Tag: Tax

How Does the King v. Burwell Decision Affect the Affordable Care Act?

The Supreme Court handed the Obama administration a key victory, upholding the tax credits that allow many low-income Americans to purchase health care insurance in states where the federal government is running the insurance marketplace. These tax credits, available to Americans with household incomes between 100% and 400% of the federal poverty line, operate as a form of premium assistance that subsidizes the purchase of health insurance.

The petitioners in King v. Burwell, No. 14-114 (U.S. June 25, 2015), challenged a ruling from the Internal Revenue Service (IRS) and claimed that a phrase in the Affordable Care Act (ACA) indicating that the subsidies are only available to consumers buying insurance in a state-run exchange prohibited the federal government from providing tax credits where states have not established their own exchanges. Arguing that the text of the law should be read literally, they challenged an IRS regulation that makes these tax credits available regardless of whether the exchange is run by a state or the federal government.

But the Supreme Court sided with the Obama administration in its 6-3 decision, emphasizing that language allowing tax credits for health insurance purchased on “an Exchange established by the State” must be interpreted in context and within the larger statutory scheme. Chief Justice Roberts, who authored the majority opinion, wrote that the phrase “an Exchange established by the State” was ambiguous, and therefore required the Court to look to the broader structure of the law. He wrote that the larger statutory scheme required the Court to reject the petitioners’ interpretation, which would have destabilized the individual insurance market and would create the exact same “death spirals” of rising premiums and declining availability of insurance that the law was crafted to avoid. In passing the law, he added, Congress sought “to improve health insurance markets, not to destroy them.”

The Supreme Court’s analysis went a step beyond the traditional framework used by courts to review agency actions. This two-step analysis, first announced in Chevron U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984) and widely known as the Chevrontwo-step, first considers whether the statutory language is clear—and if it is, the inquiry ends there. But if the language of the law is silent or ambiguous, a court next considers whether the agency’s interpretation of the statute is reasonable, granting considerable deference to the agency’s interpretation. Because the tax credits under the ACA are central to the reforms created by the law, Chief Justice Roberts explained, Congress would not have delegated such an important question to any agency, and especially not to the IRS, which lacks expertise in crafting health insurance policy. He wrote that in this case, the task of determining the correct reading of the statute belonged to the Court.

For most providers and companies involved in the health care system, the result of this decision means business as usual. But the decisive victory for the law today means that the ACA is here to stay, and will have a permanent effect on how patients access care. Insurers and providers still must overcome hurdles to achieve affordable premiums and provide improved care for patients across the country. And as more laws are sorted out in the courts, the Supreme Court’s reliance on context in interpreting the statute today could set an important precedent of emphasizing the purpose of major legislation when analyzing its trickier provisions.

ARTICLE BY Anna S. Ross of Foley & Lardner LLP

© 2015 Foley & Lardner LLP

Nonprofit Hospitals Face Additional Regulatory Burdens in Financial Assistance and Debt Collection

Poyner Spruill LLP Attorneys at Law, a North Carolina Law Firm

Roughly 60 percent of hospitals nationwide either have received or are seeking tax-exempt status under the United States Treasury Department (Treasury) and Internal Revenue Service (IRS) rules and regulations. With new final rules and regulations adopted by the Treasury and the IRS effective December 29, 2014, nonprofit hospitals (referred to in the Federal Register as “charitable hospitals”) now face a number of additional requirements when attempting to collect debts owed for care provided to patients and face additional mandates related to financial assistance policies and qualification of certain low-income patients for financial assistance.

The final rules and regulations clarify the broad provisions of the Patient Protection and Affordable Care Act of 2010 (PPACA), which added Section 501(r) to the Internal Revenue Code (Code) imposing the following four additional requirements on charitable hospitals to maintain tax-exempt status:

  1. Conduct a community health needs assessment (CHN Assessment) at least once every three years and adopt an implementation strategy to meet those community health
    needs, or be subject to a $50,000 tax penalty.

  2. Establish a written financial assistance policy which prescribes the eligibility criteria for assistance, how patients apply for assistance, and how they are charged for care under the
    policy, and a written emergency medical care policy requiring emergency care to individuals regardless of their eligibility for financial assistance.

  3. Limit the use of gross charges and the amounts charged to those patients who qualify for financial assistance for emergency or other medically necessary care to not more than the amounts generally billed to individuals who have insurance covering such cases.

  4. Make reasonable efforts to determine whether an individual is eligible for assistance under the financial assistance policy before engaging in extraordinary collection actions (EC Actions).

Additionally, the PPACA insists that a charitable hospital organization meet each of the above requirements separately with respect to each facility it operates.

Below are some requirements from the new rules and regulations that may be potential areas of focus for regulators in their review and enforcement actions against charitable hospitals.

    • The CHN Assessment process requires careful documentation of each of the multiple levels of need assessment, community input and collaboration, and a hospital’s plan for addressing the need with an adopted strategy for implementation.

    • A hospital’s financial assistance policy must contain all eligibility criteria, all financial assistance and discounts available under the policy, and methods to apply for financial assistance, as well as any actions that may be taken in the event of nonpayment under certain circumstances.

    • Hospitals must continue to take certain measures to make the financial assistance policy, the policy’s application form and a plain language summary of the policy available upon request, available in certain areas of the hospital for visitors and patients (e.g. emergency department and hospital intake areas), available on a website, and available to members of the community served.

