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:

• The Economic Stimulus Act of 2008;
• The Worker, Retiree, and Employer Recovery Act of 2008;
• The Tax Extenders and AMT Relief Act of 2008;
• The Emergency Economic Stabilization Act of 2008;
• The American Recovery and Reinvestment Act of 2009;
• The Worker, Homeownership, & Business Assistance Act of 2009;
• The Hiring Incentives to Restore Employment (HIRE) Act of 2010; and
• Various tax and other provisions of the new health care reform law.

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 They have to be, since old, out-of-date legal or tax information is worse than useless -- it is dangerous!

SINCE THIS PAGE IS UPDATED FREQUENTLY, BE SURE TO HIT THE "REFRESH" BUTTON ON YOUR BROWSER IF YOU HAVE VISITED THIS PAGE BEFORE!

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.)

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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 has increased the excludible percentage to 75% for such stock that is acquired between February 17, 2009 and January 1, 2011.

FROM CHAPTER 2 (IN ALL S&O EDITIONS). Starting in 2009, IRS tax regulations treat 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.

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). The American Recovery and Reinvestment Act of 2009 provides an enhanced "safe harbor" for estimated income tax payments in 2009, for qualified individuals who received at least 50% of their gross income was from a small business in 2008 and if their adjusted gross income ("AGI") for 2009 was less than $500,000 ($250,000 if married, filing separately). Under prior law, a person could avoid an underpayment of estimated tax penalty by paying in estimates equal to at least 100% of the prior year's tax, or 110% for individuals with an AGI of $150,000 or more. The new law reduces the required payment to 90% of the prior year tax for "qualified individuals," as defined above. [See Chapter 5 of S&O for definition of a "small business" and a discussion of what types of income are considered to be "from a small business.]

FROM CHAPTER 5 (IN ALL S&O EDITIONS). The IRS has announced the 2010 taxable wage base for the OASDI portion of the self-employment tax and FICA tax, which is $106,800, which remains unchanged from 2009. This is the amount of earned income for an individual on which the 15.3% self-employment tax must be paid and on which FICA (Social Security) taxes on wages must be paid in 2009 and 2010. For 2008, the wage base was $102,000. 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). 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 health care "reform."

A whole new section has been added to Chapter 6 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). Congress has extended the period for which COBRA health insurance benefits for laid-off employees are eligible for the subsidy, through May 31, 2010.

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 until June 30, 2010.

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, 2007, the federal minimum wage was increased, for the first time since 1997, from $5.15 an hour to $5.85. It increased again to $6.55 an hour on July 24, 2008 and increased once more, to $7.25 an hour, on July 24, 2009.

FROM CHAPTER 6 (IN ALL S&O EDITIONS). The U.S. Citizenship and Immigration Service has released a new Form I-9 that employers must use to verify that newly hired workers are either U.S. citizens or are aliens authorized to work in this country. This version of the form has an expiration date of August 31, 2012. However, it has a revision date of August 7, 2009. It and the February 2, 2009 versions are acceptable, but older versions of the form may NOT be used any longer.

FROM CHAPTER 6 (IN ALL S&O EDITIONS). A new Section 6.20 has been added to Chapter 6, covering employer obligations to allow individuals to continue to be covered by health care plans for up to 18 months after their employment is terminated or their hours are reduced to a point where they are no longer eligible to be covered by the plan. The new segment also covers the recently added provisions under which the laid-off employees (if terminated between September 1, 2008 and the end of 2009) will only be required to pay 35% of the health plan premium cost, for up to 9 months.

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 increase 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, almost all small businesses with annual gross receipts of $10 million or less will now be allowed to use the cash method of accounting and those with inventories will no longer be required to use inventory accounting, for taxable years that begin after the May 25, 2007 date of enactment (the 2008 tax year for calendar year taxpayers).

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 is increased to a $125,000 deduction in 2007, indexed for inflation in subsequent years ($133,000 in 2009). 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 $530,000 for 2009). In addition, the date on which this increased deduction reverts back to the old (pre-2003) level of $25,000 has been moved up one year, from January 1, 2010 to January 1, 2011. Subsequent legislation has further increased the expensing deduction to $250,000 (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 has extended the $250,000 Section 179 limit and $800,000 phase-out level for one more year (2010), but did not extend bonus depreciation.

