This is where we announce recent tax, legal, and regulatory news
developments that may be of major importance to your small business.
If you've visited us before or own one of our state-by-state
"Starting and Operating a Business in ..." (CA, NY, etc.) business
guidebooks, and want to know what has changed lately, take a look
here first. The "Starting and Operating in ..." books have all been
updated regularly for all subsequent federal and state legislation since
the the book series was re-introduced in e-book format in 2005, including
the Small Business and Work Opportunity Act of 2007, which raised the
federal minimum wage and made a number of important federal tax law
changes, and also for last-minute tax changes enacted by Congress in
December, 2007, plus:
As always, the books in this series are remarkably up-to-date.
They have to be, since old, out-of-date legal or tax information is
worse than useless -- it is dangerous!
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Listed below are highlights of recent significant federal and state
tax, legal and other developments, each of which is excerpted from one
of the 51 various editions of the "Starting and Operating a Business in
the U.S." book series. (All such excerpts are from "generic versions"
of the books, which have not been customized for a particular user --
the Small Business Advisor software that installs the books for you will
create either a generic version or a customized version, at the user's
option.)
FEDERAL/NATIONAL DEVELOPMENTS:
FROM CHAPTER 2 (IN ALL S&O EDITIONS). For a number of
years, the tax law has provided a 50% exclusion from income of
capital gains on certain "qualified small business stock" of a C
corporation that is held for at least five years. The American
Recovery and Reinvestment Act of 2009 increased this excludible
percentage to 75% for such stock that was acquired between February
17, 2009 and January 1, 2011.
Under the Small Business Jobs and Credit Act of 2010, signed into
law by President Obama on September 27, 2010, the exclusion of gain
on small business stock was further increased from 75% of the gain to
100% of the gain if the stock was acquired in the brief period after
the date of enactment through December 31, 2010, and the excluded
gain will also be exempt from the alternative minimum tax.
However, the amount of gain that can be excluded is limited to
10 times the taxpayer's basis for the stock or $10 million,
whichever is greater.
The 100% exclusion expired at the end of 2011, so the exclusion
for small business stock acquired in 2012 or later will once more
be 50% of the gain.
FROM CHAPTER 2 (IN ALL S&O EDITIONS). Starting in 2009, IRS
temporary tax regulations have treated all "disregarded entities" with
employees as the employers, for purposes of federal withholding taxes.
Thus, for example, a single-member LLC with employees is now required
to file a Form SS-4 to obtain a Taxpayer Identification
Number (T.I.N.) to use on payroll tax returns, beginning in 2009.
Previously, the individual who owned a disregarded entity was considered
to be the employer and used his or her Social Security Number on payroll
tax returns, so that it was not necessary to apply for a T.I.N. On
October 28, 2011, the IRS announced that these temporary regulations
have been adopted as final.
FROM CHAPTER 2 (IN ALL S&O EDITIONS). Under new
IRS regulations, an LLC that makes an S corporation election
by filing Form 2553 will now automatically
be considered a corporation. Previously, it was necessary for
an LLC that wished to be taxed as an S corporation to first file
a Form 8832 to elect to be re-classified as a
corporation for tax purposes, before it could then file an S
corporation election on Form 2553.
FROM CHAPTER 2 (IN ALL S&O EDITIONS). As a general
rule, only individuals may own stock in an S corporation,
with a few special exceptions. Otherwise, if another corporation
or an LLC or partnership becomes an S corporation shareholder,
the S corporation will lose its "S" status. However, in 3
recent Private Letter Rulings (#200816002, #200816003, and
#200816004), the IRS has ruled that a single-member LLC
may own stock in an S corporation, provided that the LLC
owner is an individual and the LLC is a "disregarded entity"
(i.e., it has not elected corporation tax status). The IRS
reached this conclusion because the LLC was disregarded as
an entity separate from its individual owner. While Private
Letter Rulings cannot be relied on as legal authority in a
tax controversy, they do give a good idea of what the IRS
position is regarding an issue, and these rulings also seem
to make good sense with respect to this particular issue.
FROM CHAPTER 2 (IN ALL S&O EDITIONS). Chapter 2
now discusses the possible downside of operating as a
single-member LLC, if your business goes bankrupt in this
harsh economic climate, while owing unpaid federal payroll
taxes. You may not be insulated from liability by having
such an LLC, after all.
FROM CHAPTER 5 (IN ALL S&O EDITIONS). Under new
Internal Revenue Code § 6050W, credit card companies
such as Visa, MasterCard, and Paypal will have to begin
reporting payments to vendors who make credit card sales
in 2011. Such payments will be reported to businesses on new
IRS Form 1099-K. Businesses that make credit
card sales to their customers will now have to break out
such sales from other gross receipts (cash or checks) on
a separate line on corporation, partnership, and S
corporation income tax returns, and on Schedule C
of Form 1040. Because business can no longer
lump in credit card sales with other gross receipts, this may
require changes to many companies' charts of accounts and
accounting systems.
FROM CHAPTER 5 (IN ALL S&O EDITIONS). Under the Small
Business Jobs and Credit Act of 2010, persons who receive rental
income from real property were to be required to file information
returns with the Internal Revenue Service and with service providers,
reporting payments of $600 or more for rental property expenses.
This new requirement was to go into effect for payments made in 2011
and thereafter. However, on April 14, 2011, President Obama signed
into law a retroactive repeal of this expanded 1099 reporting
requirement.
FROM CHAPTER 5 (IN ALL S&O EDITIONS). Under the 2010
health care reform law ("Obamacare"), an unrelated tax provision
would have required businesses to file 1099 forms, reporting ANY
payments of $600 or more during the year to ANY payee, including
payments to large corporations like, for example, Office Depot
or Best Buy, beginning in 2012. Fortunately, in early 2011,
Congress repealed this onerous requirement, which would have
buried businesses large and small in additional paperwork.
FROM CHAPTER 5 (IN ALL S&O EDITIONS). The Small
Business Jobs and Credit Act of 2010 allows self-employed
persons who deduct their health insurance costs for income
tax purposes to also deduct such costs for self-employment
tax purposes, for the year 2010 only (or, technically,
for the first taxable year that begins after December 31,
2009). In other years, such health insurance expenses of
a self-employed person for coverage of himself or herself
and family members were allowed as a deduction from gross
income for federal income tax purposes, but not for
computing the self-employment tax.
FROM CHAPTER 5 (IN ALL S&O EDITIONS). The IRS
has announced the 2012 taxable wage base for the OASDI
portion of the self-employment tax and FICA tax, which
is $110,100, increased from $106,800 in 2010. This is
the amount of earned income for an individual on which
the the full 15.3% self-employment tax must be paid
and on which the full FICA (Social Security) taxes on wages
must be paid. Only the 2.9% Medicare portion of the 15.3%
tax applies to income in excess of the taxable wage base
amount at present.
FROM CHAPTER 6 (IN ALL S&O EDITIONS). On February
1, 2012, Governor Mitch Daniels of Indiana signed into law
a right-to-work act for Indiana, making it the 23rd state
to adopt such a law. Right-to-work laws generally prohibit
employers from discriminating against workers based on
their non-membership (and in some states, membership) in
a labor union. Unions have declared that they will work
to repeal the new law, since union dues are a major source
of funding for political campaigns of candidates supported
by the labor unions.
FROM CHAPTER 6 (IN ALL S&O EDITIONS). In a
last-minute compromise in December, 2011, Congress
passed a two month extension of the 2% reduction in
the employee's share of FICA (Social Security) taxes,
reducing the OASDI portion of the FICA tax from 6.2%
to 4.2%, but only for two more months -- January and
February of 2012. Some or all of this tax may have
to be recaptured for certain high-income individuals.
See our "Small
Business Advisor" software for the first quarter of 2012
for details on the recapture tax. (Order
here.)
FROM CHAPTER 6 (IN ALL S&O EDITIONS). As of
June 30, 2011, the F.U.T.A. (federal unemployment tax)
tax rate "temporary" 0.2% surtax has expired, after
35 years of being extended regularly by Congress. Thus,
the F.U.T.A. tax rate is now 6.0% of the first $7,000 of
annual wages per employee, rather than 6.2%. Employers
in many states receive a 5.4% tax credit for timely
payment of their state unemployment taxes, so the net
F.U.T.A. rate decreases from 0.8% to 0.6% for those
employers. (However, in 27 "credit reduction" states
that have had to borrow from the federal government
when their unemployment tax trust funds ran out,
employers in 2011 will receive only a 5.1% or lesser
credit against the F.U.T.A. tax.)
FROM CHAPTER 6 (IN ALL S&O EDITIONS). On December 8, 2010,
President Obama signed the Claims Resolution Act into law. This law
amends section 453A of the Social Security Act and redefines an employee's
Date of Hire as "the date services for remuneration were first performed by the
employee", that is, the date the employee first performs services for pay. The
new law requires that employers report this Date of Hire to the State Directory
of New Hires (SDNH) either on the employee's W-4 form or an equivalent form.
The new SDNH reporting requirement went into effect for new hires on or after
June 8, 2011.
FROM CHAPTER 6 (IN ALL S&O EDITIONS). Under Section
3402(t) of the Internal Revenue Code, all payments by federal,
state, or local governments to businesses or individuals for
goods or services will soon be subject to a 3% federal income tax
withholding requirement. The withholding will apply, generally,
to any such payment of $10,000 or more, with various exceptions
for items such as interest payments or payments for real
property. However, while this law was supposed to go into
effect on January 1, 2012, recent IRS Regulations (T.D. 9524)
have delayed implementation of such withholding until
January 1, 2013.
FURTHER UPDATE: In November, 2011, Congress completely
repealed this withholding requirement for government payments to
contractors.
FROM CHAPTER 6 (IN ALL S&O EDITIONS). Beginning
in 2013, the new health care reform law will impose an
additional FICA tax of 0.9% on employees (but not on the
employer) where the employee's wages exceed $200,000
($250,000 if married filing joint, $125,000 if married
filing separate). Since the employer may not know and is not
required to determine the amount of wages being paid to an
employee's spouse, an employer will only have to withhold
the additional tax on wages in excess of $200,000 paid to
an employee and any additional tax owed will have to be paid
by the employee on his or her return or on a joint return.
Self-employed individuals with self-employment income
that exceeds the above amounts (based on filing status) will
also be subject to an additional 0.9% tax, as part of their
self-employment tax.
In addition, a new tax of 3.8% of the lesser of net investment
income or certain threshold levels of modified adjusted gross income
will go into effect in 2013 to help fund the new health care reforms.
A whole new section has been added to Chapter 6 of our e-book,
on the effects of the new health care reform law on small businesses,
as the law phases in over the period from 2010 through 2018.
FROM CHAPTER 6 (IN ALL S&O EDITIONS). The 6.2%
Federal Unemployment Tax (FUTA) rate was scheduled to
decrease to 6.0% (in theory -- it always gets extended).
However, as usual, Congress passed last-minute legislation
in December, 2008 that extended the 6.2% tax rate for
another year, until the end of 2009, and has since extended
this rate again until June 30, 2011. It has since expired,
and the FUTA rate is currently 6.0%.
FROM CHAPTER 6 (IN ALL S&O EDITIONS). Title II of the
Genetic Information Nondiscrimination Act of 2008 (GINA),
which prohibits genetic information discrimination in employment,
took effect on November 21, 2009. Under Title II of GINA, it is
illegal to discriminate against employees or applicants because
of genetic information. Title II of GINA prohibits the use of genetic
information in making employment decisions, restricts acquisition
of genetic information by employers and other entities covered
by Title II, and strictly limits the disclosure of genetic information.
FROM CHAPTER 6 (IN ALL S&O EDITIONS). Effective July
24, 2009, the federal minimum wage was increased from $6.55 an
hour to $7.25 an hour, where it remains in 2012.
FROM CHAPTER 8 (IN ALL S&O EDITIONS). A new
segment has been added in Section 8.2 of Chapter 8,
regarding the use of QR Codes (Quick Response Codes)
on merchandise, which can be read by customers "smart
phones," giving them access instantly to information
about the product on the Internet.
FROM CHAPTER 8 (IN ALL S&O EDITIONS). A new
segment has been added in Section 8.6 of Chapter 8
analyzing new efforts by some states like New York,
New Jersey, and Pennsylvania, to tax all of the wage
or salary income of employees who live in another
state and telecommute, plus a discussion of how to
avoid such state income taxation.
FROM CHAPTER 8 (IN ALL S&O EDITIONS). The Internet
Tax Freedom Act, a federal law which has imposed a moratorium
on taxation of Internet access by the states since 1998, due
to expire on November 1, 2007, was extended by Congress on
October 30, 2007 for another 7 years, to November 1, 2014.
FROM CHAPTER 9 (IN ALL S&O EDITIONS). Effective
August 1, 2009, the cost of registering a copyright on
Form TX increased from $45 to $65. The
fee is reduced to $35 if filing electronically.
FROM CHAPTER 11 (IN ALL S&O EDITIONS). The LIFO
accounting method may soon become a thing of the past.
While LIFO accounting for inventories is permitted under
Generally Accepted Accounting Principles ("GAAP") in
the United States, it is not allowed under international
financial accounting standards, and it appears that in the
very near future, U.S. accounting methods (GAAP) will be
replaced by the international standards, so that companies
will no longer be able to use LIFO for financial accounting
purposes. Since the tax law only allows companies to use
the LIFO method for tax purposes if they also use it for
financial statement purposes, the upshot of the coming
change is that once companies are forced to comply with
international accounting standards and quit using LIFO, they
will no longer qualify to use LIFO for income tax purposes.
FROM CHAPTER 11 (IN ALL S&O EDITIONS). Under the
Small Business and Work Opportunity Tax Act of 2007, enacted
by Congress in May, 2007, the $100,000 first-year expensing
deduction for certain depreciable property was increased
to a $125,000 deduction in 2007, indexed for inflation in
subsequent years ($139,000 in 2012,). Also, the amount of such
property that may be acquired before that deduction begins
to phase out was increased from the previous level of $400,000
to $500,000 in 2007, also indexed for future inflation (to
$560,000 for 2012). In addition, the date on which this
increased deduction is to revert back to the old (pre-2003) level
of $25,000 was moved up from January 1, 2010 to January 1, 2011
and again to January 1, 2013. Subsequent legislation further
increased the expensing deduction to $250,000 and then $500,000
(see next paragraph).
FROM CHAPTER 11 (IN ALL S&O EDITIONS).In the Economic
Stimulus Act of 2008, Congress temporarily restored 50% bonus
(first-year) depreciation, for qualifying depreciable assets
purchased and placed in service during calendar year 2008. In
addition, Section 179 expensing has been increased further, from
$125,000 in 2007 to $250,000 and the investment threshold amount
at which the Section 179 deduction begins to phase out has been
increased from $500,000 in 2007 to $800,000, for taxable years
that begin in 2008 and 2009 (only). The HIRE Act in 2010 extended
the $250,000 Section 179 limit and $800,000 phase-out level for
one more year (2010), but did not extend bonus depreciation.
(However, the Small Business Jobs and Credit Act of 2010
has reinstated 50% bonus depreciation for qualifying property
acquired and placed in service in 2010.)
Also, for tax years beginning in 2008-2012 only,
purchases of off-the-shelf computer software qualify for
Section 179 expensing.
Under the Small Business Jobs and Credit Act of 2010, Section 179
expensing was generally increased from $250,000 to $500,000 in 2010 and
also extended through 2011. Phase-out of expensing during 2010 and 2011
was begins at $2 million (instead of $800,000 in 2010 and $200,000
in 2011, as was previously scheduled). In addition, up to $250,000
of qualified leasehold improvements, restaurant property, and
retail improvement property may be expensed under this amendment, in
2010 and 2011 only. Subsequent, late 2010 legislation, the Tax Relief
Act of 2010, increased Section 179 expensing to $500,000 for personal
property, with phase-out beginning at the $2 million level.
For 2012, expensing will be limited to $139,000 (versus $500,000
in 2011) and phase-out of the deduction begins at $560,000 (versus
$2 million in 2011).
100% bonus depreciation was allowed in 2011 for certain types of
depreciable property. This provision expired at the end of 2011,
with 50% bonus depreciation allowed in 2012. After 2012, bonus
depreciation will no longer be allowed, unless Congress changes
the law.
FROM CHAPTER 12 (IN ALL S&O EDITIONS). A new Section
12.6 has been added to Chapter 12 of all editions, on the use
of "restricted stock" plans as a way of compensating key
employees.