    • Certain additional written notices with financial assistance policy information, summaries and hospital contact information for policy-related documents must be provided to patients against whom a hospital actually intends to engage in EC Action.

    • Hospitals must limit the costs for any care for which financial assistance policy-eligible individuals will be personally responsible to not more than amounts generally billed (AGB), and the criteria and method for calculating the AGB must be clearly defined by a hospital in its financial assistance policy.

    • Reasonable efforts, as defined in the new regulations, must be followed and carefully documented by hospitals during each step of an EC Action assessment application, including notification and further billing and collection communication(s) with financial assistance policy-eligible individuals. The regulations define EC Action as including, among other things, reporting adverse information about the individual to credit bureaus; requiring or deferring medically necessary care because of nonpayment of bills for previously provided care; and instituting legal process such as liens, foreclosure, attachment of property, or garnishing wages.

The full Treasury and IRS rules and regulations related to the additional requirements on charitable hospitals contain specific regulatory changes and other nuances not touched on in the “big picture” points mentioned above. The full text of the new regulations can be found at:  http://www.gpo.gov/fdsys/pkg/FR-2014-12-31/pdf/2014-30525.pdf.

Charitable hospitals may lawfully bill for and collect funds they are owed for patient care. However, the new rules and regulations in this area mean hospital leadership and experienced legal counsel should closely review all related policies, procedures, and facility practices to ensure all billing and  collection policies and practices fully comply with the law.

ARTICLE BY

David R. Broyles
Poyner Spruill LLP

Tax Issues in Divorce: Real Estate Itemization Credits

Stark and Stark Attorneys at Law

With the April 15th tax filing deadline quickly approaching, I am beginning to see an increase of the tax-related issues arise in my client’s cases.  The right of either of the parties to claim itemized deductions associated with the real estate taxes and mortgage interest paid on the marital residence is a frequent issue of contention.

It is important to first understand that if you were divorced in the early part of 2015 and filing under a “married, filed jointly” designation for the 2014 tax year, by default, you are sharing in the itemized deduction with your spouse due to the joint filing.  From a practicality standpoint, many divorced couples that file their last joint tax return together reach an agreement to equally split any tax refund or liability associated with their joint filing.

With a “married, filing separately” or “individual” tax filing designation, it is important to come to an agreement with your spouse or ex-spouse regarding the itemized deductions associated with the marital residence.  As the combined deduction between yourself and your spouse cannot exceed the actual interests or taxes paid in a tax year, getting ahead of the issue and reaching an agreement prior to either party’s tax filing is extremely important.

For successfully navigating this issue, I recommend that you consider the following three points:

How much did either party pay towards the mortgage interest and real estate taxes? 

With the overwhelming number of divorce matters settling by private agreement, it is important to take into consideration the financial obligations under the controlling agreement.  For example, if a party is behind on child support support or failed to make timely mortgage payments, they should not receive the tax benefit of claiming 50% of the mortgage interest or real estate tax deductions.

It is also common for the parties to pay a disproportionate amount towards the monthly mortgage/tax obligation due to either a greater income level or private agreement.  In these scenarios, I often find it useful for the parties to split the itemized deduction in direct proportion to the amount paid.

Balancing out the real estate tax deductions with other tax-related benefits.

Many parties often overlook the benefit of trading off real estate tax deductions with other tax-related benefits such as claiming the children as dependants, charity deductions or medical expenses.  If the goal is to equalize tax credits to both parties in a divorce litigation, applying other deductions or credits to one party may assist the parties in achieving their tax credit equalization plan.

Maximize your tax benefit by speaking with a qualified tax professional.

The goal of applying any itemized deduction is to reduce your adjusted gross income (AGI) by as much as possible.  As there may be scenarios in which it is beneficial from a tax standpoint for one spouse to claim the majority of the mortgage interest deduction, it is very important that you engage a qualified tax professional to maximize the tax benefit to both parties in the divorce process.  Similar to my previous point, if one spouse benefits from taking a disproportionate amount of the real estate itemizations, there are other available remedies to ensure that the other party receives similar tax benefits, such as, claiming children as dependants and/or a uneven distribution of the charity donations.etc.

ARTICLE BY

David A. Beaver
Stark & Stark
New Jersey Law Blog

February 2015 State Tax Credit and Incentive Update

Horwood Marcus & Berk Chartered Law Firm

This is the second in a monthly series outlining updates in state tax credits and incentives, including legislative, gubernatorial and case law updates. While we recognize that tax credits and incentives are often criticized by some tax policy experts, they are a reality in today’s competitive business environment with states competing with each other for jobs and investment. The good news for both corporate taxpayers and non-profit entities is that state tax credits and incentives are available and can benefit a business in many ways.

Recent Announcements of Credit/Incentives Applications and Packages

Arizona: Just three weeks after Apple Inc. announced plans to invest $2 billion over 10 years to open a data center in Arizona, on February 25, 2015, the Arizona Legislature passed a bill (HB 2670) that would grant millions of dollars in business tax incentives to Apple. Under the bill, international operations centers, such as the 1.3-million-square-foot digital command center Apple plans to build in Mesa, would be eligible for a renewable energy tax credit worth up to $5 million. The credit could be used for up to five years.  HB 2670 would also exempt international operations centers from the transaction privilege tax, an annual tax break of $1.2 million, according to the bill.