Also, for tax years beginning in 2008, 2009, and 2010 only, purchases of off-the-shelf computer software qualify for Section 179 expensing.

FROM CHAPTER 12 (IN ALL S&O EDITIONS). The IRS has announced various inflation adjustments to pension and fringe benefit items for 2009 and 2010. Thus, the maximum deductible contribution for an individual participant is increased to $49,000 (from $46,000 in 2008) 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 $195,000 in 2009 and 2010 (from $185,000 in 2008). The maximum amount of compensation on which pension plan contributions can be computed is increased from $230,000 in 2008 to $245,000 for 2009 and 2010. Limits on elective contributions to a 401K plan were increased from being limited to $15,500 per participant in 2007 and 2008, to $16,500 in 2009 and 2010.

FROM CHAPTER 12 (IN ALL S&O EDITIONS). The American Recovery and Reinvestment Act of 2009 has temporarily increased the $120 monthly exclusion for employer-paid transit passes and employer-provided commuter transportation to the same amount as for employer-provided/paid parking -- $230 a month -- for months beginning after February 17, 2009 in 2009 and for all of 2010. These amounts are indexed for inflation annually.

FROM CHAPTER 12 (IN ALL S&O EDITIONS). While participants in defined contribution plans and IRA's are generally required to take "minimum distributions" from such plans each year, beginning with the year a person attains age 70 1/2 (Roth-IRA's are the exception), Congress, in the Worker, Retiree, and Employer Recovery Act of 2008 (enacted December 11, 2008) has suspended the minimum distribution requirement for the calendar year 2009. Note, however, that this does not relieve a person who reached age 70 1/2 in 2008 from taking the 2008 initial distribution in 2009. The rule has been that a person who first turns 70 1/2 can take the initial withdrawal in that year, or in the following year (which meant a doubling up in the following year, for which a second distribution was required). Thus, a person who became 70 1/2 in 2008 but did not take the minimum distribution before year-end must still take the distribution in 2009 -- but will not be required to take a 2009 distribution in 2009 (or later).

FROM CHAPTER 13 (IN ALL S&O EDITIONS). Congress has enacted significant new hiring incentives for employers in 2010. These include a forgiveness of the employer's share (6.2% tax rate) of the FICA tax on wages paid to certain "qualified employees" who were not employed more than 40 hours during the 60 days prior to being hired and an employer who retains such employees for 52 weeks may also claim an income tax credit equal to the lesser of $1,000 or 6.2% of the wages paid during the 52-week retention period (to be claimed on the 2011 income tax return of the employer).

FROM CHAPTER 13 (IN ALL S&O EDITIONS). Under the Worker, Homeownership, & Business Assistance Act of 2009, businesses that incur net operating losses in 2009 may carry back such losses for five years (rather than two) and obtain refunds of taxes paid in the prior five years, but using the 2009 tax losses to offset taxable income that was reported in those preceding years. A similar provision was enacted earlier for 2008 net operating losses, but the five-year carryback of 2008 losses was limited to certain "eligible small businesses." The 2009 loss carryback provision is available to ALL businesses, not just small businesses.

FROM CHAPTER 13 (IN ALL S&O EDITIONS). A new segment has been added in Chapter 13 on the new, relaxed policy of the Internal Revenue Service regarding substantiation of the business use of cell phones, in which the Service provides three different simplified methods that taxpayers may now use to determine the amount of personal use of a cell phone.