FROM CHAPTER 12 (IN ALL S&O EDITIONS). The IRS
has announced various inflation adjustments to pension and
fringe benefit items for 2011, and 2012. Thus, the maximum
deductible contribution for an individual participant
is increased to $50,000 in 2012 (from $49,000 in 201) for a
defined contribution pension or profit sharing plan, and
the maximum annual benefit that may be actuarially funded
in a defined benefit pension plan is increased to $200,000
in 2012 (from $195,000 in 2011). The maximum amount of
compensation on which pension plan contributions can be
computed is increased from $245,000 in 2011 to $250,000 in
2012. Limits on elective contributions to
a 401K plan were increased from being limited to $16,500 per
participant in 2011 to $17,000 in 2012.
FROM CHAPTER 13 (IN ALL S&O EDITIONS). A new Section
13.9 has been added to Chapter 13 of all of our editions,
discussing 10 major business-related federal tax law changes
that have gone into effect in 2012.
FROM CHAPTER 13 (IN ALL S&O EDITIONS). Because of rising
fuel prices, the I.R.S. announced in Announcement 2011-40 that
the standard mileage allowance for the business use of a car is
increased to 55.5 cents a mile, effective July 1, 2011. The mileage
deduction was 51 cents a mile for the first 6 months of 2011. For
2012, the I.R.S. announced in Notice 2012-1 that the standard
mileage rate will remain at 55.5 cents per mile.
FROM CHAPTER 13 (IN ALL S&O EDITIONS). For taxable years
beginning after December 31, 2009, cellular phones are no longer
defined as "listed property" for tax purposes. Under the Small Business
Jobs and Credit Act of 2010, cellphones will thus no longer be subject
to the stricter "listed property" substantiation requirements in order
to be depreciated and cell phones and other similar devices provided to
an employee predominantly for business purposes will now be excludible
from the employee's gross income.
FROM CHAPTER 13 (IN ALL S&O EDITIONS). As noted in the
preceding paragraph, under the Small Business Jobs and Credit Act
of 2010, Congress removed cellphones from the definition of "listed
property" (such as automobiles and personal computers), to which
very strict business use substantiation rules applied. However, in
a Notice issued in September, 2011, the IRS reminded us that cellphones
provided by employers to their employees remain subject to the general
tax rules regarding substantiation when determining whether and to
what extent the value of such cellphones must be included in the
taxable income of the employee. The IRS Notice also spells out the
IRS position as to when employer-provided cellphones can, in general,
be excluded from the employee's income under the exception for
"working condition fringes" and when any personal use of a
cellphone by the employee is exempt from recordkeeping and
substantiation requirements under the "de minimis fringe
benefit" exception of the tax law.
Fortunately for businesess and employees, the IRS has
taken a very liberal and generous position with regard to
the tax treatment of employer-provided cellphones under the
new (2010) law. For details, see Chapter 13 of the current
edition of the Small Business Advisor and any of the included
"Starting and Operating a Business in (State)" e-book editions.
FROM CHAPTER 13 (IN ALL S&O EDITIONS). Effective
on and after September 6, 2008, a new business no longer is
required to formally elect to deduct and/or amortize start-up
costs or organization costs for forming a corporation, LLC,
or partnership. Under new Treasury Regulations, a taxpayer is
now "deemed" to have made such election, unless the taxpayer
clearly elects to instead capitalize such expenses. [T.D. 9411]
FROM CHAPTER 13 (IN ALL S&O EDITIONS). Under the
Small Business Jobs and Credit Act of 2010, the amount of
start-up expenses that can be immediately deducted was temporarily
increased from $5,000 to $10,000 for the year 2010 (only), and
the threshold amount at which phase-out of the deduction began
was increased from $50,000 to $60,000 for 2010.
FROM CHAPTER 13 (IN ALL S&O EDITIONS). In May, 2007,
Congress enacted the Small Business and Work Opportunity Tax
Act of 2007, which extended the Work Opportunity Tax Credit
another year, due to expire on December 31, 2007, to a new
expiration date of August 31, 2011. It was later extended to
December 31, 2011, but has expired except for hiring certain
unemployed veterans. The credit for hiring such veterans is
in effect until December 31, 2012.
FROM CHAPTER 13 (IN ALL S&O EDITIONS). The IRS
has announced the limits on annual depreciation deductions
for passenger autos used in a business, for 2011. The
allowable deductions are unchanged from 2010, including the
extra $8,000 "bonus depreciation" allowable in the first
year, so that the first-year depreciation for a passenger
auto can be as much as $11,060. [Rev. Proc. 2011-21, 2011-12 I.R.B.]
FROM CHAPTER 14 (IN ALL S&O EDITIONS). If a
C corporation converts to S corporation status, any
"built-in gains" on assets it owned at the time of the
conversion will not only be taxable to the shareholders
but will also be subject to a corporate level tax if
the assets are sold within ten years after the company
converts to S corporation status. This ten year waiting
period is reduced to seven years, if a C corporation
converted to S status in the years 2009 or 2010, under
the American Recovery and Reinvestment Act of 2009.
Under the Small Business Jobs and Credit Act of 2010, the
waiting period was reduced further, to five years for dispositions
that occur in the taxable year that begins in 2011, if the
fifth year of the holding period was a preceding taxable year.
The ten-year waiting period is once again in effect for
S corporation elections in 2012 or later.
FROM CHAPTER 16 (IN ALL S&O EDITIONS). The
IRS has announced various inflation adjustments that
are relevant to estate planners for 2010, 2011 and 2011.
The $12,000 annual gift tax exclusion that was in effect
in recent years was increased to $13,000 in 2009 and
remains at that level in 2010 through 2012.
FROM CHAPTER 16 (IN ALL S&O EDITIONS). The Tax Relief,
Unemployment Insurance Reauthorization, and Job Creation Act of
2010 (the “2010 Tax Relief Act”), extending the Bush-era tax
cuts, included a number of important estate and gift tax law
changes, briefly summarized below:
- As you may have read in the news, the new lifetime estate and gift tax exemption
is increased to $5 million in 2010-2012 ($5,120,000, as indexed for inflation in 2012),
and the maximum tax rate is now 35% for both the gift tax and estate tax, the same as the
top income tax rate bracket.
- What you may not have read or heard is that the estate tax, which was supposed to
be zero in 2010, was restored retroactively to January 1, 2010. However, if someone
died in 2010, their estate can elect out of the estate tax, but will not get a step-up
in basis for assets owned at the date of death.
- The gift tax lifetime exemption, which had been limited to $1 million in recent
years (while the combined estate/gift lifetime exemption for decedents was $3.5 million)
has now been fully unified with the estate tax, and is also $5 million and also imposed
at a top rate of 35%, starting in 2010 and in effect through 2012. Under prior law, if
a person made over $1 million in taxable gifts before dying (over and above the $13,000
annual exclusions), he or she had to pay gift tax, so it often paid to stop making
gifts at $1 million, since the "unified" exemption at death was much higher, at $3.5
million.
- The new law adds a great new "portability" rule for the estate tax lifetime exemption,
for married couples. Under prior law, if one spouse had a small estate of $1 million and
the other had $6 million and if the "poor" spouse died first, he or she got to use only
$1 million of the lifetime exemption if leaving the $1 million to the children or other
non-spousal beneficiaries. Then, when the second spouse died with a $6 million
estate, he or she would owe a lot of estate tax.
Under the new law (at least through 2012), if the first spouse dies and uses
only $1 million of the $5 million maximum lifetime exemption, the surviving spouse
"inherits" the $4 million unused exemption, so when he or she eventually dies, he
or she will have their own $5 million exemption PLUS the $4 million exemption that
was "inherited," and thus would owe no tax on an estate of up to $9 million.
The portability feature is mostly of interest in states that don't have community
property laws, since spouses in states with community property like Texas or
California will have estates that are nearly equal in size, usually. However, even
in that case, if the first spouse doesn't use all of the $5 million exemption, the
unused exemption may save tax at the second death if, for example, the surviving
spouse's estate grows by a large amount, to over $5 million.
To obtain this "portable" exemption, the executor of the first spouse to die
must elect the exemption on a timely-filed estate tax return, even if no estate
tax return was otherwise required to be filed, such as for a small estate.
The portability rules, however, contain significant restrictions that make
them less effective than using a traditional bypass trust to (in effect) pass
a deceased spouse’s exemption amount to his/her surviving spouse.
- The Generation-Skipping Transfer Tax ("GSTT"), which was to expire in
2010, has been revived, but now is on the same basis as the estate and gift
taxes: A $5 million lifetime GSTT exemption and a maximum 35% tax rate. However,
for 2010 only, gifts to grandchildren did not count against the $5 million
lifetime GSTT exemption.
- Unless the new estate tax rules are extended after 2012, in 2013 the
estate and gift tax rules will revert back to the pre-Bush levels -- a $1 million
estate tax exemption, no "portability" of unused the exemption, and a top estate
and gift tax rate of 55%.
STATE DEVELOPMENTS:
The following state-by-state small business news items
are excerpted from the state information sections of each
of the 51 state and D.C. editions of the Starting
and Operating a Business in ... (CA, NY, PA, etc.)
series of e-books, each of which is packaged with the
front-end Small Business Advisor software (for Windows):
ALABAMA EDITION. The new employer tax rate for Alabama
unemployment tax purposes in 2012 is 2.7% on the first $8,000 of
covered wages, unchanged from 2011.
ALABAMA EDITION. Due to deficits in the state unemployment
tax trust fund, Alabama has had to borrow from the federal government
to continue paying unemployment benefits. Accordingly, for 2011,
and possibly 2012, Alabama is a "credit reduction state," which means
that Alabama employers will not be entitled to the full 5.4%
credit against the 6.2% or 6% Federal Unemployment Tax (FUTA).
ALABAMA EDITION. Beginning July 1, 2009, contractors
doing construction in Alabama, other than home builders, are
subject to a new Construction Employer Fee on wages paid to all
construction laborers below the foreman level. The fee is .09%
of the covered wages. Thus, for example, an employer with $1,000,000
in covered wages would pay a fee of $900. Effective for returns
due on or after January 31, 2011, the fee increased to .15% of
covered wages.
ALABAMA EDITION. Alabama has repealed the Alabama
Limited Partnership Act of 1997 and enacted the Alabama Uniform
Limited Partnership Act of 2010, which goes into effect on
January 1, 2010. The new law provides for limited liability
limited partnerships (LLLP's), which are limited partnerships
that elect LLP status, providing liability protection for their
general partners. The new act also increases the filing fee for
foreign limited partnerships from $75 to $150.
ALABAMA EDITION. Effective in 2011, under the recently-enacted
(2009) Alabama Business and Nonprofit Entity Code, all domestically
formed entities (corporations, LLC's, LLP's, and limited partnerships)
now pay the same $100 formation fee to the Secretary of State, and a
$50 filing fee to the county probate judge. The Secretary of State's
registration fee for all foreign business entities is $150, with no
filing with a probate judge required. Thus the total filing fees for
formation or registration for any of the above-listed entities is
now $150.
ALABAMA EDITION. Effective May 1, 2008, Alabama
employers with 5 or more employees are required to report new
hires on the Department of Industrial Relations web site.
Smaller employers may also report via the Internet, but are
not required to do so. See the state laws/taxes chapter of
"Starting and Operating a Business in Alabama" (2012 edition)
for a link to the sign-up page for online new hire reporting
in Alabama.
ALASKA EDITION. The Alaska minimum wage increased to
$7.75 an hour on January 1, 2010 and remains at that level in
2011 and 2012.
ALASKA EDITION. Beginning in 2010, Alaska's state business
license fee has been reduced from $100 per year to $50 per year ($200
biennial fee is reduced to $100) and the license fee for sole
proprietors who are 65 years old or older is reduced from $50 per
year to $25.
ALASKA EDITION. Until recently, Alaska's laws did not
allow professional service firms to organize as LLCs. However,
legislation enacted in 2007 now allows professional service
LLC's to be formed in Alaska.
ALASKA EDITION. The Alaska Permanent Fund Dividend,
paid by the state to all eligible residents, was at an
all-time high of $3,269 in 2008, but fell to $1,305 in 2009,
due to the plunge in the price of oil and in the value of
investments held by the Alaska Permanent Fund Corporation.
For 2010, the dividend was $1,281 per resident. For 2011,
the dividend was $1,174.
ARIZONA EDITION. For 2012, the new employer tax
rate for Arizona unemployment tax is 2.6%, up from the
previous rate of 2.0%. While the base rate remains at 2.0%
for new employers, the 2012 rate is augmented by a special
assessment rate of 0.5% (due to Arizona's unemployment trust fund having
to pay interest on funds it has borrowed from the federal government), and
a 0.1% job training tax assessment that was imposed beginning July 1, 2011.
Both of these additional assessments apply to all Arizona employers, new
or experience-rated.
ARIZONA EDITION. In the November, 2006 election,
Arizona voters passed an initiative (Proposition 202) to
institute a state minimum wage of $6.75 an hour, beginning
January 1, 2007, and indexed for inflation in each subsequent
year. The 2009 and 2010 minimum wage was $7.25, increased to
$7.35 in 2011 and $7.65 in 2012.
Arizona previously did not have a state minimum wage law.
ARIZONA EDITION. Arizona voters have approved
a temporary 1% increase in the state sales and use tax
("transaction privilege tax"), from 5.6% to 6.6%. The
increase went into effect on June 1, 2010 and will
expire on May 31, 2013.
ARIZONA EDITION. The Arizona corporation income
tax rate, currently 6.968%, is scheduled to decrease to
6.5% in 2014, with further cuts each year until the tax
rate is reduced to 4.9% in 2017 -- assuming the state can
afford such budget cuts. Stay tuned.
ARIZONA EDITION. Arizona law requires publication
in a newspaper of the filing of various documents, such as
articles of incorporation, articles of organization for an
LLC, LLP registrations, and registration by foreign corporations
or LLC's, and until recently the law also required affidavits
to be filed with the Corporation Commission or Secretary of
State as proof of such publication. However, under Senate Bill
1410, enacted in 2008, the filing of such affidavits has been
made optional in some cases, such as for foreign corporations
or for formation of an LLC. (However, even in those cases,
publication is still required.)
ARKANSAS EDITION. Because the Arkansas unemployment tax
fund has had deficits on January 1 of two successive years (2010
and 2011), employers in Arkansas will no longer receive the full
5.4% tax credit against the 6.2% FUTA (federal unemployment) tax
in 2011. Instead, the credit will be reduced by 0.3% to 5.1% of
FUTA wages, so that the actual net FUTA tax liability for employers
in 2011 will increase from the usual 0.8% tax to 1.1% (from 0.6% to
0.9% for wages paid on or after July 1, 2011, when the federal FUTA
tax rate decreased by 0.2%). If Arkansas continues to have a deficit
on January 1 of future years, the FUTA credit will decrease by an
additional 0.3% each year until Arkansas repays the advances and
interest owed to the federal unemployment tax program.
ARKANSAS EDITION. The Arkansas unemployment tax rate
for new employers was 3.8% for the first quarter of 2011. However,
beginning April 1, 2011, the tax rate for all employers in the
state increased by 0.2% (to 4% for new employers) to pay interest
on the loan the Arkansas unemployment tax fund has received from
the federal government to finance a deficit in the fund. The rate
remains at 4% in 2012.
CALIFORNIA EDITION. California has recently enacted (in
2011) new sales and use tax legislation that attempts to subject
large online retailers like Amazon.com that do not have a physical
presence in the state to sales and use tax on sales they make to
California residents, based on sales generated by their "affiliate
resellers" -- web sites of California residents who link to
Amazon.com and receive commissions on sales their web sites refer
to Amazon. While Amazon reacted to the new law by canceling all
such commissions, persons who sell items such as used books
through Amazon may be required to collect sales tax on the items
they ship to California residents, based on the gross sales price,
even though Amazon retains a significant part of the price for
handling the sale. For details, see the current edition of
the Small Business Advisor, single
state version for California.
CALIFORNIA EDITION. The State Board of Equalization (SBE)
is reminding sellers of medical marijuana that their retail sales
in-state are generally subject to sales tax and that they are
required to hold a seller's permit. Anyone who does not hold a
seller's permit prior to the date that their first sales tax return
is due is subject to penalty and interest charges.
CALIFORNIA EDITION. Beginning January 1, 2010, businesses
and individuals that are required to withhold California income tax
must use payment vouchers with their payments for all real estate,
resident, and nonresident withholding. Previously, use of such
vouchers was only required if the returns were to be submitted
electronically. Form 592-V is to be used for resident and
nonresident withholding, generally, and Form 593-V is to
be used for submitting withholding tax on real estate transactions.
CALIFORNIA EDITION. A new California tax law requires
businesses that are not required to hold a seller's permit (for
sales tax) and that have at least $100,000 in gross receipts
from business operations to register with the State Board of
Equalization (SBE) in 2009 for use tax and file a use tax return
with respect to any taxable purchases made during the year,
by April 15, 2010. Smaller firms are also required to file
reports and pay use tax on purchases, but are not required to
register with the SBE.