A company would be required to make a total of $1.25 billion in capital investments over 10 years, including the cost of land, buildings, and equipment. The company would also be required to invest at least $100 million in one or more renewable energy facilities over a three-year period. A company that fails to make at least $100 million in capital investments each year could remain eligible for the tax incentives by paying to the Department of Revenue the amount of utility relief the company would have otherwise been granted for that tax year.

California: In February 2015, the California Governor’s Office of Business and Economic Development (GO-Biz) announced that it has received 253 applications with a combined tax credit amount of $289 million for the third California Competes Tax Credit Application period, which closed February 2, 2015.  The pool of credits available is $75 million and is expected to be awarded on April 16, 2015. In the first two application periods, 400 companies asked for $500 million in credits from a pool of $29 million awarded to 29 companies in June 2014, and 286 companies asked for $329 million from a pool of $31 million awarded to 56 companies in January 2015. A total of $151.1 million is available in the 2014-15 fiscal year, with one more round of applications and award of the final $31.1 million scheduled for June 18. In the next fiscal year, $200 million will be available for the credit.

New Jersey: A New York apparel company is moving from New York City to Jersey City. The retailer, Charles Komar & Sons Inc., will be moving its headquarters and 500 employees to Jersey City. In return, the state will be providing a $37.2 million tax break, including negotiated incentives.

Legislative, Regulative and Gubernatorial Update

California: On February 25, 2015, the California Legislative Analyst’s Office presented state lawmakers with options for a state earned income tax credit (“ETIC:”), including a “piggyback” on the federal EITC, a state match for the federal EITC for low-income working families, and a supplement to the federal EITC for childless adults.

Permanent regulations governing the California Competes Tax Credit program took effect February 5, 2015, to replace temporary regulations adopted Feb. 20, 2014. The final version of the regulations makes a few minor changes from the temporary regulations. One of the changes specifies that companies can apply for and win the credit multiple times, but each time they will be evaluated based on new commitments for investment and pay to workers in California. The final regulations also require applicants to assert that absent the credit award they “may” terminate or relocate employees, rather than “will” terminate or relocate.

The Franchise Tax Board (“FTB”) must review the books and records of all businesses receiving the credit that have more than $2 million in annual gross receipts to determine if they have met the milestones for employment, wages and investment required under their contracts with the state. If the FTB determines that a business has a material breach of its contract, either through failure to timely provide information for review, a material omission or incorrect information, or failure to meet milestones for employment, wages or investment, the agency will notify GO-Biz. It will be up to the five-member GO-Biz California Competes Tax Credit Committee to make a final decision whether businesses must pay back the credit due to a breach.

On February 12, 2015, the California Film Commission released draft emergency regulations to implement the state’s film and television tax credit program newly expanded under 2-14 AB 1839, which increased funding to $300 million per fiscal year, expanded eligibility, and eliminated budget caps for independent films and the state’s lottery system. The draft now goes to the governor’s Office of Administrative Law for review and final approval. The draft document is posted on the Film Commission’s website under “News & Notices.”

In related news, California will hold a final lottery under the old program on April 1. The new incentives plan will allot funds based on how many jobs productions employ, among other criteria, such as the use of California visual effects companies and production facilities.

For the first time, the program allows all new TV shows to qualify – not just on basic cable like under the current plan – as well as movies with budgets above $75 million. However, the up-to-25% credit applies only to the first $100 million of a movie’s costs, and that may cool the enthusiasm of studios when planning shoots on big budget projects. Despite the improvements, California’s incentive plan is smaller than some rival states with whom they are fighting for a slice of the production pie.

Illinois: On February 13, 2015, SB 707 was introduced which would entitle interactive digital media companies to an income tax credit in an amount of 30% of expenses incurred for an accredited production in a taxable year. The credit would be able to be carried forward or transferred.

Louisiana: On February 27, 2015, Louisiana Gov. Bobby Jindal proposed to change some of the state’s individual and business tax credits from refundable to nonrefundable, which according to his fiscal 2016 executive budget proposal would save the state $526 million. Refundable credits which would be affected include, but are limited to, inventory tax credit, research and development credit, angel investor credit and historical rehabilitation residential credit.

Louisiana: Louisiana lawmakers on February 24, 2015, released draft bills that would scale back the state’s generous film tax credit by setting clear limits on the program and making related costs to the state more predictable. Currently, the credit may be used to offset personal or corporate income tax liability in the state. The program provides a transferable tax credit of up to 35 percent of total in-state expenditures with no cap and requires a minimum of $300,000 in spending. The credit can be transferred to Louisiana taxpayers or back to the state for 85% of its face value. State Sen. Jean-Paul Morrell’s draft bill would cap the total amount of film credits allowed for one year at $300 million, but what isn’t used in that year could be carried forward to the next. Under Rep. Julie Stokes’ bill, the credit could be transferred only once, and the state’s buyback percentage would be increased from 85 cents to 90 cents on the dollar.

Michigan: In February 2015, Michigan Gov. Rick Snyder delivered his proposed 2016 budget, offered a projected budget for fiscal 2017, and signed an executive order to reduce expenditures in the fiscal 2015 budget to account for what the Governor stated is a revenue shortfall that has resulted from businesses claiming tax credits granted during the last decade.

