencing https://www1.nyc.gov/assets/dca/downloads/pdf/partners/Study-of-Gender-P…

[2] 26 N.Y. GBS § 391-U.

[3] 26 N.Y. GBS § 391-U(2)-(3).

[4] Id., at (1)(b)-(c).

[5] Id., at (6).

[6] Id.

[7] Id.

[8] See id.

[9] Id., at (5).

[10] Id., at (1)(d)(i).

[11] Id.

[12] Id., at (1)(d)(ii).

[13] Id., at (4)(a)-(f).

[14] https://www1.nyc.gov/assets/dca/downloads/pdf/partners/Study-of-Gender-P…

[15] Id.

[16] https://www.governor.ny.gov/news/governor-cuomo-launches-campaign-elimin…

Copyright © 2020, Sheppard Mullin Richter & Hampton LLP.
For more articles on the pink tax, visit the National Law Review Tax section.

IRS Issues Guidance on Deferral of Certain Employee Payroll Taxes

On Friday, August 28, the IRS issued Notice 2020-65, providing guidance about the deferral of certain employee payroll taxes under the President’s Executive Memorandum issued earlier in August. As has become the norm in these uncertain times, the guidance must be considered fluid and subject to change without notice. The existing guidance leaves many questions unanswered so we will continue to monitor this issue.

What Is the Employee’s Portion of the Payroll Taxes Subject to Deferral Under Executive Memorandum and Notice 2020-65?

In addition to income tax withholding, payroll taxes include Federal Insurance Contributions Act (FICA) taxes. FICA taxes include old-age, survivor and disability insurance (OASDI) (Social Security) and hospital insurance (Medicare). These payroll taxes apply at a rate of 15.3 percent for wages up to $137,700 for the 2020 calendar year. The obligation for the FICA taxes are equally divided between employers and employees at 7.65 percent, broken down as follows: 6.2 percent for Social Security and 1.45 percent for Medicare. Accordingly, for purposes of the Executive Memorandum and Notice 2020-65 the amount subject to deferral is 6.2 percent of the Social Security taxes as the employee’s share.

What Is Known

  • Deferral of the employee’s share of Social Security taxes appears to be voluntary by the employer based on the language in this notice, Code Section 7508A, and prior statements made by Secretary Mnuchin. Since the deferral is voluntary, the employer may forgo the deferral and timely withhold and pay over the required taxes.
  • The employer is the “Affected Taxpayer” under Notice 2020-65. Thus, an employee cannot require its employer to defer the taxes.
  • The option to defer applies to wages paid to an employee on a pay date during the period beginning September 1, 2020 and ending on December 31, 2020.
  • The option to defer only applies to employees earning less than $4,000 paid for a bi-weekly pay period.
  • The determination of whether the employee earns less than $4,000 per bi-weekly pay period is made on a pay period-by-pay period basis. Notice 2020-65
  • The employer must withhold and pay the deferred taxes under this notice ratably between January 1, 2021 and April 30, 2021 or interest, penalties, and additions to the tax will begin to accrue on May 1, 2021, with respect to any unpaid applicable taxes. Notice 2020-65
  • “If necessary, the Affected Taxpayer [Employer] may make arrangement to otherwise collect the total Applicable Taxes from the employee.” Notice 2020-65. Implies the penalties will be assessed against Employer as the Affected Taxpayer as defined by the guidance.

What Is Not Known

  • What if the employee leaves the company?
  • What if employee doesn’t make enough money to pay the tax back?
  • It appears that the obligation to pay the deferred taxes remains with the employer in either situation above.

Absent further guidance or congressional action, the deferred taxes must be withheld from the employee’s wages and paid over to the government between January 1, 2021 and April 30, 2021. Employers who are considering allowing employees to defer payment of taxes should consult counsel and develop a plan to implement before ceasing to make deductions. Considerations for the plan should include an employee communication plan developed to address employee payment obligations after the deferral period expires or if the employee becomes no longer employed by the employer. In addition, the plan should take into account whether employees are covered by a collective bargaining agreement that triggers notice and bargaining obligations. Also, keep in mind that Michigan employers must have signed authorization from the employee to make deductions from wages. Employers should consider obtaining written authorization from qualifying employees who elect to defer that includes the plan to repay the deferred taxes and a backup in case the employee ceases to be employed before the taxes are paid.

