Following are a few important issues our accounting professionals wanted to briefly share with you. As always, should you desire more in-depth information please feel free to contact us.
SUPREME COURT WON’T HEAR STATE WEB-SALES TAX CASE
Apparently Supreme Court Justices don’t shop online. They may not shop much at all. After all, how many black robes does a judge really need?
Earlier this month the High Court declined to hear a case that could have settled the question whether online retailers can be forced to collect state sales taxes. The case reached the high court as a constitutional challenge by Amazon.com and Overstock.com to a 2008 New York state law (upheld by New York’s highest court) that requires online retailers to collect the tax.
New York is one of several states attempting to get a piece of internet sales transactions by out of state online retailers. Both Amazon and Overstock have said that they seek to avoid a patch-quilt of state rules and regulations and prefer a clear sales tax policy for all 50 states. Earlier this session, the Senate passed legislation that would have made it easier for states to tax internet sales, but the bill is currently bogged down in the House.
To complicate matters, although states can require online retailers to collect sales tax when they have a physical presence in their state, a 1992 Supreme Court ruling held that out-of-state vendors without a physical presence could not be so compelled.
As a result, many states are re-defining “physical presence” and scrutinizing the marketing arrangements of online retailers. Those states maintain that out-of-state online retailers that pay a commission to in-state websites that link or refer them consumers do indeed have a physical presence and therefore can be required to collect the tax.
So how about that tax free camera you just bought online for Christmas?
“Well, just because you weren’t taxed online does not mean you do not owe the tax,” says Jeffrey Engler, Weinberg’s Director of Tax.
“In California for instance, it’s subject to a Use Tax. Generally, purchases from an out-of-state merchant, who did not collect the proper amount of tax, must be remitted to the California Board of Equalization with the filing of a Use Tax Return. However, in an effort to assist with Use Tax reporting, the California Franchise Tax Board included a Use Tax line on the California Resident Income Tax Returns that gives the option to report and pay Use Tax with the filing of the individual income tax return.”
So, enjoy your camera and Merry Christmas; or as the State Board of Equalization likes to say, “Many happy returns!”
Beanie Baby Creator Guilty
TAX EVASION AND RECORD FBAR PENALTY
Earlier this fall, suburban Chicago businessman Ty Warner, a college dropout who became a billionaire after creating the popular Beanie Babies collectibles, pleaded guilty to tax evasion and admitted to hiding millions of dollars in a Swiss bank account.
Prosecutors say he failed to report $24.4 million in income from 1999 to 2007 and failed to pay taxes of about $5.6 million. In addition to possible prison time for tax evasion, Warner will also pay a record $53 million in civil penalties for not disclosing his foreign accounts.
“By June 30 each year, taxpayers must report financial accounts in foreign countries if their value exceeds $10,000 at any time during the preceding calendar year by filing a foreign bank account report (FBAR),” said Weinberg Director of Tax, Jeffery Engler. “The civil penalties can run as high as 50 percent of the highest balance in the account during the year,” he continued.
During the proceedings, it was disclosed that the account contained as much as $107 million. Warner testified that he told no one of his Swiss bank accounts, not even his accountants. “When I signed those returns, I knew those moneys were missing,” Warner said. “It was not accurate. I apologize for my conduct. It’s a terrible way to meet you,” Warner told the judge.
The Internal Revenue Service has been cracking down on tax cheats with offshore bank accounts for the past four years. During that time, the U.S. has prosecuted 68 U.S. taxpayers, three Swiss banks, and 30 bankers, lawyers and advisers. The IRS has conducted several amnesty programs since 2009, allowing U.S. taxpayers who had failed to report offshore accounts to pay stiff penalties, but avoid prosecution. Warner applied to the program in 2009 but was rejected.
Sentencing is expected in January of 2014. Warner, who remains free on an individual recognizance bond, could face up to five years in prison for one count of tax evasion; sentencing guidelines call for prison time of 46 to 57 months.
Warner ranks 209th in a recent Forbes list of the richest Americans. His net worth is estimated at $2.6 billion.
YEAR-END TAX LETTER
A year ago at this time, there was much uncertainty in tax planning. In the days leading up to the “fiscal cliff”, tax planning was a major challenge. There was uncertainty whether significant tax increases scheduled for 2013 would go into effect.
While the American Taxpayer Relief Act of 2012 (ATRA), enacted in the first days of 2013, brought a measure of certainty to the tax landscape, it came with higher top income tax rates for ordinary income, capital gains and dividends, and it imposed limits on the availability of the personal exemption and itemized deductions.
Weinberg’s Director of Tax, Jeffery Engler has posted his Year-end Tax Letter. In this report you will find explanation of the current law, suggestions to avoid or minimize the adverse effects of tax changes, and some actions that you may be able to undertake to nail down a host of tax breaks that may not be around next year.
From all of us at Weinberg & Company…
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Weinberg & Company is a leading, international, full service, multi-office CPA firm serving clients throughout the United States and the Pacific Rim. Founded over two decades ago, the practice groups include: Assurance and Audit, Tax and Accounting, and Advisory Services. Weinberg has a depth of knowledge and experience to meet the needs of both public and privately held companies, high net worth individuals, entrepreneurs, family offices, and can provide customized business management services. www.weinbergla.com
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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