Furthermore, the Governor indicated that he wants to renegotiate the tax incentive agreements the state has with 240 companies. It turns out the state owes about $9.4 billion in tax credits to companies that created jobs in Michigan. That liability costs the state about $500 million a year, a cost that will continue until 2029. The tax credits reduce a company’s liability under the Michigan Business Tax (MBT).  The Governor’s administration wants to negotiate with the companies the timing of the credits’ use because currently the companies can claim the credits whenever they want.  Of those companies owed the MBT tax credits, Chrysler, General Motors, and Ford alone are owed about half of the balance (over $4 billion) in MBT credits.

Texas: On January 30, 2015, the Texas Comptroller of Public Accounts proposed regulations (Prop. Tex. Admin. Code §3.599) aimed at implementing the state’s Research and Development Activities Credit, which can be applied against a taxpayer’s franchise tax. The proposed rule implements H.B. 800, which was enacted in 2013 and creates a credit for certain expenses from research and development activities. The proposed rule applies to franchise tax reports originally due on or after Jan. 1, 2014, and expires on Dec. 31, 2026.  Unused credits may be carried forward for no more than 20 consecutive reports. The total credit claimed for a report, including the amount of any carryforward credit, cannot exceed 50% of the amount of franchise tax due for the report before any other applicable tax credits. The proposed rule would prohibit the transfer of credits to another entity unless all of the assets of the taxable entity are conveyed, assigned, or transferred in the same transaction.

Utah: On February 11, 2015, the Utah Governor’s Office of Economic Development proposed to update a refundable economic development tax credit rule to reflect historic practices and provide a more comprehensive outline to the processes and procedures used in administering and awarding the tax incentive. The rule outlines how a tax incentive is granted including the criteria used in screening applicants and how the tax credit is calculated and redeemed. The rule defines key terms, provides for the application process, and provides the factors to be considered in authorizing an economic development tax increment financing (EDTIF) award. The new rule also outlines the application for and verification of information supporting an annual EDTIF payment, and how to request a modification of the EDTIF offer or contract.

Virginia: On February 9, 2015, the Virginia Senate passed legislation (SB 1447) designed to attract investments from companies that used inversions to reduce their federal tax liabilities. If passed by the House of Delegates, SB 1447 would amend the state’s corporate income tax statute to permit a $5 million exemption for companies that used an inversion transaction to lower their U.S. tax liability and that make a capital investment of at least $5 million in Virginia to open a facility or other business operation.

Case Law Update

Georgia: In LT IT-2014-03, the Georgia Department of Revenue ruled that after a company converts to a limited liability company, it can continue to claim benefits awarded to the original company under the quality jobs tax credit program, including income tax carryforwards, withholding benefit carryforwards, and remaining credit installments.

European Union v. Washington: On February 23, 2015, the World Trade Organization (“WTO”) agreed to consider a European Union (“EU”) complaint against Washington over the state’s $8.7 billion package of tax incentives approved in 2013 (SB 5292) to encourage Boeing to manufacture its 777X in the state. SB 5952 included reduced business and occupation tax rates for aerospace suppliers, a sales tax exemption for materials used in the construction of aerospace manufacturing facilities, and tax breaks for property associated with those facilities.

The EU submitted a complaint to the WTO in December 2015, saying the incentives granted by Washington to Boeing violated the WTO’s Agreement on Subsidies and Countervailing Measures (SCM agreement) which bans subsidies that are contingent on the use of domestic goods. Specifically, the allegation is linked to two sections of SB 5952 that connected the incentives to the “siting of a significant commercial airplane manufacturing program in the state of Washington.” While most of the incentives simply required that such a siting occur, RCW 82.04.260(11)(e)(ii) revokes the preferential business and occupation tax rates if Boeing relocates the 777X outside Washington.

The complaint is only the latest chapter in a saga dating back to a 2004 complaint by the United States over subsidies offered to France-based Airbus, a major competitor to Boeing in the manufacture of commercial aircraft. That complaint was countered with a complaint over U.S. subsidies to Boeing. Both companies were eventually found to have received illegal subsidies, and in 2012, the WTO ruled that a variety of state and federal subsidies to Boeing violated the SCM agreement and harmed EU interests by undercutting Airbus.

States’ Evaluation and Review of Credit and Incentive Programs

Maryland: On February 12, 2015, An economic development task force appointed by Maryland lawmakers released a report with recommendations to improve the state’s business climate that include restructuring the state’s economic development programs and business tax incentives for better program efficacy.

New York: According to a February 5, 2015, report released by New York State Comptroller Thomas DiNapoli, it is unclear whether the $1.3 billion in incentives and credits given out annually by New York is creating jobs. The report focuses on the Empire State Development Corp. (ESDC) use of tax incentives, accountability and transparency in ESDC operations, and how improvements can be made.

The Task Force on Evaluating Economic Development Tax Expenditures, comprising New York City Council members and leaders from business, labor, policy, and academic communities, is reviewing New York City’s billions of dollars in economic development tax incentives to make sure the money is being put to good use. The Task Force began meeting at the end of January 2015 and has held two meetings to date. The Task Force is expected to deliver a report on its findings by the end of 2015 to the State Legislature. The Legislature’s review is needed for final approval before the city can change any laws.

North Carolina: In response to North Carolina Republican Gov. Pat McCrory’s proposal to expand the Job Development Incentive Grants program (“Program”), the North Carolina Justice Center reported that since its inception in 2002, more than half of all firms receiving incentive awards from the Program have failed to live up to their promises of job creation, investment, or wages.  Given this report, it will be interesting if the Governor’s proposal will have any legs to stand on.