CALIFORNIA EDITION. Under emergency budget legislation
enacted in early 2009, California increased its sales tax
statewide by 1%, from April 1, 2009 until June 30, 2011, and
the income tax rate in all brackets was increased by 0.25%,
for the tax years 2009 and 2010. The income tax rate increase
also applied to the California alternative minimum tax
rate (formerly 7%, increased to 7.25%).
CALIFORNIA EDITION. Effective January 1, 2009,
the California recycling fee on electronic waste such as TV
tubes and computer monitors increased from $6 (4 to 15 inch
screens), $8 (15 to 35 inch screens), and $10 (larger than
35 inch screens) to $8, $16, and $25, respectively.
CALIFORNIA EDITION. Beginning in 2009, California
requires both individuals and corporations to accelerate
their payments of estimated income or franchise tax. Instead
of paying the estimated tax in four equal installments,
taxpayers will have to make installments of 30%, 30%, 20%,
and 20% of the estimated tax. The requirements changed
again in 2010, when individuals and corpprations had to
make quarterly installment payments of 30%, 40%, 0%, and
30% of the estimated tax.
In addition, individuals who have an Adjusted Gross Income
of $1 million or more will no longer be able to rely on the
estimated tax "safe harbor" by paying in an amount of estimated
tax equal to 110% of the prior year's tax. Instead, they must
correctly pay in at least 90% of the current year tax (beginning
with 2009), or face underpayment penalties.
Also, for the first time, California will require
individual taxpayers to make payments by electronic funds
transfer (EFT). This requirement will apply to any
individual who makes an estimated tax payment or income
tax extension payment of more than $20,000 in 2009, or
if the individual's total California income tax payments
for the year exceed $80,000, Failure to make payment by
EFT will result in a 1% penalty.
CALIFORNIA EDITION. In 2009, LLC's were
required to make double LLC fee payments. That is, they
must make the 2009 payment (based on 2008 gross receipts)
by April 15, 2009 and must also pay the estimated 2010
LLC fee in advance, by June 15, 2009. If the actual fee
for 2010 (based on 2009 gross receipts) is underpaid,
a 10% penalty will be imposed. (The Legislature apparently
overlooked the fact that taxpayers will not know in June
what their gross receipts will be for the year 2009. A
crystal ball is required, it seems.)
CALIFORNIA EDITION. The Bay Area Air Quality
Management District has adopted a new annual greenhouse
gas emissions fee or tax on CO2 emissions by permitted
(non-exempt) facilities operating within the District,
at a rate of $0.044 per metric ton of carbon dioxide
equivalent emissions. The counties in the District
include Alameda, Contra Costa, Marin, Napa, San Francisco,
San Mateo, Santa Clara, and portions of Solano and Sonoma
Counties.
CALIFORNIA EDITION. The withholding rate for
California State Disability Insurance (SDI) increased in
2009 to 1.1% of covered wages, up from .6% as recently as
2007. For 2010, the SDI tax rate remains at 1.1%, but the
taxable wage base per employee increases to $93,316.
CALIFORNIA EDITION. Effective for real estate sales
occurring on or after January 1, 2007, a seller may elect to
have tax withheld at the highest applicable tax rate (for
individuals or corporations), on the taxable gain, rather
than at a 3 1/3% rate on the total sales price. (Thanks, guys!)
[CAL. REV. & TAX CODE Sec. 18662(e)(2)(B)]
CALIFORNIA EDITION. California law has allowed for
domestic partners since 2003, but has not allowed domestic
partners to file joint income tax returns. However, the state
tax law has been amended to allow domestic partners to file
joint returns, beginning with the 2007 taxable year. (Note,
however, that joint Federal income tax returns may only be
filed by married couples.)
CALIFORNIA EDITION. Effective since January 1,
2007, the Franchise Tax Board is allowed under California
law to provide for the filing of a group tax return for
nonresident directors of a corporation, where the directors
are compensated for attending board meetings in California.
This considerably simplifies tax compliance for such
nonresident directors, who were previously required to
individually file nonresident California income tax returns
to report their directors' fees earned in California.
[CAL. REV. & TAX CODE Sec. 18536]
CALIFORNIA EDITION. The California minimum wage
increased from $7.50 an hour to $8.00 an hour on January 1,
2008, and remained at that rate in 2009-2012. San Francisco's
local minimum wage, which was increased in 2004 to $8.50
an hour, indexed for inflation, was $9.92 an hour in 2011
and is $10.24 in 2012. The Los Angeles "living wage" for
certain employers contracting with the city, for the period
from July 1, 2011 through June 30, 2012, is $10.42 per hour
plus $1.25 in health benefits, or $11.67 an hour in total,
or $14.97 an hour for such employers who do not provide
health care benefits to their employees.
CALIFORNIA EDITION. The California Legislature has
postponed the date at which architectural LLPs will no longer
qualify for LLP status from January 1, 2007 to January 1, 2012,
but has also increased the minimum liability insurance required
for an architectural LLP from $500,000 currently to $1 million,
effective January 1, 2008.
CALIFORNIA EDITION. Under 2007 tax legislation, a
40% penalty may now apply to a business that collects California
sales or use tax and fails to pay it over to the state. In
addition, tax withheld on behalf of out-of-state contractors
or nonresident owners of S corporations, partnerships, or
LLCs will have to be remitted quarterly, beginning in 2008.
COLORADO EDITION. Effective March 1, 2010, Colorado no
longer exempts "standardized software" from sales and use
tax. Sales and use tax exemptions are also repealed for certain
nonessential packaging items related to sales of food and
beverages, and materials used in direct mail advertising.
COLORADO EDITION. On January 1, 2009, the Colorado
minimum wage DECREASED, from $7.28 an hour to $7.24 an
hour, under the constitutional amendment that voters approved
in 2006, which adjusts the state minimum wage each year for
inflation (or, in this case, deflation). This will be the
first time a state or federal minimum wage has ever decreased
since the federal minimum wage law was enacted in 1938,
during the New Deal. In 2011, the state minimum wage increased
to $7.36 an hour and to $7.64 in 2012.
COLORADO EDITION. Effective for sales and use tax
returns filed on or after July 1, 2009, Colorado has suspended
the service fee that vendors are normally allowed to retain
(3.3% of the tax) to reimburse them for their administrative
costs in collecting sales and use taxes. The suspension applies
only to the state portion of the sales and use taxes and is
in effect until June 30, 2011, or possibly only until January 1,
2011, if the economy improves sufficiently by September, 2010.
COLORADO EDITION. In recent years, the Colorado
Legislature and voters (by means of voter initiatives) have
enacted several laws regarding hiring of illegal aliens,
requiring that:
- employers document that persons they hire are U.S. citizens
or resident aliens legally authorized to work in the United States;
- employers withhold state income tax on amounts paid for services
to persons who cannot provide a valid social security number or tax
I.D. number; and
- disallowing a tax deduction for amounts paid to illegal aliens
for services.
CONNECTICUT EDITION.
Under new Connecticut legislation that went into effect on January
1, 2012, employers are now required to provide PAID sick leave
benefits to employees, up to 40 hours per year, earned at the
rate of one hour of paid sick leave for each 40 hours worked by a
service worker. The requirement applies to employers with 50 or
more employees and an employee becomes eligible after having worked
680 hours for the employer (but is not eligible if he or she
did not work an average of at least 10 hours per week for the
employer in the most recent complete calendar quarter).
[Public Act 11-52]
A service worker make take sick leave for personal illness,
injury, or health condition, or diagnosis of same, or for
preventative medical care, or may take leave for the same reasons
applicable to a child or spouse. Leave may also be taken for
medical care or counseling if the service worker is a victim of
family violence or a sexual assault.
CONNECTICUT EDITION. Connecticut's legislature has
adopted sweeping new tax changes (mostly increases) on May 3,
2011, many of which are either retroactive to January 1, 2011
or went into effect on July 1, 2011. These changes included
increases in the individual income tax and the estate and gift
tax, retroactive to January 1. Effective July 1, 2011, various
increases were enacted in sales and use taxes, the hotel tax,
a 3% surcharge in the sales tax on short-term car rentals,
and alcohol and tobacco taxes and real estate conveyance taxes
were also increased.
In addition to rate increases, numerous sales tax exemptions were
eliminated and various services became newly taxable on July 1, 2011.
Also, a new 7% luxury tax on certain expensive items and a "cabaret
tax" on admissions, food and drink sales and other revenues of
establishments that offer live music, dancing, or other entertainment
and that also serve alcoholic beverages.
For details of all of the foregoing major Connecticut tax law
changes, see the current edition of "Starting and Operating a Business
in Connecticut," available for sale on this
web site, bundled with the Small Business Advisor software for Windows,
or order the 2011 Kindle edition from Amazon.com.
CONNECTICUT EDITION. Effective July 1, 2011, Connecticut
requires buyers of a business or a stock of goods from another
business to withhold any state employee withholding tax owed by
the seller, to avoid being held liable for such tax in the event
the seller fails to pay it.
CONNECTICUT EDITION. The Connecticut minimum wage
increased to $7.65 an hour on January 1, 2007, and increased
further to $8.00 an hour on January 1, 2009, and increased
further to $8.25 in 2010, 2011 and 2012. [CONN. GEN. STAT. Sec. 31-58(j)]
CONNECTICUT EDITION. The Connecticut sales and use tax
rate was due to decrease to 5.5% on January 1, 2010, if certain
specified budget goals were met. That did not occur, so the
state sales and use tax rate remained at 6% until 2011 tax
legislation increased the rate to 6.35%, effective July 1, 2011.
CONNECTICUT EDITION. Connecticut enacted corporate
and individual income tax increases in 2009, and a possible cut
in the sales tax rate in 2010. Corporations with gross incomes
of $100 million or more are subject to a 10% tax surcharge for
taxable years beginning in 2009 or before 2012, and the maximum
individual tax rate is increased, beginning in 2009, from 5% to
6.5%, for taxable income over $500,000 for single filers, over
$800,000 for heads of households, or $1 million for joint filers.
Meanwhile, a cut in the sales tax from 6% to 5.5% was to go into
effect on January 1, 2010, but only if certain budgetary goals
are met. (Dream on....) Also, on January 1, 2010, the amount
of an estate that can pass to heirs free of Connecticut estate
tax increased from $2 million exemption to $3.5 million. (This
exemption was cut back to $2 million, January 1, 2011, no
reduction of the sales tax occurred in 2010, and, rather than
expiring after 2011, the corporate 10% surcharge will double
to 20% in 2012 and 2013.)
DELAWARE EDITION. Delaware has enacted increases in
the franchise tax on capital stock and increases in filing
fees paid to the Secretary of State by partnerships, LLC's and
corporations, effective in 2009, generally. Beginning in 2010,
a new personal income tax bracket has been added, of 6.95%, on
taxable income in excess of $60,000. For more details, see the
current edition of Starting and Operating a Business in
Delaware. (Ordering information can be found at:
www.roninsoft.com/sbzorder.htm.)
DELAWARE EDITION. The Delaware estate tax, equal
to the federal estate tax credit for state death taxes, was
effectively eliminated when federal law phased out that
credit after 2001. Under new legislation, the Delaware estate
tax has been reinstated for deaths occurring after June 30,
2009, by making the state's estate tax equal the federal
credit for state death taxes as it stood before 2001.
DELAWARE EDITION. S corporations doing business in
Delaware must not fail to withhold tax on behalf of nonresidents
shareholders, as the tax rules are very strict. A recent (2007)
Delaware tax case, Stephen R. Simpson and Visions Unlimited,
Inc. v. DOR, held that an S corporation was liable for
tax plus penalties and interest where it failed to withhold
tax on behalf of a nonresident shareholder, even though the
shareholder had filed a Delaware nonresident tax return and
had already paid the tax on his Delaware income from the S
corporation.
DELAWARE EDITION. Under 2007 legislation, effective
July 17, 2007, workers' compensation coverage is now generally
mandatory for independent contractors, as well as employees,
in the case of licensed contractors engaged in the construction
industry, even where such independent contractors are sole
proprietors or partners in a partnership.
[DEL. CODE ANN. Title 19, Sec. 2311 and Title 30, Sec. 2501(1)]
DELAWARE EDITION. The Delaware minimum wage increased
to $6.65 an hour on January 1, 2007 and increased further, to
$7.15 an hour on January 1, 2008. It remained at $7.15 in 2009,
until increasing to $7.25 on July 24, 2009, to match the increase
in the federal minimum wage.
DELAWARE EDITION. The State of Delaware has recently
established a "one-stop" website, the One Stop Business and Licensing
Registration System, where you can register your business with
the Delaware Division of Revenue, the Division of Unemployment
Insurance, and the Office of Workers' Compensation, with links
to the Delaware Division of Corporations to access incorporation,
partnership, or LLC forms, and to reserve a legal entity or name.
DISTRICT OF COLUMBIA EDITION. The District of Columbia
minimum franchise tax for both corporations and unincorporated
businesses was previously $100. However, under 2011 law changes,
the minimum tax has been increased to $250, generally, and to
$1,000 for a business with over $1 million in District gross
receipts.
DISTRICT OF COLUMBIA EDITION. Under new enactments
adopted in 2011, the District of Columbia has totally revised
its corporations laws and laws regarding other legal entities.
All business entities but sole proprietorships are now
required to file biennial reports every other year, along
with a $300 fee. In addition, the D.C. Department of Consumer
and Regulatory affairs has significantly increased filing fees
for incorporation, formation of LLC's, limited partnerships,
and LLP's, as well as for registration of foreign business
entities (those formed in other states or countries).
DISTRICT OF COLUMBIA EDITION. New D.C. Code
enactments now permit formation of "series" limited
liability companies (LLC's), where a single LLC may
designate separate divisions or "series" that will
each have limited liability, not subject to the
liabilities of the other "series" if they maintain
separate books and records and meet various other
requirements.
DISTRICT OF COLUMBIA EDITION. Effective for the period
from October 1, 2009 through September 30, 2012, the D.C. general
sales tax rate was increased to 6%. Previously, the tax rate was
5.75%. Further legislation in 2011 has made the 6% rate permanent.
DISTRICT OF COLUMBIA EDITION. The D.C. minimum wage
increased to $7.55 an hour on July 24, 2008 and again to $8.25
an hour on July 24, 2009. [D.C. CODE ANN. Sec. 32-1003, and
"Minimum Wage Emergency Amendment Act of 2004," November 30,
2004] In addition to the D.C. minimum wage requirements, the
D.C. "Living Wage Act of 2006" requires employers who are
recipients of $100,000 or more in new government contracts
or government assistance (such as grants, loans, or tax increment
financing) to pay a "living wage," which was $11.75 an hour from
June 9, 2006 until January 1, 2008, then indexed for inflation
($12.50 in 2010 and 2011). Subcontractors of such contractors,
who receive more than $15,000 of the funds received by the
contractor on government contracts, or subcontractors receiving
$50,000 or more from recipients of $100,000 or more of government
assistance, are also required to pay the living wage. [D.C. CODE
ANN. Sec. 2-220.05]
Exemptions from the Living Wage Act are provided for
employees under 22 years of age employed during a school
vacation period, or enrolled as a full-time student who
works less than 25 hours a week (provided that other
employees are not replaced).
The 2012 inflation adjustment to the D.C. living wage
is to be published by the Department of Employment Services
by March 1, 2012.
DISTRICT OF COLUMBIA EDITION. In a 2006 D.C. Superior
Court decision, Bender, et al, v. District of Columbia,
D.C. Super. Ct. (Tax Div.), the D.C. franchise (income tax) on
unincorporated businesses was held to be in violation of the
Congressional mandate that the D.C. government may not tax the
personal income of any nonresident of the District.
However, the D.C. Court of Appeals has now overturned the
Superior Court decision in Bender, holding that
the D.C. unincorporated business franchise tax can
be applied to a nonresident partner's share of a real estate
partnership's net income, where such income is derived from
operation of the unincorporated business within the District.
The Court of Appeals decision is final, since the U.S. Supreme
Court, on February 21, 2007, declined to review the decision
of the Court of Appeals (denied certiorari).
FLORIDA EDITION. Under 2009 legislation, the taxable
wage base to which the Florida unemployment tax applies was
to be raised from $7,000 per employee to $8,500 in 2010, until
January 1, 2015. However, under emergency legislation signed
by Governor Crist in March, 2010, the wage base has been reset
at $7,000 for 2010 and 2011. It is still scheduled to temporarily
increase to $8,500 from January 1, 2012 to January 1, 2015, and
thereafter for so long as the state unemployment still owes the
federal government for amounts it has borrowed.