© 2020 Varnum LLP
For more articles on the IRS, visit the National Law Review Tax, Internal Revenue Service and Treasury Legal News section.

Register for the 51st Annual PLI Estate Planning Institute

Live Webcast: Sept 14 – 15, 2020, 9 a.m. EDT

Click here to register.

The Tax Cuts and Jobs Act of 2017 (the “2017 Act”), which was enacted on December 22, 2017, included significant changes to the federal transfer tax regime and related income tax provisions.  More recently, the financial and societal impact of the COVID-19 pandemic of 2020 continues to reverberate and create uncertainty in the future.

This program will review the transfer tax and related income tax developments with the 2017 Act as a starting point, and will discuss how such developments impact estate, trust and income tax planning, and the administration of decedents’ estates.  Moreover, the program will review other recent developments regarding estate, trust and transfer tax and income tax planning.  Further, the COVID-19 crisis and the related estate, trust and income tax legislation and rulings promulgated in response to such crisis will be discussed.

What You Will Learn

  • Advising clients in a time of unprecedented uncertainty
  • An update on recent developments in all areas of estate, trust and transfer tax planning including legislation and rulings issued as a result of the COVID-19 crisis
  • A review of the interaction between the federal transfer tax regime and state transfer tax regimes
  • A review of the transfer tax and related income tax provisions of the 2017 Act
  • Income tax planning for estates and trusts
  • Administering estates and trusts during and after the COVID-19 pandemic
  • A review of the SECURE Act of 2019
  • A review of international estate planning and tax changes
  • FATCA and its progeny
  • A discussion of trust planning and divorce
  • Ethical considerations for attorneys
  • Elder law and special needs planning considerations
  • A review of tax issues for art collectors
  • An update on charitable donation planning
  • A review of electronic Wills and modern-day estate planning
  • Asset protection planning in a pandemic world

…and much more!

Special Features

  • Full hour of ethics credit

Who Should Attend

Attorneys and other professionals advising on estate planning and/or transfer tax planning, including accountants, financial planners and anyone else whose practice requires a solid understanding of estate planning.

Program Level: Overview

Prerequisites: Attendees should have a basic understanding of trusts and estates terminology and a foundational background in tax

Intended Audience: Attorneys, accountants, financial planners, and other professionals who specialize in estate planning, life insurance products and/or transfer tax planning

Advanced Preparation: None

See other upcoming events from PLI here.

Reactions to the U.S. Supreme Court’s Rulings in Trump v. Vance & Trump v. Mazars

In Trump v. Vance and Trump v. Mazars the Supreme Court issued opinions in two cases concerning the release of President Trump’s financial records.  Reactions to the July 9th rulings have varied, with opinions differing on whether or not Trump’s reputation and presidency will be significantly impacted by what his financial records may reveal.

Below, we outline the details of each case and the reactions to the Supreme Court’s decisions.

Background Trump v. Vance

In Trump v. Vance, the court stated that Trump had no absolute right to block the Manhattan District attorney’s access to Trump’s financial records for the purposes of a grand jury investigation. The court held in a 7-2 decision that “Article II and the Supremacy Clause do not categorically preclude, or require a heightened standard for, the issuance of a state criminal subpoena to a sitting President.” The court’s opinion was written by Chief Justice John Roberts for the majority including Justices Ginsburg, Breyer, Sotomayor and Kagan with Justice Kavanaugh filing a concurring opinion joined by Justice Gorsuch, and Justice Thomas and Justice Alito writing separate dissenting opinions.

Trump v. Vance involves a state criminal grand jury subpoena not served on President Trump, but on two banks and an accounting firm that were custodians of the records. The subpoenaed records are for eight years of Trump’s personal and business tax returns and other banking documents in the years leading up to the 2016 election served on behalf of New York District Attorney Cyrus Vance., Jr. Vance’s investigation centered around payments made to two women — Karen McDougal and Stormy Daniels — who alleged they had affairs with Trump before he entered office.

The Supreme Court considered state criminal subpoenas could threaten “the independence and effectiveness” of the president as well as undermining the president’s leadership and reputation, weighing Trump’s circumstances against those in Clinton v. Jones, the 1997 case where President Bill Clinton sought to have a civil suit filed against him by Paula Corbin Jones dismissed on the grounds of presidential immunity, and that the case would be a distraction to his presidency.