ARTICLE BY

Jennifer Zimmerman
Horwood Marcus & Berk Chartered

The Individual Taxpayer Implications of the Tax Extenders in H.R. 5771

McBrayer, McGinnis, Leslie and Kirkland, PLLC

Every year for the past several years, Congress has passed a series of what are referred to as “tax extenders” – reinstatements of tax deductions and credits that have expired before the current tax year. It did so again in 2014, renewing several key tax breaks for individuals that apply exclusively to the 2014 tax year.

  • Taxpayers with forgiven mortgage debt on their principle residence can now exclude up to $2 million of that discharged debt from gross income. Traditionally, discharged debt of any kind qualifies as income to the taxpayer and is taxed accordingly.

  • For tax purposes, mortgage insurance premiums are treated the same way as mortgage interest payments and are deductible.

  • Energy efficient improvements to homes qualify for a tax credit of up to $500 (a direct reduction in tax liability). Upgraded air conditioning and heat pump systems, new windows,

  • Residents in states without an income tax received a gift in the form of an extension of a provision that allows taxpayers to choose to deduct state and local sales taxes rather than state and local income taxes. This itemized deduction can be calculated using a calculator provided by the IRS to estimate sales tax paid throughout the year.

  • College students or parents of college students with income of up to $65,000 for a single taxpayer or $130,000 for taxpayers filing jointly who pay higher education expenses are eligible for an above-the-line deduction of up to $4000. That deduction drops to $2,000 for those with income between $65,000 and $80,000 (single) or between $130,000 and $160,000 (joint). Those with incomes above those amounts are not eligible for the deduction.

  • Individuals who are 70 ½ and older can make tax-free distributions to certain public charities from their IRAs. Distributions of up to $100,000 are eligible.

  • Elementary and secondary school teachers who purchased educational items out-of-pocket for their classrooms are eligible for a $250 above-the-line deduction.

ARTICLE BY

Matthew Koch
OF
McBrayer, McGinnis, Leslie and Kirkland, PLLC

January 2015 State Tax Credit and Incentive Update–SALT

Horwood Marcus & Berk Chartered Law Firm

This is the first in a monthly series outlining updates in state tax credits and incentives, including but not limited to legislative, gubernatorial and case law updates as well as recent announcements of credit/incentives packages. While we recognize that tax credits and incentives are often frowned upon by tax policy experts, they are seen as necessary by state and local governments. Why? The reason is simple — state and local governments are focused on creating jobs and encouraging investment within their borders, and they must compete with surrounding states for those jobs and investment, most of which also offer tax credits and incentives. The good news for both corporate taxpayers and non-profit entities is that state tax credits and incentives are available and can benefit a business in many ways.

Recent Announcements of Credit/Incentives Packages

A review of recent package announcements shows the breadth of the potential packages available to a large variety of companies for investing in the state, creating new jobs and in some cases, simply retaining jobs.

California: On January 15, 2015, the California Governor’s Office of Business and Economic Development (GO-Biz) announced that pursuant to its new California Competes Tax Credit Program it approved approximately $31 million in tax credits for 56 companies projected to create roughly 4,900 jobs and generate over $900 million in investment in the state. One company involved is Neustar, Inc. which provides cloud-based information and data information services. Over the course of 5 years, the company is expected to create 264 full-time jobs and invest $2.5M in the state. The total tax credits allocated over the course of 5 years is $1.5M.

Connecticut: Connecticut announced in December 2014 that local municipal and tax-exempt organizations will collect more than $5.8 million for community projects as a result of the state’s Neighborhood Assistance Act Tax Credit Program. Each year, up to $5 million in corporate income tax credits are available to businesses that make donations to community agencies and programs identified by municipalities. Businesses can apply for the credit after pledging donations for endeavors that include community service, food banks, energy assistance, literacy, and programs for people with special needs.

Kentucky: Gov. Steve Beshear on January 12, 2015, announced the opening of the global headquarters of food processing developer Avure Technologies Inc. in northern Kentucky. The company was approved for tax incentives of up to $300,000 through the state’s business investment program and is expected to create 16 jobs and invest $3 million in the state.

Maryland: Gov. Martin O’Malley announced in December 2014 that $10 million in state tax credits will fund 9 historic restoration projects across the state, leveraging private investment of nearly $76.7 million as part of the Sustainable Communities Tax Credit program administered by the state planning department’s Maryland Historical Trust. One such project involves Taylor’s Furniture Store which will rehabilitate a retail and residential building for use as restaurant and office space. The credit amount is $150,000 and the estimated project cost is $750,000.

Massachusetts: In December 2014, the Massachusetts Economic Assistance Coordinating Council announced the approval of 18 business projects for the state’s Economic Development Investment Program, the state’s investment tax credit program for businesses. The projects are expected to create nearly 1,700 new jobs, retain about 4,500 existing jobs, and leverage over $342 million in private investment and supporting construction projects. One credit award winner is Golden Fleece Manufacturing Group LLC, doing business as Southwick/Brooks Brothers Group Inc., which plans to expand its site, boost the number of suits it produces, retain 468 full-time jobs, and create 70 new full-time jobs. The business will invest $16 million in renovation and other costs; and the city of Haverhill will provide a 20-year tax increment financing and personal property tax exemption agreement valued at about $4.4 million.