FLORIDA EDITION. Effective July 1, 2009, the intention to
register a fictitious name must be advertised at least once in a
newspaper in the county in which the principal place of business
will be located. Contact your local newspaper for advertising
information.
FLORIDA EDITION. Under the Florida Constitution, as
amended by voters in the November, 2007 election, the first
$25,000 of taxable tangible personal property at a site where
the owner transacts business is now exempted from property tax,
beginning in 2008. [FLA. CONSTITUTION, Article 7, Section 3(f),
as amended] This means that if separate property tax returns
are filed for separate places where business is transacted,
the exemption can be claimed for up to $25,000 of tangible
personal property at each such place of business. [Per notice
from Fla. Dept. of Revenue re Senate Bill 4D, 2/15/2008]
FLORIDA EDITION. Governor Jeb Bush signed into law
a repeal of the Florida intangibles property tax, effective
January 1, 2007.
FLORIDA EDITION. Florida, whose voters enacted
a minimum wage for the first time in 2005 by amending the
state's constitution, has increased the state minimum wage
(adjusted for inflation) to $6.79 an hour for the year 2008
and $7.11 beginning January 1, 2009. The rate increased
along with the federal minimum wage on July 24, 2009, to
$7.25 an hour and increased again to $7.31 an hour on June
1, 2011. It is currently $7.67 an hour in 2012.
GEORGIA EDITION. On and after May 20, 2010, state
law in Georgia prohibits local governments from imposing
any kind of income tax. [GA. CODE ANN. Sec. 48-7-140]
GEORGIA EDITION. The Georgia legislature enacted
legislation in 2009 that would, if approved in a voter
referendum, exempt business inventories from property taxation.
[GA. CODE ANN. Sec. 48-5-41.2] The referendum was held in
November, 2010, and the exemption was approved.
GEORGIA EDITION> Effective January 1, 2010,
businesses filing an income tax, sales tax, or other
tax return with the state of Georgia and making a tax
payment of more than $1,000 must make the payment by
electronic funds transfer (EFT). Previously, the
threshold amount was for payments of more than $5,000.
In addition, on January 1, 2011, the threshold for
required EFT payments will be reduced further, to $500.
GEORGIA EDITION. Under a recent enacted Georgia law,
all residential and general contractors were required to be
licensed by the state, beginning July 1, 2007. However, recent
legislation has extended this deadline to January 1, 2008.
Passage of an examination is required for licensure, except
for qualified contractors who applied for exemption from the
examination requirement by January 3, 2007. A newly organized
State Licensing Board for Residential and General Contractors
is the agency that regulates contractor licensing in Georgia.
[Per notice from Georgia Secretary of State and GA. CODE Sec. 43-41-17]
HAWAII EDITION. Due to a surplus in the state unemployment
tax fund, Hawaii reduced the taxable wage base per employee from
$35,300 in 2007 to only $13,000 in 2008 and 2009, while reducing
the new employer tax rate from 2.4% in 2006 to 1.9% in 2007. The
new employer unemployment tax rate was reduced again, from 1.9% in
2007 to 1.7% in 2008 and 2009. However, due to rapidly increasing
unemployment since 2009, the wage base was reset at $34,900 for
2010 and $34,200 in 2011, with the new employer tax rate increased
to 3% in 2010 and 4% in 2011. Another increase of more than 47%
per employee applies in 2012, with the new employer rate increased
to 5.2% and the wage base to $38,800.
HAWAII EDITION. Facing budget shortfalls, the
Hawaii legislature passed major income tax and transient
accommodations tax increases in 2009, and on May 8,
2009, overrode Governor Linda Lingle's veto of the
new taxes. While Hawaii's highest individual tax rate
bracket was 8.25% previously, the new law adds three
new tax brackets of 9%, 10%, and 11%, on joint return
taxable incomes of $300,000, $350,000, and $400,000,
respectively. Tax brackets for singles are half the
above income amounts and for heads of households the
brackets are 3/4 of the above amounts. The new tax
rates will apply in the years 2009 through 2015.
In addition, the Transient Accommodations Tax, which
is primarily paid by non-voters (i.e, tourists),
was increased from the previous rate of 7.25% to 8.25%
on July 1, 2009. It increased again, to 9.25%, on July
1, 2010, and will remain in effect through June 30, 2015.
HAWAII EDITION. The Hawaii Department of Health
has issued brochures for businesses on their obligations
to maintain a smoke-free environment for customers and
employees under the Smoke-Free Hawai'i Act.
HAWAII EDITION. Effective as of January 1, 2007,
the general excise tax (GET) rate in the city and county
of Honolulu (the island of Oahu) increased from 4% to 4.5%.
The 0.5% GET tax rate on sales made at wholesale was not
changed. Honolulu businesses are now required to calculate
the portion of their taxable sales that are allocable to
Honolulu County, and pay the 1/2% county surcharge on such
sales.
The Department of Taxation has issued guidance for
county surcharge sourcing rules with regard to property
management services. The rule is that property management
fees are to be allocated to the county where the property
in question is located, rather than attempting to determine
where the services are rendered. [Hawaii Tax Information
Release, 2007-1, Jan. 17, 2007]
IDAHO EDITION. Effective January 1, 2011, pass-through
entities (partnerships, LLC's, and S corporations) whose nonresident
members fail to elect to have Idaho income tax withheld from their
share of the entity's Idaho-source income are no longer liable for
the tax. However, such entities must institute backup withholding
at the highest Idaho income tax rate on the income of such
nonresidents.
IDAHO EDITION. The state unemployment tax rate
for new employers in Idaho was reduced in 2008 to 1% of
covered wages (the first $32,200 of wages per employee),
which was the lowest state unemployment tax rate in the
nation. However, due to rising unemployment insurance
claims, the tax rate was increased to 1.566% in 2009 and
to 3.66% in 2010 and 2011 on the first $33,300 of wages
per employee.
IDAHO EDITION. The Idaho Legislature passed the
governor's tax reform bill, which decreased Idaho property
taxes and increased the state sales and use tax by 1%, from
5% to 6%, effective October 1, 2006.
ILLINOIS EDITION. In January, 2011, the state of
Illinois, in dire financial condition and unable to pay its
bills, increased its personal income tax rate from 3% to
5%, effective for the years 2011 through 2014, with rates
gradually scaling back in 2015 and later years. The new law
also sharply increases the flat rate corporation income tax
(but not the Personal Property Replacement Tax). See our
latest release of "Starting and Operating a Business in Illinois"
($19.95) for details on these sweeping tax increases.
ILLINOIS EDITION. Starting Sept. 1, 2009, Illinois
has reclassified certain sugary sports and energy drinks, certain fruit drinks
and some types of candy (that do not include flour) as "general merchandise"
and now taxes them at a the regular state sales tax rate of 6.25%. The state
had previously taxed such food and beverages at the rate of 1%. Thus, in
Chicago, for example, beverages classified as soft drinks are now taxed at
a rate as high as 14.25%. (The general sales tax is 10.25% in Chicago, plus
a 3% city soft drink tax and there is an additional 1% tax on food and
beverages in some tourist spots.)
ILLINOIS EDITION. Effective April 1, 2008, there was
a 0.25% increase of the Regional Transportation Authority
(RTA) sales tax rate in Cook County and a 0.5% increase in
the RTA tax rate in the other five counties of northeastern
Illinois: DuPage, Kane, Lake, McHenry, and Will Counties.
In addition, the Cook County Board has announced a 1.75%
increase in the general Cook County sales tax, effective
November 1, 2008. As of July 1, 2008, Illinois enjoyed the
distinction of being the first state to have a sales tax
rate of 10% or more in some areas (10.25% in Chicago, Cook
County).
ILLINOIS EDITION. For tax years that end on December 31,
2008 or later, Illinois law requires that pass-through entities
(partnerships, LLC's, and S corporations) must withhold on taxable
income of nonresident owners, paying the tax over by March 15 or
April 15, 2009 for the 2008 tax year, depending on the date by
which the entity's income tax return is due. No such withholding
is required for individual owners who are included in a composite
tax return filed by the entity on behalf of its nonresident owners
(although the entity still must pay tax on their behalf), or if the
nonresident owners (if not individuals) provide documentation to
the pass-through entity stating that they take responsibility for
their tax obligations to the state. Pass-through entities classified
as investment partnerships are exempted from withholding.
ILLINOIS EDITION. Partnerships, or entities taxable
as partnerships, such as LLCs, are not subject to state income
taxation in Illinois. However, they are generally subject to
the Personal Property Replacement Tax Replacement Income Tax,
at a rate of 1.5% of taxable income, with certain exceptions,
such as for investment partnerships (in 2005 or later).
[35 ILCS Sec. 5/201(c) and (d)]
ILLINOIS EDITION. Beginning with tax years that
end on December 31, 2008 or later, partnerships, LLCs that
are taxable as partnerships, and S corporations that have
Illinois-source income will be required to withhold Illinois
income tax on the distributive share of such income allocable
to any nonresident partner, member, or shareholder. Payment
of the tax is due at the time of filing of the entity's annual
tax return.
ILLINOIS EDITION. The state minimum wage in Illinois,
which was set at $6.50 an hour in 2006, increased to $7.50
on July 1, 2007 and is currently $8.00 an hour. It increased
again to $8.25 on July 1, 2010, where it remains in 2012.
INDIANA EDITION. On February 1, 2012, Governor
Mitch Daniels of Indiana signed into law a right-to-work
act for Indiana, making it the 23rd state to adopt
such a law, and the first "Rust Belt" state to do so.
Right-to-work laws generally prohibit employers from
discriminating against workers based on their non-membership
(and in some states, membership) in a labor union. In
states that do no have have right-to-work laws, unions
can force workers to join the union or to pay union dues
if they aren't forced to join.
INDIANA EDITION. Beginning January 1, 2009, sales tax
filers with less than $1,000 in sales tax liability for the year
are allowed to file an annual sales tax return, rather than monthly,
quarterly, or semiannually. Also, beginning January 1, 2009,
retailers that remit sales tax through electronic funds transfer
(EFT) are required to file a monthly return at the same time the
remittance is due the Indiana Department of Revenue.
INDIANA EDITION. Indiana has enacted a major reform of
property taxes, including permanent caps on the maximum rates of
property taxes on homes (1% of assessed value), apartments and
agricultural land (2%), and business property (3%), in 2010 and
later, plus a number of immediate reductions in 2008 and 2009.
To offset the decreased tax revenue, the state sales tax was
increased from 6% to 7% as of April 8, 2008.
INDIANA EDITION. In 2007, the Indiana legislature took
the business-friendly step of repealing the state's bulk sale law
(Article 6 of the Uniform Commercial Code), so that purchasers of
a business or the assets of a business are no longer subject to
the burdensome legal requirements of complying with the bulk sale
law.
INDIANA EDITION. Effective since January 1, 2008,
pass-through entities (partnerships, LLCs taxable as partnerships,
and S corporations) must file composite Indiana income tax
returns on behalf of all nonresident individual partners, members,
or shareholders.
INDIANA EDITION. Effective January 1, 2008, large
payers of Indiana sales and use tax making more than $5,000
of sales and use tax payments are required to make payment
by electronic funds transfer (EFT). The previous threshold
for required EFT payments was $10,000 of tax.
IOWA EDITION. Iowa has had, for several years (2005 through
2009) the lowest unemployment tax rate of any state, at only 1% of
covered wages for most new employers. However, for 2010 and 2011 the
new employer tax rate was increased to 1.9%, although this rate is
reduced somewhat, to 1.5%, in 2012.
IOWA EDITION. Effective since April 1, 2007, the Iowa
state minimum wage has increased from the former rate of $5.15 an
hour to $6.20 an hour and increased again to $7.25 on January 1,
2008, where it remains in 2011. The Iowa minimum wage applies to
most employers, except for most small retail and service businesses
with less than $300,000 of annual gross revenues. Iowa does not
have an overtime pay requirement, unlike the federal wage/hour law.
IOWA EDITION. Effective as of July 1, 2008, the Iowa
SmokeFree Act went into effect, prohibiting smoking in enclosed
public places, including places of employment, restaurants, and
bars. See our Iowa edition for details on this new no-smoking law.
IOWA EDITION. The Iowa legislature has enacted legislation
in 2008 that increases the state sales tax rate from 5% to 6%. The
increase is "temporary" and will sunset on January 1, 2030. (Don't
hold your breath....)
KANSAS EDITION. Beginning in 2011, individuals or
corporations located in counties that impose the Local Intangibles
Tax on income from intangible property (such as dividends and most
types of interest) must file the Form 200 with
their local county clerk, rather than with the Kansas Department
of Revenue. For details, see the 2011 edition of
Starting and Operating a Business in Kansas.
KANSAS EDITION. The Kansas sales and use tax rate was
increased by 1%, from 5.3% to 6.3%, effective July 1, 2010. Also
beginning July 1, 2010, Kansas required electronic filing of all
sales tax and income tax withholding returns as well as electronic
payment.
KANSAS EDITION. For a number of years, Kansas has had
the lowest minimum wage rate in the nation, at $2.65 an hour
(although nearly all employers in Kansas are subject to the
higher federal minimum wage). However, effective January 1,
2010, the Kansas minimum wage was increased to $7.25 an
hour, the same as the federal minimum wage.
KANSAS EDITION. Reacting to the deteriorating economic
situation, the state of Kansas has adopted the "PEAK" (Promoting
Employment Across Kansas) Act. Under the PEAK Act, for-profit
employers in 5 large metropolitan counties who hire 10 new
employees, or employers in other counties who hire 5 new employees,
may retain up to 95% of the Kansas payroll withholding taxes for
the new workers for periods of 5 to 7 years. To be eligible for
this benefit, the employers must provide adequate health insurance
to their full-time employees and must pay at least 50% of the premiums
for such insurance. Certain types of businesses are not eligible,
including bioscience companies, retailers, and gambling businesses
(other than casino hotels).
KANSAS EDITION. Kansas has enacted a cut in corporate
income tax rates. For corporate taxable incomes above $50,000,
the total tax rate (including surtax) is reduced from 7.35% to
7.10% in 2008, with further cuts to 7.05% in 2009 and 7% in 2010.
KANSAS EDITION. The Kansas franchise tax on capital has
been phased out, beginning in 2007, when the tax applied only to
taxable capital in excess of $1 million, rather than $100,000.
The former tax rate of $1.25 per $1,000 of taxable capital was
reduced each year from 2008 through 2010 as follows, until final
repeal after December 31, 2010:
- 2008 -- $.9375
- 2009 -- $.625
- 2010 -- $.3125
- 2011 -- Zero
KENTUCKY EDITION. For taxable years that begin after
December 31, 2011, pass-through entities (partnerships, LLC's, and
S corporations) that are required to withhold Kentucky income tax
on behalf of nonresident owners will be required to make quarterly
estimated payments of the withheld tax, except that no quarterly
payment is due if a nonresident individual owner's withheld tax is
reasonably expected to be no more than $500 for the year.
KENTUCKY EDITION. After a major overhaul of its income
tax laws that made all limited liability entities (LLCs, LLPs,
limited partnerships, and S corporations) subject to the corporate
income tax in 2005 and 2006, the Kentucky legislature has acted
again in July, 2006, and has restored the previous (nontaxable) tax
treatment of such pass-through entities, beginning in 2007, but a
complex new Limited Liability Entity (LLE) tax, based on either
gross receipts or gross profits, will now apply to all limited
liability entities (including C corporations, which can claim
the LLE tax as a credit against their corporate income tax
liability). However, entities with less than $3 million of total
gross receipts (inside and outside Kentucky) will be exempt from
the LLE tax.
For details and analysis of the complex and confusing new
Kentucky business tax laws, see the current edition of
Starting and Operating a Business in Kentucky.
(Ordering information at: www.roninsoft.com/sbzorder.htm.)
KENTUCKY EDITION. Legislation passed in 2008 has set
a limit of $1,500 per month on the amount of sales tax that
may be retained by vendors to offset their administrative costs
of complying with the Kentucky sales tax law. The new limit is
applicable to periods after June 30, 2008.
LOUISIANA EDITION. For Louisiana unemployment tax
and wage reports due after January 31, 2012, employers with
100 or more employees are required to file the reports
electronically. For reports due after January 31, 2014,
all employers will be required to file electronically.
LOUISIANA EDITION. The Louisiana Department of Labor
has changed its name, and is now called the Louisiana Workforce
Commission.
LOUISIANA EDITION. The Louisiana gift tax was repealed,
effective July 1, 2008, and the inheritance tax is repealed
entirely, retroactively for all deaths occurring after June 30,
2004.