Trump argued that the burden state criminal subpoenas would put on his presidency would be even greater than in Clinton because “criminal litigation poses unique burdens on the President’s time and will generate a considerable if not overwhelming degree of mental preoccupation” and would make him a target for harassment.

The Court addressed Trump’s argument, stating that they “rejected a nearly identical argument in Clinton, concluding that the risk posed by harassing civil litigation was not ‘serious’ because federal courts have the tools to deter and dismiss vexatious lawsuits. Harassing state criminal subpoenas could, under certain circumstances, threaten the independence or effectiveness of the Executive. But here again the law already seeks to protect against such abuse … Grand juries are prohibited from engaging in ‘arbitrary fishing expeditions’ or initiating investigations ‘out of malice or an intent to harass.’”

The Court also considered that Vance is a case addressing state law issues where Clinton was a case addressing federal law issues. Trump argued that the Supremacy Clause gives a sitting president absolute immunity from state criminal proceedings because compliance with subpoenas would impair his performance of his Article II functions. Arguing on behalf of the United States, the Solicitor General claimed state grand jury subpoenas should fulfill a higher need standard.  In response, the Court ruled, “A state grand jury subpoena seeking a President’s private papers need not satisfy a heightened need standard … there has been no showing here that heightened protection against state subpoenas is necessary for the Executive to fulfill his Article II functions.”

Notably, the Supreme Court decision does not allow for public access to Trump’s tax returns; they will be part of a Grand Jury investigation, which is confidential.  However, many took away the message that the majority’s decision–bolstered by Gorsuch and Kavanaugh, Trump appointees, who concurred–that the law applies to everyone.

Reactions to SCOTUS Decision from Jay Sekulow and Cyrus Vance, Jr.

Both Vance and Trump’s attorney Jay Sekulow expressed they were content with the Court’s ruling, albeit for different reasons.

“We are pleased that in the decisions issued today, the Supreme Court has temporarily blocked both Congress and New York prosecutors from obtaining the President’s financial records. We will now proceed to raise additional Constitutional and legal issues in the lower courts,” Sekulow tweeted.

“This is a tremendous victory for our nation’s system of justice and its founding principle that no one – not even a president – is above the law. Our investigation, which was delayed for almost a year by this lawsuit, will resume, guided as always by the grand jury’s solemn obligation to follow the law and the facts, wherever they may lead,” Vance said in a statement.

Other Reactions to the Supreme Court’s Trump v. Vance Ruling

Following the Supreme Court’s arguments in Vance, lawyers and legal scholars commented about what the decision could mean for the presidency.

In a C-SPAN interview with National Constitution Center President and CEO Jeffrey Rosen, Columbia Law School Professor Gillian Metzger spoke about the issue of burden on the president in Vance, “A lot of what is being shown in these cases is who bears the burden when. Clinton v. Jones said that first, you have to show the burden on the presidency…already the Solicitor General is trying to move us beyond where we had been in Clinton vs. Jones. Among the justices on the court, my sense is that they are really trying to figure out what the standards should be…I didn’t get the sense of a stark ideological divide on this.”

In agreement with seeing the ruling as a victory for the rule of law, David Cole, the ACLU National Legal Director said: “The Supreme Court today confirmed that the president is not above the law. The court ruled that President Trump must follow the law, like the rest of us. And that includes responding to subpoenas for his tax records.”

Harvard Law professor Laurence Tribe, a frequent Trump critic, highlighted the victory on Twitter, saying: “No absolute immunity from state and local grand jury subpoenas for Trump’s financial records to investigate his crimes as a private citizen. Being president doesn’t confer the kind of categorical shield Trump claimed.”

Of a practical matter, though, Mark Zaid, the Washington attorney who represented the whistleblower who set the stage for Trump’s impeachment proceedings, tweeted:

 

“Even if Trump’s tax returns reveal fraud, I find it doubtful that this fact would finally be straw that broke his supporters’ back on election day.  But importance of ruling is that criminal investigation continues & will exist past expiration of Trump’s presidential immunity.” (Should we embed the tweet?)