Michigan: In a January 14, 2015, press release, the Michigan Economic Development Corporation announced the expansion of Android Industries in Detroit; the company was approved by the city council for an industrial facilities tax exemption valued at $620,000 and is projected to generate $16.5 million in new private investment and to create 131 jobs.

In a January 27, 2015, news release, the Michigan Economic Development Corporation announced the Michigan Strategic Fund approved a local hotel development project and expansions of Forest River Manufacturing and Toyota in the state; the projects are expected to generate investment of $90.1 million and will receive grants and property tax abatements.

Ohio: On January 26, 2015, Governor John R. Kasich announced the approval of assistance for 14 economic development projects set to create 662 jobs and retain 1,739 jobs statewide. Collectively, the projects are expected to result in $32,570,620 in new payroll, and spur approximately $81.8 million in investment across Ohio. One company that was approved for assistance is Metcut Research Associates Inc. and Cincinnati Testing Laboratories, Inc. who is expected to create 15 full-time positions, generating $875,000 in additional annual payroll and retaining $10 million in existing payroll as a result of the companies’ expansion projects in the cities of Cincinnati and Forest Park. Metcut Research Inc. and its subsidiary Cincinnati Testing Laboratories conduct independent materials engineering and testing. Ohio approved a 35% five-year Job Creation Tax Credit for this project.

States’ Evaluation and Review of Credit and Incentive Programs

Multiple Jurisdictions: According to research published on January 21, 2015, by Pew Charitable Trusts, ten states and the District of Columbia have in the last 2 years enacted or strengthened laws requiring them to evaluate the effectiveness of their tax incentives. The ten states identified by Pew Charitable Trusts are Alaska, Florida, Indiana, Louisiana, Maryland, Mississippi, New Hampshire, Oregon, Rhode Island, and Washington.

Continuing the trend from the last 2 years, in recent months, several different states proposed or announced plans to review their credit and incentive programs:

California: SB 1335 (approved by the Governor in September 2014 and chaptered “845”) requires that any legislation proposing an income tax credit detail the goals of such a credit and provide performance indicators with which to measure its success.

Georgia: On January 26, 2015, a dozen Georgia Democratic senators introduced SR 65 that would create a tax exemption study committee to examine the effectiveness of economic development tax credits in the state.

Nebraska: In a report issued on December 11, 2014, a Nebraska legislative committee (Unicameral Legislature’s Tax Incentive Evaluation Committee) recommended that the state overhaul its system for evaluating its tax incentive programs, specifically recommending that the Legislative Audit Office, assisted by the Legislative Fiscal Office, evaluate the state’s incentive programs every three years.  Currently, Nebraska has no formalized process for evaluating tax incentives.

New Mexico: On January 14, 2015, the New Mexico state auditor announced his plan for a new government accountability office that will evaluate how equitably and effectively the state uses its tax dollars, including assessing the value of the state’s tax incentive programs.

Washington: HB 1239, introduced on January 15, 2015, in the Washington Legislature, would require more accountability for tax expenditures by requiring that they be reviewed for renewal or sunset as part of the biennial omnibus appropriations bill.

Legislative and Gubernatorial Update

Iowa: Gov. Terry Branstad, in his January 16, 2015, inaugural address, called for an angel investor tax credit to foster innovation and the growth of start-up companies.

Maryland: On January 22, 2015, Gov. Larry Hogan announced his $16.4 billion budget for fiscal 2016, including $12 million in biotechnology tax credits, $9.4 million to stem cell technology, and $2.5 million in investments and tax credits to promote cyber security research.

New Mexico: In her January 20 State of the State address, New Mexico Gov. Susana Martinez proposed targeted tax relief to reduce the personal income tax burden on small business owners who are just starting out and hiring new employees, incentives for moving headquarters to the state, and a $50 million closing fund for economic development projects.

Rhode Island: Rep. Joseph Shekarchi reintroduced on January 15, 2015, a bipartisan bill (H 5116) that would offer businesses that create new jobs in the state a reduction in their income tax rates. The Rhode Island New Qualified Jobs Incentive Act would offer tax incentives to companies that hire new full-time employees to work a minimum of 30 hours per week, with an annual salary between $35,100 and $46,800. Larger companies would be eligible for a 0.25% reduction in their net income tax rate for every 50 new hires. Smaller companies, defined as those with fewer than 100 employees, would receive a 0.25% reduction in their personal income tax rate for every 10 new hires.

Virginia: On January 23, 2015, SB 1447 was introduced in the Virginia Senate aimed to attract investments from companies that used inversions to reduce their federal tax liabilities. Specifically the bill would amend the state’s corporate income tax statute to permit a $5 million exemption for companies that used an inversion transaction to lower their U.S. tax liability. The exemption would be available beginning in tax year 2016 for qualifying companies that make a $5 million capital investment in Virginia to open a facility or other business operation, and it would be valid for the first five years of the facility’s or business’s operation.

Case Law Update

Illinois: On January 9, 2015, the Illinois Policy Institute filed a lawsuit in Sangamon County Circuit Court alleging that businesses should receive tax credits under the Edge Development for a Growing Economy (EDGE) program only if they create new jobs in the state, not if they retain them (Docket No. 2015-MR-000016).