LOUISIANA EDITION. In tax years 2006 and later, the
Louisiana franchise tax on debt capital has begun to phase out,
with only the following percentages of debt capital subject to
tax each year (for taxable years starting in each such year):
- 2006 -- 86%
- 2007 -- 72%
- 2008 -- 58%
- 2009 -- 44%
- 2010 -- 30%
- 2011 -- 0%
[LA. REV. STAT. Sec. 47:603]
MAINE EDITION. Maine's new Limited Liability Company
Act went into effect on July 1, 2011, which resulted in changes
in many of the LLC forms that must be filed with the Maine
Secretary of State. However, LLC filing fees remain the same
as prior to the new LLC Act.
MAINE EDITION. Under tax reform legislation in 2009,
effective in 2010, Maine had scrapped its previous personal
income tax system and replaced it with a 6.5% flat tax on
taxable income, with most itemized deductions and personal
exemptions being repealed. An additional surtax of 0.35%
on individuals with over $250,000 of taxable income was to
also apply. Various other taxes were to increase, including
the sales tax on liquor sold in licensed establishements
and on prepared food, as well as an increase in the tax
on short-term vehicle rentals.
However, in an election in June, 2010, Maine voters exercised
the "People's Veto" and repealed the above tax reform legislation.
MAINE EDITION. Beginning in 2009, Maine required
large businesses to begin filing sales, use, Service Provider,
and withholding tax returns electronically. After the first
quarter of 2009, this requirement applied to many smaller
businesses, and to increasingly smaller businesses in 2010
and 2011, until all businesses will have to file electronically
by 2012 (or by 2011, for some types of taxes). For details on
which firms the new electronic filing requirement will apply
to and when, see the current edition of Small Business
Advisor and Starting and Operating a Business in
Maine.
MAINE EDITION. The Maine minimum hourly wage was
increased from $6.50 an hour to $6.75 an hour, effective
as of October 1, 2006 and increased again to $7.00 on
October 1, 2007 and to $7.25 on October 1, 2008. It
increased further to $7.50 an hour on October 1, 2009,
where it remains in 2012.
MAINE EDITION. Maine has repealed its overtime
pay exemption that formerly applied to workers employed
in the restaurant, hotel, and motel industries.
MARYLAND EDITION. In 2007 legislation, Maryland has
repealed the 2003 law that required that a 3% tax be withheld
from payments made to nonresident contractors for certain real
estate improvement contracts for $50,000 or more.
MARYLAND EDITION. Maryland enacted sweeping new
"tax reforms," effective in the 2008 taxable year. These
included an increase in the corporate income tax rate from 7%
to 8.25% and the addition of 3 new individual income tax
brackets on top of the previous maximum bracket of 4.75%.
The three new income tax bracket rates are 5%, 5.25%, and
5.5%, and kick in at taxable income levels over $150,000,
$300,000, and $500,000, respectively. Under subsequent 2008
legislation, for the years 2008-2010, the tax rate was
5.5% on income in excess of $500,000 and a new 6.25% tax
rate bracket on income in excess of $1 million was imposed.
However, beginning in 2011, the top rate has dropped back
to 5.5%, on income over $500,000.
In addition, effective January 3, 2008, the sales and
use tax rate is increased from 5% to 6% and certain
computer services have become subject to sales tax, until
June 30, 2013. The credit allowed to vendors for their
costs of collecting and reporting sales taxes is temporarily
limited to $500 per tax return, from January 3, 2008 through
June 30, 2011, under 2007 legislation.
MARYLAND EDITION. The Maryland minimum wage
increased to $6.15 an hour on February 15, 2006, and
automatically increased to match the higher federal minimum
wage level on July 24, 2008 and July 24, 2009. [MD. CODE
ANN. LABOR & EMPLOY. Sec. 3-413]
MASSACHUSETTS EDITION. All Massachusetts businesses
with combined annual withholding tax, sales and use tax, sales
tax on meals, sales tax on telecommunications services, and
room occupancy tax liabilities of $5,000 or more are required
to file and pay such taxes electronically, beginning January
1, 2011. (Previously, the threshold amount was $10,000.)
MASSACHUSETTS EDITION. Investments in stock of
a corporation that is incorporated in 2011 or later may
qualify for a reduced capital gains rate of 3% (instead
of 5.3%) if held for at least three years and sold at a
gain, if the stock is "qualified small business stock."
Stock in most new small businesses is likely to qualify
under the Massachusetts income tax law, if the corporation
is domiciled in Massachusetts and at least 80% of the
value of its assets are used in active conduct of one or
more qualified businesses.
MASSACHUSETTS EDITION. Beginning August 1, 2009,
the Massachusetts sales and use tax was increased from 5%
to 6.25% and the sales tax exemption on sales of alcoholic
beverages was repealed.
MASSACHUSETTS EDITION. Beginning in 2009,
pass-through entities (partnerships, LLC's, and S corporations)
that have Massachusetts-sourced taxable income are required
to withhold state income tax on behalf of nonresident owners
on their distributive share of the income, unless such
nonresidents participate in a composite tax return or agree
to file Massachusetts income tax returns.
MASSACHUSETTS EDITION. Pursuant to tax cut legislation
enacted in 2008, the Massachusetts tax rate on corporate income
was reduced from 9.5% to 8.75% in 2010, to 8.25% in 2011, and
will be reduced to 8% in 2012 and in ensuing years.
MASSACHUSETTS EDITION. The Massachusetts minimum
wage, which had been $6.75 an hour since January 1, 2001,
increased to $7.50 an hour on January 1, 2007 and increased
again to $8.00 on January 1, 2008, where it remains in 2012.
MICHIGAN EDITION. On May 25, 2011, Michigan Governor
signed into law a sweeping reform of Michigan's extremely
burdensome and complex tax system. Beginning in 2012, the
Michigan Business Tax (MBT), an income tax and Modified Gross
Receipts Tax on all but very small businesses, is repealed.
In its place, a flat 6% corporate income tax will take effect
in 2012. Thus, the onerous entity-level tax on unincorporated
businesses and S corporations will be eliminated after 2011.
Only C corporations will be subject to the corporate income
tax. As a result, roughly 100,000 small businesses in Michigan
will no longer be subject to double taxation of their incomes.
For details on the tax reform legislation, order the new
edition of "Starting and Operating a Business in Michigan,"
at Michigan
Edition info page. (Also available in a
Kindle edition.)
The new law freezes scheduled annual tax reductions in the
individual income tax that were to begin in October, 2011,
although one decrease, from 4.35% to 4.25%, will occur in 2013.
The tax reform eliminates a wide range of individual tax credits
and tax credits that were allowed under the Michigan Business
Tax, greatly simplifying tax compliance and administration.
MICHIGAN EDITION. On February 23, 2011, new Governor
Snyder issued Executive Order 2011-4, which restructures many
state government agencies and renames the former Department of
Energy, Labor and Economic Growth as the Department of Licensing
and Regulatory Affairs, putting a number of government bureaus
and agencies under this large umbrella agency, and also transferring
some functions, such as administration of youth employment laws,
from that agency to the state Department of Education.
The Governor also issued Executive Order 2011-5, which created
a new Office of Regulatory Reinvention in the Department of
Licensing and Regulatory Affairs. The sole purpose of the new
agency is to be "...responsible for creating a regulatory environment and
regulatory processes that are fair, efficient, and conducive to business growth
and job creation through its oversight and review of current rules and regulations
and proposed rule making and regulatory activities by all departments and
agencies."
MICHIGAN EDITION. Michigan has repealed the use tax on
a wide range of services, which was to have gone into effect on
December 1, 2007. In its place, a 21.99% surcharge has been added
to the Michigan Business Tax (MBT) for each taxpayer subject to
the MBT, other than financial institutions, on which a 27.7%
surcharge is imposed for 2008 and 23.4% in 2009 and after.
However, the MBT is repealed, beginning in 2012.
MICHIGAN EDITION. The Michigan individual income tax, which
has been imposed at a flat rate of 3.9% in recent years, has been
increased to 4.35%, from October 1, 2007 through September 30, 2011.
Beginning October 1, 2011, it was scheduled to decrease by 0.1% each
year until October 1, 2015, when it will decrease from 3.95% to 3.9%
once more. However, under 2011 tax reform legislation, the scheduled
cuts have been frozen. Instead, the rate will decrease once, to 4.25%,
in 2013.
MICHIGAN EDITION. The Michigan minimum wage was increased
from $6.95 an hour to $7.15 on July 1, 2007 and increased further
to $7.40 an hour on July 1, 2008, where it remains in 2012.
MINNESOTA EDITION. In the 2008 election, Minnesota
voters decided to amend the state constitution to increase the
state sales tax by 0.375%, to be dedicated for natural resource
and cultural heritage purposes. Thus, the sales tax rate
increased to 6.875% on July 1, 2009.
MINNESOTA EDITION. Large employers, with 50 or more employees,
are now required to make all payments of Minnesota unemployment taxes
by electronic funds transfer. [MINN. STAT. Sec. 268.051, Subd. 1a]
MINNESOTA EDITION. Under 2008 Omnibus Tax Legislation
enacted in Minnesota, employers with 100 or more employees must
submit their Minnesota W-2's for 2008 electronically. The 100-employee
threshold will be decreased to 50 employees in 2009 and 25 in 2010
and following tax years. In addition, the new law requires
construction contractors to withhold tax at the rate of 2% on
payments to individuals who perform contract work for them,
beginning January 1, 2009.
MINNESOTA EDITION. A new 0.15% sales tax was imposed in
Hennepin County (including Minneapolis), effective January 1, 2007.
The new tax is to be used to finance the new Minnesota Twins Stadium,
and increases the total tax rate in the county to 6.65% (7.15% in
Minneapolis).
Beginning July 1, 2008, a new 0.25% local sales and use tax and
a vehicle excise tax are imposed in Anoka County, Dakota County,
Hennepin County, Ramsey County, and Washington County, all to be
administered by the Minnesota Department of Revenue. Motor vehicles
registered for road use will be subject to a $20 excise tax instead
of the new sales tax.
MISSISSIPPI EDITION. Beginning in 2011, LLC's are required
to file annual reports with the secretary of state by April 15th
each year for that calendar year. LLC's formed before 2011 were
required to file the annual report by April 15, 2011, but could
do so without penalty by filing online before December 1, 2011, a
one-time grace period, since this is a new requirement. (Those LLC's
that were required to file in 2011 but which have not done so by
December 1, 2011 will be dissolved on that date by the secretary of
state!)
There is no annual report filing fee for LLC's formed in
Mississippi. However, foreign LLC's must pay an annual report
filing fee of $250.
MISSISSIPPI EDITION. Mississippi has enacted (2010)
the Revised Mississippi Limited Liability Company Act, which
repeals and replaces the Mississippi Limited Liability Company
Act.
MISSISSIPPI EDITION. The Mississippi Legislature (in
2009 legislation) has reorganized the State Tax Commission into
the new Department of Revenue, which will be responsible for
tax administration, and an independent Board of Tax Appeals that
will hear administrative appeals.
MISSISSIPPI EDITION. Under 2008 tax legislation,
sales of software or software services transmitted by the
Internet to a destination outside Mississippi, where the
first use of such software or software services by the
purchaser occurs outside of the state, are exempt from
Mississippi sales tax.
MISSISSIPPI EDITION. Certain large businesses
whose monthly sales tax or withholding of employees'
Mississippi state income tax is $20,000 per month or
more are required to make an estimated sales or withholding
tax payment for the month of June, by June 25th, equal
to 75% of the estimated sales tax or employee withholding
tax for the month. A similar requirement was enacted for
sales taxes collected. However, effective July 1, 2009,
for estimated payments first due June 25, 2010, the
$20,000 threshold for required estimated tax payments
was to be increased to $50,000, and this change has been
postponed again until July 1, 2012. (This change was
originally to have gone into effect on July 1, 2008.)
MISSOURI EDITION. Because of a deficit in its
unemployment insurance fund, the state has had to borrow
from the federal government to pay unemployment benefits.
As a result, it is likely that Missouri will become a
"credit reduction state" in 2011 with regard to Federal
Unemployment Tax (FUTA). If so, Missouri employers will
not be able to claim the usual 5.4% tax credit against
the 6.2% FUTA tax rate, but will only be able to claim
a 5.1% credit. Thus, their net FUTA tax rate in 2011
will be 1.1% of wages, rather than the usual 0.8%.
MISSOURI EDITION. The Department of Revenue (DOR) is
developing an On-line License No Tax Due system which will allow
business owners to access the DOR website to quickly determine
if a business has "no tax due," without requiring a piece of
paper to be issued by the Department of Revenue. This new
system is necessary because on and after January 1, 2009, the
possession of a no tax due statement for sales and use taxes
or withholding tax is a pre-requisite to the issuance or
renewal of any city or county occupation license, or any
state license required for conducting any business where
goods are sold at retail.
MISSOURI EDITION. Missouri generally exempts
"custom" computer software, but not "canned" software,
from sales and use tax. A recent decision of the Missouri
Administrative Hearing Commission (2010), in the Filenet
Corp. case, has held that where a sale of software is
made by the "load and leave" method, by loading the
software onto the buyer's computer, no transfer of any
tangible property has occurred, and thus the sale is
not subject to Missouri sales or use tax.
MISSOURI EDITION. Missouri has enacted a new
Construction Safety Training Law. Details of the new
provisions will appear on the web site of the Missouri
Department of Labor and Industrial Relations.
MISSOURI EDITION. Beginning on January 1, 2009,
new Missouri laws went into effect regarding the hiring
of unauthorized alien workers. Under the new laws, no
state income tax deduction will be permitted for
payments to such persons for services and businesses
with 5 or more employees will be required to file federal
Form 1099-MISC forms with the Missouri
Department of Revenue. If a business knowingly retains
the services of an unauthorized alien, a court may order
the county or municipality to revoke the company's
business licenses for 14 days, or for one year for
a second offense, or permanently for a third offense.
MISSOURI EDITION. In the November, 2006 election,
Missouri voters passed an initiative (Proposition B) to
increase the state minimum wage to $6.50 an hour, beginning
January 1, 2007, and indexed for inflation in each subsequent
year. The new minimum wage law applies to Missouri retail or
service businesses whose annual gross sales are $500,000 or more.
For 2008, the indexed minimum wage was $6.65 per hour and
is $7.05 in 2009. In 2010 and 2011, the state minimum wage is
$7.25 an hour, the same as the federal minimum.
MONTANA EDITION. In the November, 2006 election,
Montana voters passed an initiative (Initiative 151) to
increase the state minimum wage to $6.15 an hour, beginning
January 1, 2007, and indexed for inflation in each subsequent
year. The minimum wage increased to $6.25 an hour on January
1, 2008, and subsequently increased to equal the federal
minimum wage of $6.55 on July 24, 2008. With indexing, the
state wage increased to $6.90 on January 1, 2009, to $7.35 in
2011, and is $7.65 an hour in 2012.
MONTANA EDITION. The taxable wage base for purposes
of the Montana unemployment tax in 2011 is $26,300. The new
employer tax rates in 2011 range from 1.8 to 3.9% in 2011 and
are lowest for certain finance, retail and wholesale trades
and highest for construction and non-classifiable employers.
There is an additional 0.18% Administrative Fund Tax.
NEBRASKA EDITION. Nebraska sales and use tax returns,
lodging tax, and tire fee returns are generally due on the 25th
day of the month after the end of the monthly, quarterly, or
annual reporting period. However, for such returns due after
October 1, 2011, the due date will be the 20th day of the
following month, rather than the 25th.
NEBRASKA EDITION. As of October 1, 2011, only one
Nebraska city (Elmwood) and one county (Dakota, outside of South
Sioux City) have combined state and local sales tax rates
of 6%. Combined tax rates are 6.5% in 107 cities and 7% in
86 cities, including larger cities such as Lincoln and Omaha.
NEBRASKA EDITION. Effective January 1, 2011,
businesses that make a state tax payment of over $5,000 in
a prior tax year must henceforth make all such tax payments
(sales tax, for example) by electronic funds transfer (EFT).
NEBRASKA EDITION. Businesses that operate under a
trade name in Nebraska must register the trade name with the
Nebraska Secretary of State and publish a duplicate of the
registration in a newspaper of general circulation. Proof of
publication must then be filed with the country clerk in the
county where the business is located or has its principal
office within 45 days after registration with the Secretary
of State. Prior to July 15, 2010, proof of publication had to
be filed within 30 days after registration.
NEBRASKA EDITION. The Nebraska Tax Commissioner
has announced that, unlike most other states, Nebraska will
allow taxpayers to deduct the new 50% bonus depreciation
and increased Section 179 first-year expensing of assets
that were enacted by Congress in the Economic Stimulus Act
of 2008.
NEBRASKA EDITION. New Nebraska laws require
contractors to withhold state income tax at the rate of 5%
on the amounts paid to subcontractors, beginning January 1,
2009. The withholding is not required if the subcontractor
is licensed as a contractor or has registered with the state
Department of Revenue.