Background for the Supreme Court’s Ruling in Trump v. Mazars

The Supreme Court remanded back to the lower courts the second case, Trump v. Mazars in a 7-2 decision. The Mazars case involved three committees of the U. S. House of Representatives attempting to secure Trump’s financial documents, and the financial documents of his children and affiliated businesses for investigative purposes. Each of the committees sought overlapping sets of financial documents, supplying different justifications for the requests, explaining that the information would help guide legislative reform in areas ranging from money laundering and terrorism to foreign involvement in U. S. elections.

Additionally, the President in his personal capacity, along with his children and affiliated businesses—contested subpoenas issued by the House Financial Services and Intelligence Committees in the Southern District of New York.  Trump and the other petitioners argued in the United States Court of Appeals for the Second Circuit that the subpoenas violated separation of powers. The President did not, however, argue that any of the requested records were protected by executive privilege.  Justice Roberts wrote the majority opinion, with Thomas and Alito filing dissenting opinions.

In Mazars, the District Court for the District of Columbia upheld the Congressional subpoenas, indicating the investigations served a “legislative purpose” as they could provide insight on reforming presidential candidate’s financial disclosure requirements.  However, Roberts writes: “the courts below did not take adequate account of the significant separation of powers concerns implicated by congressional subpoenas for the President’s information.”

In the opinion, Roberts sets out a list of items the lower courts need to consider involving Congress’s powers of investigation and subpoena, noting that previously these disagreements had been settled via arbitration, and not litigation.  Additionally, Roberts summarizes the argument before the court, drawing on the Watergate era Senate Select Committee D. C. Circuit  made by the President and the Solicitor General, saying the House must demonstrate the information sought is “demonstrably critical” to its legislative purpose did not apply here.  Roberts, stated that this standard applies to Executive privilege, which, while crucial, does not extend to “nonprivileged, private information.”  He writes: “We decline to transplant that protection root and branch to cases involving nonprivileged, private information, which by definition does not implicate sensitive Executive Branch deliberations.”

However, Roberts detailed that earlier legal analysis ignored the “significant separation of powers issues raised by congressional subpoenas” and that congressional subpoenas “for the President’s information unavoidably pit the political branches against one another.” With these constraints in mind, Roberts charged the lower court to consider the following in regards to congressional investigations and subpoenas:

  1. Does the legislative purpose warrant the involvement of the President and his papers?
  2. Is the subpoena appropriately narrow to accomplish the congressional objective?
  3. Does the evidence requested by Congress in the subpoena further a valid legislative aim?
  4. Is the burden on the president justified?

Reactions to Trump v. Mazars

Nikolas Bowie, an assistant Harvard Law Professor, turning to Robert’s analysis in the opinion on Congressional investigations opinion discussing Congressional investigations indicated the decision “introduces new limits on Congress’s power to obtain the information that it needs to legislate effectively on behalf of the American people . . . the Supreme Court authorized federal courts to block future subpoenas using a balancing test that weighs ‘the asserted legislative purpose’ of the subpoenas against amorphous burdens they might impose on the President.”

Additionally, Bowie points out, “it seems unlikely that the American people will see the information Congress requested until after the November election.”

Writing for the nonprofit public policy organization, The Brookings Institution, Richard Lempert, Eric Stein Distinguished University Professor of Law and Sociology Emeritus at the University of Michigan, concurs with Bowie’s point, writing that the Mazars decision may set a new standard for Congressional subpoenas moving forward:

“The genius of Robert’s opinion in Mazars is that while endorsing the longstanding precedent that congressional subpoenas must have a legislative purpose and without repudiating the notion that courts should not render judgments based on motives they impute to Congress, the opinion lays down principles which form a more or less objective test for determining whether material Congress seeks from a president is essential to a legislative task Congress is engaged in … Congress should be able to spell out in a subpoena why it needs the documents it seeks.”

Looking Ahead to What’s Next

There is a lot of information in these decisions to unpack, especially in relation to Congressional investigations and subpoenas.  Additionally, questions remain on how the lower courts may interpret Roberts’ directive to examine “congressional legislative purpose and whether it rises to the step of involving the President’s documents” and how Congress will “assess the burdens imposed on the President by a subpoena.”

 

Copyright ©2020 National Law Forum, LLC

 

ARTICLE BY Rachel Popa, Eilene Spear and Jennifer Schaller at The National Law Review / The National Law Forum LLC.