The EDGE program (35 ILCS 10/5-1 et seq) offers incentives to encourage companies to locate or expand their operations in the state when there is active consideration of a competing location in another state. If the business is eligible, the program provides tax credits equal to the amount of state income taxes withheld from the salaries of newly hired employees. In addition to locating or expanding in the state, businesses must agree to make an investment of $5 million in capital improvements and to create a minimum of 25 new full-time jobs. Small businesses, defined as those with 100 or fewer employees, must agree to make a capital investment of $1 million and create at least five new full-time jobs in the state.

The Illinois Department of Commerce and Economic Opportunity (DECO) adopted a regulation, 14 Ill. Admin. Code § 527.20, which awards tax credits when businesses retain jobs, not create them. The Chicago Tribune reported that since 1999, the state has awarded nearly $1 billion in tax incentives to businesses under the EDGE program, the bulk of which was for jobs retained.

New York: In a decision dated January 15, 2015, a New York Division of Tax Appeals administrative law judge (ALJ) determined that the tax department properly denied qualified empire zone enterprise refundable tax credits to two limited liability companies because the companies, by shifting employees from one LLC to another, failed to meet the employment requirement. DTA Nos. 824986; 824987; 824988; 824989; Matter of Leeds.

In this case, one of the entities was certified as a qualified empire zone enterprise (QEZE) in 2000, but did not seek benefits until 2006 and 2007. In 2002, the statute was amended to include an employment test which restricted the use of individuals from related persons in calculating the employment numbers in taxable years or base period. For both 2006 and 2007, the parties do not dispute that one of the entities used an employee who had been previously employed by a related party.

The petitioners argued that since QEZE certification was granted for a period of 15 years, they had the right to rely on the statutory language in effect as of date of certification as a QEZE and continuing until that certification expired.

The ALJ found that one of the entity’s QEZE eligibility merely made it eligible to receive the tax benefits, including real property tax credits. The entity’s entitlement to benefits had nothing to do with the administration of the Empire Zone program or the Legislature’s prerogative to modify the requirements for obtaining those benefits on a prospective basis.

Interesting Update

Finally, you can thank the Seth Rogen and James Franco controversial movie, The Interview, for these interesting tidbits. The recent hacking of Sony Pictures Entertainment resulted in the public release of large amounts of data about the company’s tax practices which show that studio executives at the highest levels are constantly tracking changes in the availability and use of film incentives. For instance, the materials show that the developers of a project often feel compelled to explain how the project can be located in a jurisdiction with favorable incentives, sometimes even before it is considered for production.

For instance, when producers wanted to revive a Vatican-themed television series that was rejected the year before, they recommended shooting at a location in London where a “highly favorable tax credit” could help bring the project’s budget into an acceptable range.

In addition, (1) in a series of e-mails, studio executives push for changes to a James Bond script that would maximize their eligibility for tax credits from Mexico; (2) an e-mail about an upcoming Steve Jobs biopic shows how tax-driven location decisions can be affected by casting decisions; and (3) a film about former National Security Agency contractor Edward Snowden was rejected after the French, German, and New York City incentives recommended by its developers failed to bring its budget down far enough.

ARTICLE BY

Jennifer Zimmerman
OF
Horwood Marcus & Berk Chartered

Same Sex Marriage and Tax Law…A Rough Landscape

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Another tax season is upon us, and the hardships of complying with another annual tax return filing requirement affects most of us. However, for same sex couples, the hardships are further exacerbated by the different tax laws at the state level. At the time this post is published, same-sex marriage bans remain in place in Alabama, Arkansas, Georgia, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee and Texas. These bans and various appeals cause uncertainty for some same sex couples with regard to their filing status. Fortunately, though, clarity (we hope) is just around the corner as the U.S. Supreme Court has finally agreed to take up the matter of same-sex marriage in April 2015.

ARTICLE BY

Joseph Tamburello
OF
Horwood Marcus & Berk Chartered

Determining How to Structure Your Family Farm Business, P.2

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In our last post, we began looking at the issue of business planning within the context of a family farm business. We’ve already spoken about the importance of appropriately structuring a family farm business because of the potential tax consequences. Between the various forms of business structure, tax applications vary considerably. Although this is a big issue to plan for, here we’d like to talk briefly about the way structuring a farm business can impact ownership and management of a family farm.

There are a variety of business structures one can utilize for a family farm. Four general forms are: sole proprietorship; general partnership; corporation; and limited liability company. Which one is selected depends on the needs and goals of the business and those involved in it.

Some of the things that need to be taken into consideration when structuring a business, other than tax issues, are:

  • How many family members are involved in the business?

  • Is there a desire to share ownership with children or siblings?

  • Is shared management appropriate?

  • Should ownership of the business be separate from its management?

  • Is there a desire to limit liability among owners?

These, of course, are only preliminary questions that should be considered when selecting a business structure. Sole proprietorships and partnerships are relatively easy to set up compare to corporations and limited liability companies, though the latter two forms carry their own benefits while the former carry certain risks.

Each family has unique dynamics, of course, and what is appropriate for one family may not be appropriate for another. In addition, the needs of a family business can change over time, and this should also be considered. Ultimately, each family farm business needs to come up with a business arrangement that is appropriate for its needs. Working with experienced professionals in forming such a plan is important, including an experienced business attorney.

Source: Agri-View, “Is farm business planning part of your New Year’s Resolutions,” Troy R. Schneider, Dec. 31, 2014.

To read part 1, click here.