FROM CHAPTER 13 (IN ALL S&O EDITIONS). Congress has enacted the Tax Extenders and AMT Relief Act of 2008 which, in addition to temporarily extending relief provisions for the Alternative Minimum Tax (AMT), has extended a number of tax incentives and created some new ones. These changes include:

• Retroactive extension of the R & D tax credit, which had expired at the end of 2007, now extended to January 1, 2010;
• An increase in the simplified alternative R & D Credit from 12% to 14% for the years 2008 and 2009;
• Retroactive extension of the 15-year accelerated depreciation write-offs for Qualified Restaurant Property and Qualified Leasehold Improvement Property until January 1, 2010, for property placed in service before that date;
• Expansion of the definition of "Qualified Restaurant Property" to include the cost of the restaurant building itself, rather than just the cost of improvements to an existing restaurant (for 2008 and 2009 only); and
• Allowing a 15-year depreciation period (instead of 39 years) for "Qualified Retail Property Improvements," meaning the cost of improvements to portions of a retail store that are open to the general public, if the building is more than three years old and if the improvements are placed in service during the year 2009.

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). 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.

FROM CHAPTER 13 (IN ALL S&O EDITIONS). The IRS has announced the standard mileage deduction for autos used in business for 2009, which was 55 cents per mile. The standard mileage rate for 2010 is 50 cents per mile. [Rev. Proc. 2008-72 and Rev. Proc. 2009-54]

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 2009. The allowable deductions are unchanged from 2008, including the extra $8,000 "bonus depreciation" allowable in the first year, so that the first-year depreciation for a car can be as much as $10,960. [Rev. Proc. 2009-24, 2009-17 I.R.B. 1.]

FROM CHAPTER 14 (IN ALL S&O EDITIONS). New tax legislation pending in 2010, if enacted, will plug a major "tax loophole." The new law would treat S corporation earnings as self-employment income, subject to the self-employment tax, for various types of services, including accounting, law, health care, actuarial science, engineering, architecture, lobbying, consulting, brokerage services, investment management, sports, and the performing arts.

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 converts to S status in the years 2009 or 2010, under the American Recovery and Reinvestment Act of 2009.

FROM CHAPTER 14 (IN ALL S&O EDITIONS). A new tax law passed by Congress in May, 2007 extended the "Kiddie Tax" on unearned income of children, beginning in 2008. Under prior law, only the income of children under the age of 14 was taxable at their parents' tax rates, and the age limit was bumped up to 18 in 2006 and 2007. Under the new law, starting in 2008, the Kiddie Tax can apply, generally, to the unearned income of a child up to the age of 19 (24, if a student), where the child's earned income does not provide more than half of his or her support. (This is basically the same age rule that is used to determine whether a child can be claimed as a dependent.)

FROM CHAPTER 16 (IN ALL S&O EDITIONS). The IRS has announced various inflation adjustments that are relevant to estate planners for 2009 and 2010. The $12,000 annual gift tax exclusion that was in effect in recent years is increased to $13,000 in 2009 and 2010. The maximum exclusion from the taxable estate for certain real estate used in a farm or family-owned business will be $1,000,000 for the estates of individuals who die in 2009 or 2010 (increased from $960,000 in 2008).

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. 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.

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 since August 1, 2008, Alabama requires that state income tax be withheld when purchasing Alabama real estate from a nonresident, although there are a number of exemptions from withholding, such as for a sale of the seller's principal residence. See our Alabama edition for details on this new tax law.

ALABAMA EDITION. The new employer tax rate for Alabama unemployment tax purposes in 2009 is 2.7% on the first $8,000 of covered wages, unchanged from 2008.

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" (2009 edition) for a link to the sign-up page for online new hire reporting in Alabama.

Note: The New Hire report-of-hire card, NH-1, is no longer accepted,

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. Voters in Fairbanks, in municipal elections on October 3, 2006, approved an amendment to the city charter which limits property taxes to a maximum rate of 0.5 mills, unless voters approve a higher rate at a general election. Another amendment to the city charter requires that any new or additional sales taxes, other than hotel/motel, alcohol, and tobacco taxes, must also be approved by voters in a general election.

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 is likely to be sharply reduced in 2009, due to the plunge in the price of oil and in the value of investments held by the Alaska Permanent Fund Corporation.

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. 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.)

ARIZONA EDITION. Effective as of January 1, 2008, a new Arizona law went into effect, prohibiting employers from hiring unauthorized aliens, one of the toughest such laws in the nation. Multiple violations of the Arizona Legal Workers Act by an employer may result in temporary or permanent suspension of all state and local licenses of the offending business.