NEVADA EDITION. The $100 annual state business
license fee was increased to $200 for the period from July
1, 2009 through June 30, 2011. The fee was due to revert back
to $100 on July 1, 2011, but will instead remain at $200.
[Per e-mail response to our inquiry, from the Nevada Secretary
of State's office, 8/1/2011]
NEVADA EDITION. The Nevada Modified Business Tax on
employers was temporarily reduced from 0.65% to 0.63% on July
1, 2005 and was scheduled to revert back to 0.65% on July 1,
2007. However, further legislation in 2007 made the 0.63% tax
rate permanent. (Supposedly.) Further legislation in 2009
has created a two-tier Modified Business Tax system, where
the tax rate is lowered to 0.50% on the first $62,500 of
quarterly wages and is increased to 1.17% on the excess
over $62,500. The new two-tier system was only to be in
effect from July 1, 2009 through June 30, 2011. The tax
rate for financial institutions remained unchanged, at
a flat 2% of payroll. In 2011, the tax rate was reduced
to zero for companies with less than $62,500 of wages per
quarter, after health care deductions. The 1.17% rate on
the excess over $62,500 remains in effect, indefinitely.
NEVADA EDITION. Nevada enacted (AB 403) several
other tax increases, effective July 1, 2009, in addition to
the increases in the business license tax and Modified Business
Tax noted in the above paragraphs. These include a 0.35% increase
in the Uniform Local School Support (sales) tax, an additional 3%
tax on lodging in Clark and Washoe Counties, and an increase in
the additional car rental tax from 6% to 10%, while eliminating
the 4% collection fee that car rental companies were previously
allowed to retain to defray their collection costs. In 2011,
the 0.35% sales tax increase was extended for two more years,
through June 30, 2013.
NEVADA EDITION. In the November, 2006 election, Nevada voters
approved an amendment to the Nevada Constitution (Nevada Question 6)
which required employers to pay at least $6.15 per hour worked if
the employer does not provide health benefits. The employer could still
pay the federal minimum wage of $5.15 if health benefits were provided.
Rates are adjusted by the amount of increase in the federal minimum
wage over $5.15 per hour, or, if greater, by the cumulative increase
in the cost of living measured by the Consumer Price Index (CPI), with
no CPI adjustment for any one-year period greater than 3%. Since July
1, 2010, the state minimum wage has been $8.25 an hour, or $7.25 if
the employer makes qualifying health benefits available to the
employee.
NEVADA EDITION. Until fairly recently, Nevada's LLP law
only provided liability protection for partners in an LLP for
liabilities arising out of the malpractice, misconduct, errors or
omissions of another partner, but did not protect the partners from
trade debts or other liabilities. However, the law was changed,
effective July 1, 2006, to expand the liability protection to
such other types of liability. [NEV. REV. STAT. Sec. 87.433]
In addition, a 2007 law repealed a former requirement that
only allowed professional LLP's to be formed in Nevada.
NEW HAMPSHIRE EDITION. Effective July 1, 2009, the
New Hampshire Meals and Rentals Tax was increased from 8% to
9%. In addition, the new law has added "campsites" to the
definition of "hotel," so that campsite rentals are now
subject to the tax.
NEW HAMPSHIRE EDITION. For taxable years ending on
or after January 1, 2009, New Hampshire now treats distributions
from ALL partnerships and LLC's as "dividends," thus making such
distributions taxable to the partners or members receiving them,
under the 5% Interest and Dividends Tax. Under previous law,
treatment of such distributions as dividends depended upon whether
interests in the partnership or LLC were freely transferable.
For details on the complex recordkeeping and important exceptions
to this new law, see the current edition of the Small Business
Advisor software and the accompanying e-book, "Starting and
Operating a Business in New Hampshire" (July, 2010 Edition).
Click here for ordering information.
Due to the extreme unpopularity of the new tax on distributions
from unincorporated entities, (partnerships and LLC's), as
described in the preceding paragraph, New Hampshire repealed
the controversial new law. Thus, for taxable years that end
after December 31, 2010, the tax on dividends from such
entities will, as in the past, only apply where interests
in the partnerships or LLC's are freely transferable.
NEW HAMPSHIRE EDITION. On September 1, 2007, the
New Hampshire minimum wage increased to $6.50 an hour and
increased further to $7.25 an hour on September 1, 2008,
where it remains in 2011. It will increase to match the
federal minimum wage if the federal minimum is increased
beyond $7.25 an hour.
NEW HAMPSHIRE EDITION. In 2007, New Hampshire
began to require "new hire reporting" for businesses that
retain the services of independent contractors, as well
as for employees. Independent contractor reporting (also
for child support enforcement purposes) is only required
if the person is expected to be paid more than $2,500.
NEW HAMPSHIRE EDITION. On April 26, 2007, the New
Hampshire legislature enacted a civil unions law, giving gay
couples the right to enter into civil unions and be granted
most of the rights of married couples under state law,
including various New Hampshire tax laws. The legislation
was signed into law by the governor on May 31, 2007, effective
January 1, 2008.
Effective January 1, 2010, same-sex marriage became legal in the
state of New Hampshire, replacing civil unions. On January 1, 2011, all
civil unions in the state became marriages by operation of law, unless
otherwise dissolved, annulled or previously converted to marriage.
NEW JERSEY EDITION. For New Jersey unemployment tax,
Temporary Disability Insurance (TDI) and Family Leave Insurance
(FLI), the taxable wage base for 2012 is increased to $30,300,
up from $29,600 in 2011. The employer tax rates for unemployment
tax and TDI remain unchanged, as does the unemployment tax paid
by workers. However, the TDI rate for workers is reduced to 0.2%
in 2012, down from 0.5% in 2011, while the FLI rate paid by
workers increased from 0.06% in 2011 to 0.08% in 2012.
NEW JERSEY EDITION. Beginning in calendar year 2012, annual
minimum franchise tax for corporations, which ranges from $500 to
$2,000, based on gross receipts, is reduced to 3/4 of the amounts
that applied previously, for corporations that have elected S
corporation status for New Jersey tax purposes. The minimum franchise
tax remains unchanged for C corporations.
NEW JERSEY EDITION. For the fiscal year from July 1, 2011
to June 30, 2012, the new employer rate for New Jersey unemployment
tax has increased to 3.1%, up from 2.8% the prior year. The taxable
wage base for the calendar year 2011 is $29,600 per employee, reduced
from $29,700 in 2010.
NEW JERSEY EDITION. The New Jersey legislature
increased personal income tax brackets on high-income
taxpayers in 2009, for each filing status, to 8% on income
over $400,000, 10.25% on income over $500,000, and 10.75%
on taxable income over $1 million. In addition, the property
tax deduction was disallowed for taxpayers with gross income
of over $250,000 and capped at $5,000 for taxpayers with
gross income of more than $150,000, but not exceeding
$250,000. The property tax deduction limitations do not
apply to taxpayers who are 65 or older or who are blind or
disabled.
However, new Governor Christie chose not to re-institute the
temporary gross income tax increases, so the top rate reverted back to
8.97% in fiscal 2010 and 2011 and the property tax deduction
(limited to $10,000) is restored for all taxpayers without regard to
their income level.
NEW JERSEY EDITION. The 4% corporation income
surtax (which increased the effective maximum corporate
tax rate from 9% to 9.36%) was scheduled to expire on
July 1, 2009, but was extended for another year, to July
1, 2010.
NEW JERSEY EDITION. Legislation enacted in April, 2008
extended the scope of the New Jersey Temporary Disability Insurance
(TDI) law to include paid family leave, which is to be financed
by all employees as a wage deduction (i.e., additional
withholding tax). Initially, in 2009, the tax rate was 0.09% of
an employee's wages, up to the amount of the taxable wage base
(which was $27,700 in 2008) and the tax rate increased to 0.12% in
2010. The family leave withholding tax decreased to 0.06% in 2011.
An employee will be eligible to take such leave to care for a
serious health condition of a child, spouse, domestic partner, or
parent, or when necessary to care for a newborn or newly adopted
child during the first year after birth or adoption. Up to 6 weeks
of paid family leave is allowed per year for each worker. Employees
may apply fore benefits under the new family disability leave
provisions are effective on or after January 1, 2009.
NEW MEXICO EDITION. Beginning July 1, 2010, the New
Mexico gross receipts tax rate increased from 5% to 5.125%.
NEW MEXICO EDITION. The maximum individual income
tax rate in New Mexico decreased to 4.9% in 2008, from
5.3% in 2007.
NEW MEXICO EDITION. The New Mexico state minimum
wage increased to $6.50 an hour on January 1, 2008 and
increased again to $7.50 on January 1, 2009, where it
remains in 2012.
NEW MEXICO EDITION. The City of Santa Fe adopted
a minimum wage ordinance that initially applied only to
businesses with 25 or more employees that were licensed to do
business in that city. The ordinance has now been upheld by
the New Mexico courts, after being challenged by a business group.
The Santa Fe minimum wage was set at $8.50 an hour on January
1, 2004, increased to $9.50 on January 1, 2006, and was scheduled
to increase again to $10.50 on January 1, 2008. It would then
increase in line with inflation, beginning in 2009. However,
the $10.50 rate increase on January 1, 2009 has been canceled,
but the Santa Fe minimum wage now applies to businesses of any
size that are licensed to do business in the city. The minimum
wage was adjusted for inflation on January 1, 2009, to $9.85
an hour. [CITY OF SANTA FE ORDINANCE No. 2003-8] It has
remained at that level through 2011, as there was no inflation
(officially). [Per Santa Fe Living Wage Poster, 8/2011]
NEW YORK EDITION. The County of Suffolk has
adopted a "living wage" ordinance that requires that
employers of 10 or more employees that have contracts
with the county to pay a minimum wage that is indexed
for inflation each July 1. As of January 1, 2012, the
county living wage was $11.27 per hour for employers
that provide health care coverage to employees and
$12.84 for those that do not. [LAWS OF SUFFOLK COUNTY,
Sec. 347-3]
NEW YORK EDITION. The New York minimum wage
increased to $6.75 an hour on January 1, 2006 and to
$7.15 an hour on January 1, 2007. It increased again to
match the federal minimum wage when the federal minimum
increased to $7.25 on July 24, 2009, where it remains
in 2011. [N.Y. LABOR LAW, Art. 19, Sec. 652]
NEW YORK EDITION. For the 2010 and 2011 tax years, the New
York City personal income tax law added a new top tax bracket of 3.4%
on taxable incomes over $500,000, for single, head of household,
and married-joint filers. Formerly, the top tax rate was 3.2%.
In addition, a 14% surcharge applies for years before 2012, so
that the top marginal rate in 2010 and 2011 is 3.4% x 1.14 = 3.876%.
NEW YORK EDITION. Starting in 2009, general or
limited partnerships that are not LLP's and which have at least
$1 million in gross receipts for the preceding year must pay
a filing fee based on their New York-sourced gross receipts,
ranging from as little as $500 per year to as much as $4,500.
[Partnership TSB-M-09(8)(I)]
NEW YORK EDITION. Effective March 1, 2009, New York state enacted
the Metropolitan Transportation Authority (MTA) bailout taxes, which
include taxes of 0.34% on the payroll and the self-employment income
of businesses operating in the Metropolitan Commuter Transportation
District (MCTD). The MCTD includes New York County, Bronx, Kings,
Queens, Richmond, Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk,
and Westchester counties. Also imposed were a 5% additional tax on
car rentals within the MCTD, which began June 1, 2009; and an additional
50-cent tax on taxicab rides originating in New York City and
terminating within the MCTD, starting November 1, 2009.
New York also increased the special 5% statewide sales tax
on auto rentals to 6%, effective June 1, 2009.
NEW YORK EDITION. Governor Paterson signed into law a
three-year extension of New York City personal and corporation income
rates, which were scheduled to drop sharply in 2009. Instead, the
existing tax rates have remained in effect through 2011. City sales tax
on certain personal services, such as beauty, barbering, manicuring,
and health salon services, were also extended through the end of 2011.
The City sales tax on those personal services was originally due to
expire at the end of 2008.
NEW YORK EDITION. The state of New York increased tax
rates on high income individuals in 2009 to 8.97% to all tax
filers (single, joint, head of household, etc.) on taxable income
over $500,000. The tax rate was increased to 7.85% on income over
$300,000 for joint filers, $250,000 for heads of households, or
over $200,000 for single filers. Also, beginning April 7, 2009,
individuals with state or New York City adjusted gross incomes
over $1 million may only claim charitable deductions for 50% of
their charitable contributions.
NORTH CAROLINA EDITION. Facing a major budget
shortfall, North Carolina raised personal and corporate
income tax rates and the sales tax rate in 2009
legislation. The sales tax rate, which was already
scheduled to increase from 4.5% to 4.75% on October 1,
2009, instead increased by a full percentage point, to
5.5% on September 1, 2009, effective temporarily until
October 1, 2009, at which date the rate increased again,
to 5.75%, effective until July 1, 2011. On July 1, 2011,
the rate decreased to 4.75%.
High income individuals who are in the top income
tax bracket will pay an income tax surcharge of 2%, or
for the highest income taxpayers, 3% of their tax as
computed before tax credits and payments. Corporations
will begin paying a tax surcharge equal to 3% of their
income tax computed before tax credits and payments. The
income tax surcharges apply to taxable years beginning
on or after January 1, 2009 and beginning before January
1, 2011.
NORTH CAROLINA EDITION. Effective January 1, 2009,
North Carolina's gift tax was repealed, for gifts made on or
after that date.
NORTH CAROLINA EDITION. The North Carolina minimum
wage increased to $6.15 an hour, effective January 1, 2007,
and increased along with the federal minimum wage to $6.55
an hour on July 24, 2008. It increased again to $7.25 an
hour to match the federal minimum wage, on July 24, 2009,
where it remains in 2011.
NORTH CAROLINA EDITION. North Carolina's top 2007
individual income tax rate of 8% decreased to 7.75% in 2008
and subsequent years.
NORTH CAROLINA EDITION. LLCs are not generally subject
to the North Carolina franchise tax, unlike corporations. However,
LLCs that elect to be taxed as C corporations are subject to the
state franchise tax. Such LLCs will receive a $175 tax credit,
which is the difference between the $25 (formerly $20) annual
report fee for a corporation and the $200 annual report fee for
LLCs that do not elect to be treated as corporations. Beginning
January 1, 2009, the franchise tax also applies to an LLC that
elects to be treated as an S corporation for income tax purposes.
NORTH DAKOTA EDITION. At a time when most other states
are raising taxes, North Dakota has reduced corporate and
individual tax rates for tax years beginning after December 31,
2008. The top corporate tax rate was reduced in 2007 from 7% to
6.5% on taxable income over $30,000 and then to a rate of 6.4% in
2009 on income over $50,000, while the top individual rate was
reduced from 5.54% to 4.86%, beginning in 2009.
Tax rates were reduced again in 2011, with the maximum corporate
tax rate reduced from 6.4% to 5.15% on taxable income over $50,000
and the maximum individual rate reduced from 4.86% to 3.99% in 2011
on taxable income over $379,150 for each filing status except
married filing separate.
NORTH DAKOTA EDITION. North Dakota until recently imposed
a one-time license fee or tax at the time of incorporation, based
on a corporation's authorized capital stock, and additional fees
subsequently if the number of authorized shares were increased.
However, this license fee has been repealed, for corporations
formed on or after July 1, 2007.
NORTH DAKOTA EDITION. Under recent (2007) legislation, North
Dakota allows an income tax credit for 10% of real estate taxes
paid by homeowners, ranchers, and commercial businesses. The new
tax credit is limited to $1,000 each year for married couples
filing jointly, or for farmers, ranchers, and businesses, and
is limited to $500 for individual income tax filers.
In addition, for two years, beginning July 1, 2009 and ending
June 30, 2011, the state of North Dakota has transferred $295 million
of its surplus oil tax revenue to local school districts that agreed
to reduce their property tax mill levies by up to 75 mills.
NORTH DAKOTA EDITION. Effective July 24,
2007, the North Dakota minimum wage, which is tied
to the federal minimum wage, also increased to $5.85
an hour, and increased again along with the federal
minimum wage to $6.55 an hour on July 24, 2008 and
to $7.25 an hour on July 24, 2009, where it remains
in 2012.
OHIO EDITION. As of mid-September, 2011, legislation
had passed in the Ohio House (but was still pending in the Ohio
Senate) that would add "sexual orientation" and "gender identity"
to the list of protected classes of persons under Ohio's civil
rights laws, if enacted, and thus would prohibit employment
discrimination against such purposes.