Determining How to Structure Your Family Farm Business, P.1

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Regardless of the type of business you run, you need to put a well-thought-out business plan in place. Business planning covers all aspects of a business, from its legal structure, to marketing, to succession planning. Without putting a viable plan in place covering each important aspect of the business, companies are taking a risk. This applies as much to a family farm businesses as to multinational corporations.

Looking at the issue of the legal structure of a family farm, there are a number of options available. Although family farms may be operated as sole proprietorships, they may also be operated as corporations, limited partnerships, limited liability companies, or a unique combination of these legal categories. Getting the business form right is important because the form or structure the business takes can have an impact on important aspects of the business.

One of these is the valuation of the business for purposes of transfer tax. This refers to taxation which applies to the passing of title to property from one person to another, which includes estate tax and gift tax. Another way legal structure can impact a family farm, or any business for that matter, is by its effect on income taxation during the business’ operation and possibly even upon liquidation.

Selecting a business form which has a favorable effect from a tax perspective, without taking other factors into consideration, is not always going to be the best strategy, but it should at least be kept in mind when determining how to structure the business at its inception.

In our next post, we’ll look at another critical reason to carefully consider how to structure a family farm business.

Source: Agri-View, “Is farm business planning part of your New Year’s Resolutions,” Troy R. Schneider, Dec. 31, 2014.

ARTICLE BY

Business and Corporate Law Practice Group
OF
McBrayer, McGinnis, Leslie and Kirkland, PLLC

More Tax Money for the City of Chicago in 2015: Broader Bases, Increased Rates and Lesser Credit

Mcdermott Will Emery Law Firm

The City of Chicago’s (City’s) 2015 budget includes a number of changes to taxing ordinances found in titles 3 and 4 of the Chicago Municipal Code.  The City of Chicago Department of Finance has notified taxpayers and tax collectors of the amendments, effective January 1, 2015, via a notice posted on its website.  The text of the amendments can be found on the Office of the City Clerk’s website.  The amendments, designed to bolster the City’s coffers, affect multiple City taxes by enlarging tax bases, increasing tax rates and tightening credit mechanisms.  The amendments include:

  • Hotel Accommodations Tax(Section 3-24-020(A))

    • The definition of “operator” (the tax collector) was amended to include: (1) any person that receives or collects consideration for the rental or lease of hotel accommodations; and (2) persons that facilitate the rental or lease of hotel accommodations for consideration, whether on-line, in person or otherwise.

    • A definition of “gross rental or leasing charge” (the tax base) was added that excludes “separately stated optional charges” unrelated to the use of hotel accommodations.

  • Use Tax for Non-titled Personal Property(Section 3-27-030(D))

    • A credit is available for sales and use “tax properly due” and “actually paid” to another municipality against the City’s 1 percent use tax imposed on the use in the City of non-titled tangible personal property that was purchased outside of the City.  The added definitions of “tax properly due” and “tax actually paid” exclude other municipal taxes that are rebated, refunded, or otherwise returned to the taxpayer or its affiliate.

  • Personal Property Lease Transaction Tax

    • The exemption from the tax for a “car sharing organization” (i.e., Zipcar) was eliminated.  (Sections 3-32-020(A) (definition) and 3-32-050(A)(13) (exemption))

    • The definition of “lease price” or “rental price” (the tax base) was amended to exclude nontaxable, separately-stated charges only if they are optional.  (Section 3-32-020(K))

    • The tax rate was increased from 8 percent to 9 percent.  (Section 3-32-030(B))

  • Amusement Tax

    • The amusement tax was amended to be imposed on the full charge paid for the privilege of using a “special seating area” such as a luxury suite or skybox (Section 4-156-020(F)).  Credit against this tax is available in the amount of any other taxes the City imposes on the same charges (for example, food and beverage charges) if the taxes are separately-stated and paid.  Previously, tax was imposed on 60 percent of the charge for a special seating area and did not include a credit mechanism.

    • Credit against the amusement tax was eliminated for franchise fees paid to the City for the right to use the public way or to do business in the City.  (Section 4-156-020(J))

    • The amendments eliminated the additional tax imposed on ticket sellers (Section 4-156-033).  The tax was imposed on sellers selling tickets from a location other than where the taxable amusement occurs on the amount of the service fee (as distinguished from the taxable admission charge).  Now, all ticket sellers must collect amusement tax from the buyer on the full amount of charges paid to view the amusement.  (Section 4-156-020(F))

  • Parking Lot and Garage Operations Tax

    • The tax rate was increased by 2 percent for daily, weekly and monthly parking for “the use and privilege of parking a motor vehicle in or upon any parking lot or garage in the City of Chicago [“Parking Tax”].”  (Section 4-236-020(a), (d))

    • The definition of “charge or fee paid for parking” (the tax base) was amended to exclude nontaxable, separately-stated charges only if they are optional.  (Section 4-236-010)

    • An additional tax was added and is imposed on a person engaged in a valet parking business in the City.  Section 4-236-025 imposes tax on the full amount charged by the valet parking business at a rate of 20 percent.  A credit against the additional tax is available in the amount of Parking Tax paid.  These rules replace the former rule for valet parking operators providing that they were to collect Parking Tax only if the operators of the parking lot or garage did not collect the tax.

ARTICLE BY

Jane Wells May
Lauren A. Ferrante
OF
McDermott Will & Emery