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 is $7.25.

Arizona previously did not have a state minimum wage law.

ARKANSAS EDITION. Effective January 1, 2008, the limitation of local sales and use taxes to the first $2,500 of a transaction only applies the to sales of motor vehicles, aircraft, watercraft, and modular, manufactured or mobile homes. (But business purchasers who pay local sales tax on purchases of items costing more than $2,500 are entitled to a tax credit for the local tax on the portion of the sales price in excess of $2,500.) Also effective on that date, the state sales and use tax rate on food and food ingredients (but not on alcoholic beverages or prepared food) was reduced from 6% to 3%. Local taxes on food and food ingredients are not changed.

ARKANSAS EDITION. Effective July 1, 2009, the Arkansas sales and use tax on food and food ingredients was decreased further, to 2%.

ARKANSAS EDITION. The indexed personal income tax brackets under the Arkansas income tax law have been announced for 2008. The top tax bracket of 7% applies to Arkansas taxable income in excess of $31,700 for the 2008 tax year. (2009 tax brackets will not be announced until late in the year 2009.)

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 will increase its sales tax statewide by 1%, from April 1, 2009 until at least June 30, 2011, and the income tax rate in all brackets will be increased by 0.25%, or 0.125% if certain levels of federal "stimulus" aid are received by the state, for the tax years 2009 and 2010. The income tax rate increase also applies to the California alternative minimum tax rate (formerly 7%, now 7.25% or 7.125%).

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 will change again in 2010, when individuals and corpprations will have 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. San Francisco's local minimum wage, which was increased in 2004 to $8.50 an hour, indexed for inflation, is now (in 2009) $9.79 an hour.

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 will exempt "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.

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. Effective July 1, 2007, corporations subject to Colorado oil and gas severance taxes must make monthly estimated tax payments of such severance taxes, electronically, on the 15th day of each month, each payment being equal to 1/12th of the total estimated tax required to be paid for the year. [COLO. REV. STAT. Secs. 39-22-606(4)(b) and 39-22-606(5)(a.5)]

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. 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 will remain at 6% for now.

CONNECTICUT EDITION. Connecticut has 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 will be subject to a 10% tax surcharge for taxable years beginning in 2009 or before 2012, and the maximum individual tax rate will increase, 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% will 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 will increase from the current $2 million exemption to $3.5 million.

CONNECTICUT EDITION. Beginning with the 2008 tax year, pass-through entities (partnerships, LLC's and S corporations) that file paper tax returns are required to attach a copy of the first four pages of the federal partnership or S corporation return to the Connecticut tax return.

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. [CONN. GEN. STAT. Sec. 31-58(j)]

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. Effective for the period from October 1, 2009 through September 30, 2012, the D.C. general sales tax rate is increased to 6%. Previously, the tax rate was 5.75%.

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 (currently $12.10). 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).

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.

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 has 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.

GEORGIA EDITION. The Georgia legislature enacted legislation that will, if approved in a voter referendum, exempt business inventories from property taxation. [GA. CODE ANN. Sec. 48-5-41.2] The referendum will be held in November, 2010.

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]

GEORGIA EDITION. Effective in 2008, no deduction will be allowed under Georgia's income tax laws for wages of $600 or more paid to an undocumented worker or illegal alien. Any payment for labor services to an individual of $600 or more in a year will only be deductible if the worker is an "authorized employee," as defined by statute. This restriction will not apply to any worker who presents a valid driver's license or I.D. card issued by the Georgia Department of Driver Services. [GA. CODE ANN. Secs. 48-7-21.1 (effective January 1, 2008)]

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 will increase 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. Because of its low level of unemployment in recent years, and the high taxable wage base on which unemployment taxes were based ($34,000 in 2006, the highest of any state), Hawaii had built up a large surplus in its state unemployment insurance fund. Thus, in 2007, the unemployment tax rate was lowered to 1.9% from 2.4% in 2006, although the wage base increased again with inflation indexing to $35,300. However, a very major cut in the unemployment tax was made in 2008, by reducing the taxable wage base to only $13,000 and by cutting the new employer tax rate further, to 1.7%. This reduced taxable wage base and tax rate also apply in 2009. Thus, the maximum tax per employee was reduced from $816 in 2006 to $670.70 in 2007 and to only $221 for 2008 and 2009, greatly reducing the tax burden on employers.