OHIO EDITION. On August 10, 2011, the Chief Counsel
for the Ohio Department of Taxation issued an important alert
and ruling regarding the pass-through entity withholding tax
for nonresidents who are included in a composite tax return
of a pass-through entity (Form 4708). Under
this ruling, for tax years 2011 and later, a nonresident will
not be allowed to file an individual income tax return
(Form IT1040) in order to seek a possible
partial refund of the withheld tax unless the person has
some other Ohio-source income that REQUIRES him or her to
file an Ohio income tax return.
However, if a nonresident is required to file a
Form IT1040 and does so, the tax withheld
by the pass-through entity on the nonresident's behalf may
then be claimed as a refundable credit on the tax return,
like a payment of estimated tax.
OHIO EDITION. Businesses that owe only the
minimum Commercial Activity Tax of $150 were formerly
required to pay the tax by February 9th of the following
year (in the case of a calendar year company). However,
beginning with the 2010 payment of the 2009 minimum tax,
the payment is not due until May 10th.
OHIO EDITION. The scheduled decrease in the top
individual Ohio tax rate that was to take effect in 2009
was postponed for two years, until 2011 by the legislature.
The highest tax bracket of 6.24% remains in effect in
2009 and 2010, before falling to 5.925% in 2011 (assuming
the state's perilous financial condition will permit).
OHIO EDITION. An Ohio Court of Appeals has held in 2008
that the Commercial Activity Tax on gross receipts of a business
is unconstitutional insofar as it imposes a gross receipts tax
on sales of food sold for human consumption, which is expressly
prohibited by the Ohio Constitution, in the case of Ohio
Grocers Assn. v. Wilkins, Court of Appeals in Tenth
Appellate District, 2008 Ohio 4420.
However, on appeal to the Ohio Supreme Court in 2009, the
Court of Appeals ruling was overturned and the constitutionality
of this excise tax on food was upheld, despite the clear language
of the state constitution that bars any such excise tax on food
sales. As is often true in tax cases, protecting the revenue is
of paramount importance.
OHIO EDITION. Ohio law now requires that employers,
in addition to reporting newly hired employees, must also
report independent contractors to whom they will pay $2,500
or more for services rendered during the year, with certain
exceptions, such as for services of professionals.
OHIO EDITION. The Ohio minimum wage, which was $6.85
an hour in 2007, increased to $7.00 an hour, beginning January
1, 2008. It is indexed for inflation each year. In 2012, it
is $7.70 for larger employers and $7.25 an hour for employers
grossing $283,000 or less.
OHIO EDITION. The Ohio corporate franchise (income)
tax on corporations has been gradually phased out over several
years, beginning in 2005, and was completely phased out for
most business corporations by 2009. However, the tax remains
in effect for financial institutions and certain other special
entities.
OKLAHOMA EDITION. Under new Oklahoma anti-discrimination
laws, small employers are no longer exempted, effective November 1,
2011. Previously, the state anti-discrimination laws only applied
to employers with 15 or more employees, generally. Under the new
law, any employer with one or more employees is covered. In addition,
effective November 1, 2011, discrimination based on genetic information
or disability is prohibited.
OKLAHOMA EDITION. Effective January 1, 2011, Oklahoma
has replaced its limited partnership law with a new code, the
Uniform Limited Partnership Act of 2010. Under the new law, it
is now clear that general partners of a limited partnership can
obtain limited liability if the limited partnership is also a
limited liability partnership (LLP).
OKLAHOMA EDITION. For the years 2010, 2011, and 2012,
the Oklahoma franchise tax on corporations and the ad valorem
tax on intangible property have been replaced by a new Business
Activity Tax (BAT) on all businesses, based on 1% of their "net
revenue," which is basically net income less exclusions for
certain items such as interest, dividends, rents, and royalties.
However, unincorporated businesses that were previously exempt
from the franchise tax will only pay a $25 flat tax each year,
while the legislature decides whether to continue the BAT after
2012. At present, until 2013, corporations pay the same amount
of franchise tax they owed for 2010 instead of the 1% of net
revenue tax.
OKLAHOMA EDITION. Effective July 1, 2010, the amount
of sales tax a vendor may retain to cover its administrative
costs has been reduced to 1% of the tax collected, not to
exceed $2,500 per reporting period. Previously, vendors could
retain 1.25% of the tax, or 2.25% if making EFT payments, and
the maximum was $3,300 per month.
OKLAHOMA EDITION. Effective March 1, 2010, Oklahoma
Senate Bill 318 requires all employers that are remitters of
Oklahoma Income tax withholding and that are on the federal
semi-weekly deposit schedule to remit at the same time as
under the federal semi-weekly deposit schedule.
[68 O.S. Sec. 2385.3]
OKLAHOMA EDITION. Oklahoma has imposed an estate tax
at death for the past 74 years. This tax has finally been repealed,
effective for deaths occurring on or after January 1, 2010.
OKLAHOMA EDITION. A new Oklahoma law defines it as a
discriminatory practice if any employer hires an illegal alien
to replace a worker who is a citizen or permanent resident alien,
for persons hired on or after July 1, 2008. In addition,
contractors who contract with public entities on or after July
1, 2008 must register for and participate in a Status Verification
System to ascertain that newly hired employees are not illegal
or unauthorized alien workers. [25 O.S. Ch. 21, Sec. 1313]
OREGON EDITION. For individuals who lose their jobs
and receive severance pay, during the period from January 1,
2010 to December 31, 2013, Oregon allows such severance pay
to be subtracted from taxable income, to the extent the
individual invests such severance in a small business,
subject to certain conditions such as a requirement that
the individual materially participate in the business.
OREGON EDITION. Oregon has raised both individual
and corporate tax rates, beginning in 2009. For the years
2009 through 2011, a new 10.8% individual income tax bracket
is added for joint filers with between $250,000 and $500,000,
and an 11% bracekt for joint incomes over $500,000. For single
filers, the new tax brackets apply at half the above amounts
of taxable income. In 2012 and later, the top rate is reduced
to 9.9%, for joint filers with income over $250,000 or single
filers with income over $125,000.
Corporate tax rates are also increased, by adding a new
7.9% tax bracket to corporate taxable income over $250,000
in 2009 and 2010. The 7.9% rate is replaced by a 7.6% rate
in 2011 and 2012. After 2012, the 7.6% rate will only apply
to taxable income over $10 million. In addition, beginning
in 2009, the corporate minimum tax is increased from $10 to
a range from $10 to $150 for C corporations with less than
$500,000 in Oregon sales, or up to $100,000 for C corporations
with over $100 million of Oregon sales. The minimum tax for S
corporations is increased from $10 to $150.
OREGON EDITION. Beginning in 2009, Oregon's smoke-free
workplace law became much more restrictive. The existing (2008)
law exempted a number of types of business establishments,
such as bars, bowling alleys, bingo parlors, designated smoking
rooms in hotels or motels, employee lounges set aside for
smokers, and private homes (other than homes used for daycare).
Beginning in 2009, however, the only workplaces still exempted
from the no-smoking law will be up to 25% of the guest rooms in
a hotel or motel, smoke shops, and certain cigar bars that sold
at least $5,000 of cigars on-site in the year 2006. In addition,
the state law that has prohibited local governments from imposing
additional smoking restrictions was repealed, as of January 1, 2009.
OREGON EDITION. The Oregon minimum wage is adjusted
each year for inflation, and has increased from $7.50 for 2006 to
$8.50 in 2011 and $8.80 in 2012. [OREGON REV. STAT. Sec. 653.025]
PENNSYLVANIA EDITION. Due to a deficit in the state's
unemployment insurance fund, Pennsylvania has had to borrow from
the federal unemployment fund. As a result, Pennsylvania employers
will not receive a full 5.4% credit against the 6.2% Federal
Unemployment Tax in 2011. For details, see the current edition
of "Starting and Operating a Business in Pennsylvania," July 14,
2011 edition. (Available for Kindles on
Amazon.com.)
PENNSYLVANIA EDITION. For the Philadelphia net profits
tax on businesses for the period from July 1, 2011 to June 30,
2012, the rates were to decrease to 3.8722% for residents and
to 3.4370% for nonresidents, with further cuts scheduled for
the next three years. However, these cuts have been canceled,
and the rates that were in effect in the 2010-2011 fiscal year
have been made permanent by the City Council. [Bill No. 110138,
approved by the City Council, June 24, 2011]
PENNSYLVANIA EDITION. On January 1, 2007, the
Pennsylvania minimum wage increased to $6.25 an hour ($5.65
for small employers with 10 or fewer employees). On July 1,
2007, the state minimum wage increased to $7.15 an hour
($6.65 for small employers). Beginning July 1, 2008, small
employers were also be required to pay a minimum of $7.15
an hour. Both large and small employers must now pay a minimum
wage of $7.25 an hour, since July 24, 2009.
PENNSYLVANIA EDITION. Beginning in 2007, the
Pennsylvania corporate franchise tax/capital stock tax exemption
allowable against the "tax base" was increased to $150,000
(formerly $125,000). In 2011, the applicable tax rate on the
tax base is 2.89 mills per dollar (0.289%) and the exemption
is $160,000. The tax rate is scheduled to be reduced to 1.89
mills in 2012, to 0.89 mills per dollar in 2013 and to be
repealed in 2014 and thereafter.
RHODE ISLAND EDITION. Because of a deficit in its
unemployment insurance fund, the state has had to borrow
from the federal government to pay unemployment benefits.
As a result, it is likely that Rhode Island will become a
"credit reduction state" in 2011 with regard to Federal
Unemployment Tax (FUTA). If so, Rhode Island employers will
not be able to claim the usual 5.4% tax credit against
the 6.2% FUTA tax rate, but will only be able to claim
a 5.1% credit. Thus, their net FUTA tax rate in 2011
will be 1.1% of FUTA wages, rather than the usual 0.8%.
RHODE ISLAND EDITION. The state of Rhode Island has
enacted a sweeping personal income tax reform. Beginning with
calendar year 2011, the top income tax rate was reduced from
9.9% to 5.99% and itemized deductions are no longer allowed,
but the standard deduction is increased. Personal exemptions
are reduced from $3,650 to $3,500 and both the standard
deduction and personal exemptions are phased out for
taxpayers whose adjusted gross incomes exceed $175,000.
RHODE ISLAND EDITION. Since 2006, individual Rhode
Island taxpayers have been given the choice of paying an
alternative flat tax, instead of the regular Rhode Island
income tax. The alternative tax (flat tax) was to be computed
at the following tax rates:
- 8% for 2006
- 7.5% for 2007
- 7% for 2008
- 6.5% for 2009
- 6% for 2010
- 5.5% for 2011 and subsequent tax years.
If an individual chooses to pay the alternative flat
tax, no tax credits are allowed except credits for tax
payments or withholding and the tax credit for taxes paid
to another state.
RHODE ISLAND EDITION. On March 1, 2006, the Rhode Island
minimum wage increased to $7.10 an hour. It increased further to
$7.40 an hour on January 1, 2007, where it remains in 2012.
RHODE ISLAND EDITION. Effective as of January 1, 2007,
Rhode Island adopted the Streamlined Sales and Use Tax
Agreement (SSUTA).
SOUTH CAROLINA EDITION. Beginning in 2011, South
Carolina business personal property tax returns must be filed
online, at the South Carolina Business One Stop portal, rather
than filing a paper return on Form PT-100.
SOUTH CAROLINA EDITION. Beginning July 1, 2009, all businesses
in South Carolina are imputed to have a South Carolina employment license
which permits an employer to hire employees. The imputed employment
license remains in effect as long as the business abides by the law.
Effective July 1, 2010, all South Carolina employers must verify the
legal status of new employees and remove from their payrolls any worker
who is not legally in the United States and authorized to work. The
requirements are a part of the South Carolina Illegal Immigration Reform
Act. For details on required steps a South Carolina employer must
take to verify the legal status of a prospective employee, see our
e-book, "Starting and Operating a Business in South Carolina."
(Order at www.roninsoft.com/kindle.htm.)
SOUTH CAROLINA EDITION. Effective since
January 1, 2009, South Carolina businesses may not take
a tax deduction for wages or remuneration paid to illegal
aliens, and withholding is required at a 7% rate on any
such payments where a federal Form 1099 must be filed for
payments to an independent contractor.
SOUTH CAROLINA EDITION. To encourage creation
of small businesses in the state, South Carolina has
enacted a reduction in the normal 7% maximum individual
income tax rate on active business income received from
a pass-through entity (a sole proprietorship, partnership,
S corporation or a limited liability company). The
maximum South Carolina tax rate for individuals on such
business income is reduced 1/2% a year in 2006, 2007,
and 2008, to 6 1/2% in 2006, 6% in 2007, and 5 1/2%
in 2008, and is eventually reduced to 5% after 2008.
This tax break does not apply to C corporations or LLCs
that are taxed as C corporations. For more details, see
the current edition of Starting and Operating
a Business in South Carolina. (Ordering information
at: www.roninsoft.com/sbzorder.htm.)
SOUTH DAKOTA EDITION. New employers are generally
required to pay South Dakota unemployment tax at a rate of
1.2%, plus an "investment fee" of 0.55%, or a total rate
of 1.75% in 2011, on the taxable wage base -- the first
$11,000 of wages paid to each employee. An initial tax rate
of 6.55% applies to employers in the construction industry
in 2011. For new employers with a positive account balance,
the general new employer rate drops to 1.55% for a new
employer's second and third years and to 3.55% for a new
construction employer's second and third years. In addition,
a surcharge may be imposed in 2011, which is determined each
quarter. For the fourth quarter of 2010 and the first quarter
of 2011, the surcharge rate was zero.
The taxable wage base, $11,000 in 2011, is scheduled to
increase by $1,000 each year until it reaches $15,000 in
the year 2015.
SOUTH DAKOTA EDITION. The South Dakota minimum
wage, which is tied to the federal minimum wage, increased
in step with the increase in the federal minimum wage, to
$7.25 on July 24, 2009, where it remains in 2012.
SOUTH DAKOTA EDITION. The taxable wage base for
state unemployment tax increased to $9,000 in 2008, and
$9,500 in 2009, and will increase further to $10,000 in
2010. The unemployment tax rate for new employers in 2009
for non-construction employers increased to 3.4%, up from
1.75% in 2007 and 2008.
TENNESSEE EDITION. Effective January 1, 2012, new
restrictions on hiring aliens who are not authorized to work in
the United States will go into effect in Tennessee (unless the
federal government blocks their enforcement). The new laws require
nonemployee laborers to provide one of several specified forms of
identification, ranging from a Tennessee driver's license to a U.S.
passport or other proof of citizenship (or valid alien registration
documentation). In the case of employees, the employer is required
to verify the work authorization status of the employee hired by
using the federal E-Verify program. The employer must terminate the
employment of an illegal alien when the employer receives a final
non-confirmation result from the E-Verify program.
Initially, the new requirements apply only to government
employers or large private employers with 500 or more employees.
However, starting July 1, 2012, the new requirements will also
apply to private employers with 200 or more employees, and
starting January 1, 2013, to private employers with 6 or more
employees. [TENN. CODE § 50-1-701, et seq., effective 1/1/2012]
TENNESSEE EDITION. Under Tennessee's individual
income tax (which only applies to dividends and certain types
of interest income), a person who is 65 years old or older is
allowed an exemption of $16,200, and a couple is allowed an
exemption of $27,000 if either or both spouses are 65 or older.
Beginning in 2012, the amount of income exempt from tax for
a person who is 65 or older, or for a couple if one or both
spouses are 65 or older, is increased by $10,000, to $26,200
for a single person and to $37,000 for a couple.
TENNESSEE EDITION. Beginning with returns due in 2010,
businesses that have long been subject to local business taxes
began filing their Business Tax returns with the Tennessee
Department of Revenue, rather than with the local city or county
clerk. The Business Tax rates on various types of businesses and
occupations remain unchanged, and generally range from .05% to
.1875% of sales or revenue, depending upon the type of business.
[Tenn. DOR Notice #09-11, October, 2009]
TENNESSEE EDITION. Effective January 1, 2009
(retroactively), new legislation enacted on June 26, 2009
increased the taxable wage base for Tennessee unemployment
tax from $7,000 to $9,000 per employee, and a special new
tax of 0.6% was added for some employers, in order to fend
off insolvency of the state's unemployment insurance fund.
TENNESSEE EDITION. Effective January 1, 2008, the
sales tax on food products was reduced from 6% to 5.5% in
Tennessee. The general sales tax rate remained at 7%.
TENNESSEE EDITION. Effective January 1, 2009,
Tennessee's law that prohibits hiring of illegal aliens
was amended, and now provides somewhat less harsh
penalties for employers who violate the law. First
offenses are not punished if the employer ceases to
employ illegals. However, in the case of a second
offense, employers may still have their business or
professional licenses suspended or revoked for one year.
[TENN. CODE Sec. 50-1-103, as amended, effective 1/1/2008]
TEXAS EDITION. Under 2011 tax legislation, an automatic
$50 late filing penalty is imposed, effective for sales tax
reports originally due on or after October 1, 2011, if a sales
tax report (return) is delinquent. This penalty is in addition
to any other penalties or interest charges that may be imposed.
TEXAS EDITION. On June 16, 2009, Governor Perry
signed into law an amendment to the Texas Franchise Tax
that increased the small business exemption from the tax
from $300,000 to $1 million of total revenue, which had
the effect of relieving some 40,000 small businesses from
the franchise tax, beginning January 1, 2010, for reports
due on or after that date.
TEXAS EDITION. Texas now requires taxpayers who paid
$10,000 or more in franchise tax during the preceding state
fiscal year to make such payments electronically, by electronic
funds transfer (EFT). Prior to May 1, 2008, the threshold
amount for such required EFT payments was $100,000.
For more on Texas business regulations and tax laws, see the
current edition of Starting and Operating a Business
in Texas. (Ordering information at:
www.roninsoft.com/sbzorder.htm.)
UTAH EDITION. In 2011 tax legislation, the Utah
legislature has made it clear under the sales tax law that
pre-written computer software is now classified as tangible
personal property that is subject to tax and not as property
transferred electronically.
UTAH EDITION. In other 2011 legislation, effective
July 1, 2012, Title 48 of the Utah Code, which governs general
and limited liability partnerships, limited partnerships, and
limited liability companies, is repealed and will be replaced
by the "Unincorporated Business Entities Act," which will
include a modernized Uniform Partnership Act, Uniform Limited
Partnership Act, and Revised Uniform Limited Liability Company
Act. The new law has a delayed effective date of July 1, 2012
for new filings and January 1, 2014 for existing entities to
come into compliance.
UTAH EDITION. The Utah personal property tax exemption,
which was originally $3,500, but is indexed for inflation,
remains at $3,800 in 2011, unchanged from 2009 and 2010.
UTAH EDITION. Effective July 1, 2009, Utah increased
the filing fees for articles of incorporation for corporations,
application for a certificate of authority for a foreign
corporation, articles of organization for a limited liability
company, and certificates of limited partnership for limited
partnerships. In addition, annual renewal fees for corporations,
LLC's and limited partnerships were also increased. See the
2009 edition of
"Starting and Operating a Business in Utah" for details on
the fee increases.
UTAH EDITION. Utah has enacted tax legislation
that requires all pass-through entities (partnerships, LLC's,
and S corporations) to withhold state income tax on Utah-source
income allocable to any nonresident owners. The owners may
claim the withheld tax as a Utah income tax payment on their
Utah income tax returns for the year. The new requirement
went into effect on January 1, 2009.
UTAH EDITION. The Utah research tax credit of
7% has been modified and reduced to 5% of qualified research
expenses for 2008. However, it was increased to 6.3% of such
expenses in 2009 and 9.2% thereafter.
UTAH EDITION. Effective January 1, 2009, the Utah
general sales tax rate (state) was increased from 4.65% to
4.7%.
UTAH EDITION. In 2007, new legislation further
reduced the state portion of the sales tax on food and certain
food products from 2.75% to 1.75%, effective January 1, 2008.
However, 1.25% of local taxes apply, making the total tax rate
on food sales 3%.
UTAH EDITION. Utah has adopted the Streamlined
Sales and Use Tax Agreement (SSUTA), under which the
sourcing rules for sales tax transactions were to be
changed to make sales taxable at the point of delivery.
(Sourcing rules determine which tax rate is to apply, the
rate where the sale occurred, or the tax rate where the
delivery is made to the purchaser.) However, the SSUTA
sourcing requirement has been dropped, and Utah once
again makes in-state sales taxable at the point of sale,
rather than the point of delivery.
VERMONT EDITION. Pursuant to 2010 legislation,
Vermont now requires new hire reports to be filed within
10 days, rather than 20, after the date of hire or rehire
of an employee and the report must specify the date of hire
for each employee covered by the report. Submission of 10
or more new hires in one report must be done online, at
the website of the Vermont Department of Labor.
VERMONT EDITION. Vermont's tax law has long
provided a 40% exclusion of capital gains income.
However, effective in 2008, that exclusion may no
longer exceed 40% of federal taxable income. In 2009,
the 40% exclusion was only allowed for net capital gains
recognized before July 1, 2009. Any net gains realized
on after that date are fully taxable after a fixed
exclusion of $2,500 ($5,000 after 2010).
On the other hand, in 2009, the maximum income tax
rate bracket was reduced from 9.5% to 9.4%, and reduced
further to 8.95% in 2010 and 2011.
VERMONT EDITION. The Vermont minimum wage increases
each January by the lesser of 5% or the increase in the
Consumer Price Index, CPI-U, U.S. City average. The 2008
rate was set at $7.68 an hour and increased to $8.06 on
January 1, 2009. The minimum wage remained at $8.06 per hour
in 2010, but increased to $8.15 in 2011 and $8.46 in 2012. The
Vermont minimum wage law applies to any employer of two or
more employees. [VT. STAT. ANN., Tit. 21, Secs. 382 and 384]
VIRGINIA EDITION. Effective for the years 2011 through
2015, Virginia has enacted a research and development tax credit,
similar to the federal R & D credit, for certain research
activities carried on in Virginia. The credit can be claimed by
corporations or individuals. Such credits earned by pass-through
entities such as LLC's or partnerships are to be passed through
to their members or partners.
VIRGINIA EDITION. In 2011, Virginia did what most
other states have done in recent years, which is to repeal its
bulk sale law. Prior to repeal, the bulk sale law imposed a
number of time-consuming and often costly procedural requirements
on any person or company that made a bulk purchase of the assets
of an existing business or acquisition of an entire business.
These requirements included obtaining a list of creditors and
their addresses from the seller, preparing a detailed list of
property to be transferred, notifying all the creditors on the
list by certified or registered mail or in person prior to the
sale, or else either keeping the list of claimants on file for
6 months for copying or inspection or filing it with the clerk
of the circuit court for the county or city where the seller's
business was located. The entire bulk sale law, Title 8.6A of
the Virginia Code, was repealed by the legislature in January,
2011.
VIRGINIA EDITION.
Effective April 30, 2011, a new regulation of the Corporation
Commission has changed the filing deadline for the annual
registration. Under the new rule, LLC's must file annual
registrations and pay the annual fee by the last day of the
anniversary month of formation or initial registration.
[5 VA. ADMIN. CODE § 5-40-20, as amended]
The Corporation Commission will mail each LLC a notice of
assessment of the fee approximately two months prior to its
anniversary month. Thus, for example, if an LLC was formed
in Virginia in the month of July, it will be mailed a notice
of assessment on or about May 1 and payment of the fee will
be due by July 31.
VIRGINIA EDITION. Since 2008, Virginia has been
requiring all pass-through entities (partnerships, LLCs that
are taxable as partnerships, and S corporations) to withhold
state income tax at the rate of 5% with regard to the
Virginia-sourced income allocable to any nonresident owners.
Doing so does not relieve the nonresidents of the obligation
to file a Virginia income tax return, but the tax withheld
may be claimed as estimated tax payments on their behalf on
such tax returns.
VIRGINIA EDITION. The Virginia estate tax, which applied
to estates of deceased persons with a gross value exceeding $2
million, has been repealed, effective for decedents whose death
occurs on or after July 1, 2007.
VIRGINIA EDITION. Virginia has built its reputation
as a very friendly place to start or operate a business. In
fact, in August, 2006, Forbes ranked Virginia as the
#1 state in the country in which to do business. Virginia ranked
in the top ten in all six major categories that Forbes
looked at. Texas was a distant second, but no state other than
Virginia scored in the top ten in more than three categories.
WASHINGTON EDITION. The Washington minimum wage increased
to $8.55 an hour on January 1, 2009, and is the highest (state)
minimum wage in the nation. (Some cities, such as San Francisco
and Santa Fe, New Mexico, have higher minimum wages within their
city boundaries.) The Washington minimum wage law calls for an
annual inflation adjustment, but due to a decrease in the
cost-of-living index for the measurement period, the state
minimum wage remained at $8.55 in 2010, but increased to $8.67
in 2011 and $9.04 in 2012.
WASHINGTON EDITION. The unemployment tax wage base,
per employee, to which the state unemployment tax applies,
increased to $35,700 in 2009, up from $34,000 in 2008. In
2011, the wage base increased to $37,300 per employee, and
increases again to $38,200 in 2012. Tax rates vary by industry,
both for new employers and experience-rated employers.
WASHINGTON EDITION. Effective January 1, 2010,
businesses that make purchases for resale no longer
use resale exemption certificates to purchase without
paying sales tax. Instead, wholesalers are now able to
apply for and obtain a free resale exemption permit from
the Department of Revenue. Permits will be effective for
two years, and can be renewed thereafter for periods of
four years.
WASHINGTON EDITION. In a 2007 case, Washington
Citizens Action of Washington, et al v. State of Washington,
et al, the state Supreme Court of Washington struck
down a voter initiative (I-747) passed by voters in 2001,
which would have limited property tax increases to 1%. The
court found that part of language in the initiative which
described the pre-existing property tax law contained an
error, and despite the fact that the voter pamphlet that
had described the initiative for voters correctly described
the pre-existing law, the court used the technical error
in the initiative language to hold that the constitutional
amendment by the voters was unconstitutional and void. This
is similar to what state courts in many states have done in
recent years, for various technical reasons, to prevent such
voter initiatives from limiting tax increases.
However, within one month, in response to the state supreme
court's decision, the Washington Legislature met in a special
one-day session in which they effectively nullified the
court's ruling, by enacting legislation to give effect to
the 1% cap on property tax increases, in accordance with the
intent of voters who passed Initiative I-747.
WASHINGTON EDITION. Starting on July 1, 2008, in order
to comply with the Streamlined Sales and Use Tax Agreement,
the applicable local sales tax rate on sales of delivered
items in Washington is generally to be determined based on
the destination of the goods, rather than the location of the
seller, where goods are shipped or delivered to the customer.
(This change will not affect sales of items shipped out of
the state, sales at a retail store, taxable services, or
sales of vehicles, aircraft, watercraft, or modular homes.)
However, most small businesses are entitled to claim a tax
credit of up to $1,000 for the costs of changing over their
accounting systems to destination-based sourcing of sales.
Alternatively, an eligible small business may choose to use
a certified service provider to handle its sales and use
tax administrative duties, with the state paying the
provider's fees for the first two years. [WASH. ADMIN. CODE
Sec. 458-20-27702]
WEST VIRGINIA EDITION. New employers in West
Virginia are generally required to pay tax at a rate of 2.7%
(higher in the case of certain out-of-state construction
companies) in 2009 on the first $12,000 of wages paid to
each employee. Previously, the taxable wage base was $8,000,
but emergency legislation in May, 2009 has increased the
wage base to $12,000, retroactive to January 1, 2009. The
wage base will (theoretically) drop back to $9,000 per
employee when or if the state unemployment insurance fund
reaches $220 million. [W. VA. CODE Sec. 21A-1A-28, as
amended in 2009] It has remained at $12,000 in 2010 and
2011.
WEST VIRGINIA EDITION. While West Virginia is
one of only a few states in which local property taxes
are imposed on business inventories, under new (2008) tax
legislation, a tax credit against corporate income tax
and franchise taxes is allowed for property taxes paid on
inventories of manufacturers, beginning in 2009.
WEST VIRGINIA EDITION. In 2008, West Virginia
legislation simplified employee wage withholding rules
for West Virginia income tax by adopting the federal
withholding schedules and procedures. (It is unfortunate
that more states do not follow West Virginia's lead,
since in most states employers have to understand and
comply with two separate, complex set of wage withholding
laws, federal and state.)
WEST VIRGINIA EDITION. Effective January 1,
2007, West Virginia reduced the corporate franchise
tax rate from 0.7% to 0.55% and the corporate income
tax from 9% to 8.75%. Additional legislation in 2007
further reduced the franchise tax rate from .55% to .48%
in 2009, with additional decreases to .41% in 2010, .34%
in 2011, .27% in 2012, and .20% in 2013, .10% in 2014,
and is completely repealed thereafter.
The previous 8.75% corporate income tax is gradually
being reduced, to 8.5% effective for tax years starting on
or after January 1, 2009; 7.5% effective for tax years
starting on or after January 1, 2012; 7% for tax years
starting on or after January 1, 2013; and finally to
6.5% for tax years starting on or after January 1, 2014.
In addition, the corporate license tax was repealed,
effective as of July 1, 2008.
WEST VIRGINIA EDITION. Effective January 1,
2008, West Virginia began requiring sellers to withhold
income at the rate of 6.5% on the estimated capital gain from
sales of real estate located in West Virginia. In addition,
the withholding tax rate payable by pass-through entities
with respect to West Virginia-source income allocable to
nonresident partners, members, or S corporation shareholders
increased from 4% to 6.5%, beginning in 2008.
WISCONSIN EDITION. Effective after February 19, 2010,
Wisconsin has done what most other states have done in recent
years, which is to repeal its bulk sale law. Prior to repeal,
the bulk sale law imposed a number of time-consuming and often
costly procedural requirements on any person or company that
made a bulk purchase of the assets of an existing business or
acquisition of an entire business. These requirements included
obtaining a list of creditors and their addresses from the
seller, preparing a detailed list of property to be transferred,
notifying all the creditors on the list by certified or registered
mail or in person at least 10 days before the sale, and either
keeping the list of claimants on file for 6 months or filing it
with the Department of Financial Institutions.
WISCONSIN EDITION. Effective for 2009 and subsequent
tax years, Wisconsin has imposed an additional personal income
tax bracket at the rate of 7.75% (the previous top bracket was
6.75%) on incomes over $300,000 for married couples or above
$225,000 for singles or heads of households ($150,000 if married
and filing separate returns).
WISCONSIN EDITION. Beginning in February, 2009, a
new online service called "My Tax Account" became available
to business taxpayers in Wisconsin. This service will allow
business taxpayers to interact with their accounts online,
including making tax payments and filing sales and use tax
and withholding tax returns electronically.
WISCONSIN EDITION. The taxable wage base for the
Wisconsin unemployment tax base was increased to $12,000 of
wages per employee for 2009 and 2010 (previously $10,500).
The general new employer tax rates for 2010 and 2011 were 3.6
% for small employers and 4.1% for employers with over $500,000
of taxable payroll (6.6% for all new construction industry
employers, regardless of size). The taxable wage base in 2011
and 2012 has increased to $13,000, and increases to $14,000 in
2013 and thereafter.
WISCONSIN EDITION. Beginning January 1, 2009, Wisconsin
employers whose employee withholding payments of Wisconsin income
tax in 2008 were $10,000 or more are required to make their
withholding tax payments by electronic funds transfer.
WISCONSIN EDITION. The Wisconsin minimum wage increased
to $6.50 an hour on June 1, 2006. [WISC. ADMIN. CODE Sec. DWD 272.03(1m)(a)]
The state minimum wage increased to $7.25 an hour on July 24, 2009.
In addition, the city of Madison had adopted its own minimum
wage ordinance, which would have increased the city minimum wage
to $7.75 plus an inflation adjustment by January 1, 2008, but
the city ordinance has been pre-empted by the state legislature's
enactment of amendments to the state minimum wage law in 2005.
[WISC. STAT. Sec. 104.0001]
WYOMING EDITION. Under the Wyoming unemployment tax
law, new employers were required to pay tax at a rate that
varies by industry in 2011 on the first $22,300 of wages
paid to each employee.
WYOMING EDITION. Effective July 1, 2004, a new sales tax
exemption was enacted, effective until December 31, 2010, for the
purchase or lease of machinery and machine tools used in manufacturing.
The exemption applied only to a manufacturer classified by the Department
of Revenue under the NAICS code manufacturing sector 31 - 33. (NAICS
is the North American Industry Classification System, which was
developed jointly by the U.S., Canada, and Mexico to provide new
comparability in statistics about business activity across North
America.)
This exemption was extended in 2010 for one more year, until
December 31, 2011. [WYO. STAT. Sec. 39-16-105(a)(viii)(D)(I-II)]
WYOMING EDITION. Effective July 1, 2006, Wyoming
amended its sales and use tax law to exempt sales of food for
domestic home consumption. The exemption applies to substances,
whether liquid, concentrated, solid, frozen, dried, or in
dehydrated form, that are sold for ingestion or chewing by
humans and are consumed for their taste or nutritional value.
(This exemption had been applied on an emergency basis since
March 20, 2006.) The exemption was to only be in effect for two
years, unless extended beyond July 1, 2008, but has now been
made permanent by act of the legislature in 2007.