HAWAII EDITION. The Hawaii minimum wage was increased to $6.75 an hour on January 1, 2006, and increased further to $7.25 an hour in 2007. [HAW. REV. STAT. ANN. Sec. 387-2]

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) is increased from 4% to 4.5%. The 0.5% GET tax rate on sales made at wholesale is 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. 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 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.

IDAHO EDITION. Effective January 1, 2006, Idaho state law makes it unlawful for a contractor to do business unless the contractor holds a current contractor's registration card or is otherwise exempt from registration. A contractor is defined as anyone who does construction (himself or through others) or a construction manager who performs construction management services.

There is a $30 fee to register as a contractor. However, THIS IS NOT A LICENSURE LAW. There are no education, experience, or examination requirements that must be met for registration as a contractor, but applicants must submit specific information in order to be registered with the Idaho Bureau of Occupational Licenses.

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 is 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. In 2007, overriding the governor's veto, the Illinois Legislature has adopted new withholding requirements for employers. Under the new law, for withholding tax returns due on or after January 1, 2008, any employer that was required to withhold more than $12,000 during the 12-month period ending on June 30th of the preceding calendar year will be required to make semi-weekly tax payments each week and file quarterly tax returns by the end of the first month after the end of each calendar quarter. Other employers will have to make monthly payments by the 15th of each month for the preceding month.

Under the new law, the Department of Revenue may issue rules or regulations that allow small employers who withhold $1,000 or less in state income tax during the calendar year to file a return and pay the tax by January 31 of the following year.

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 will increase again to $8.25 on July 1, 2010.

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 reduced the sales tax discount it allows vendors to keep to defray their administrative costs of collecting sales taxes. For tax reporting periods between July 1, 2008 and December 31, 2008, merchants with less than $60,000 of sales tax in the lookback period between July 1, 2006 and June 30, 2007 may retain a discount of 0.73% of tax collected; if tax collected in the lookback period was over $60,000 but less than $600,000, the discount is now 0.53%; and if over $600,000, the discount is 0.26%.

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 December 16, 2007, corporations are no longer required to make estimated tax payments of Indiana adjusted gross income tax if the annual tax is $2,500 or less ($1,000 before December 16, 2007). Also effective on and after that date, corporations whose quarterly estimated tax payments exceed $5,000 per payment will be required to make payments by electronic funds transfer (EFT)or by delivering in person or overnight by courier a payment by cashier's check, certified check, or money order, on or before the date the tax is due.

INDIANA EDITION. Effective since December 16, 2007, no estimated tax declaration is required of individuals if their estimated Indiana adjusted gross income tax is reasonably expected to be less than $1,000 ($400 prior to December 16, 2007).

INDIANA EDITION. Effective 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.

INDIANA EDITION. Beginning with assessments made in 2006, for property taxes first due and payable in 2007, business inventory is now generally exempted from property tax statewide, in all Indiana counties. The inventory must still be reported on the taxpayer's personal property tax return but is to be deducted on the same form for the ease of the taxpayer. [Per e-mail response to author from Dept. of Local Govt. Finance, 3-20-2006, and IND. CODE ANN. Sec. 6-1.1-12-42]

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....)

IOWA EDITION. Iowa has the lowest unemployment tax rate of any state, currently only 1% of covered wages for most new employers (in 2005 through 2008). The wage to which the tax applies is $22,800 for each employee in 2007.

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. 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.

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 sales tax and income tax withholding returns.

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 is being 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 is being reduced each year from 2008 through 2010 as follows, until final repeal after December 31, 2010:

• 2008 -- $.9375
• 2009 -- $.625
• 2010 -- $.3125
• 2011 -- Zero

KANSAS EDITION. Effective for purchases or leases made after June 30, 2006, Kansas exempts all business machinery and equipment from property taxes and also exempts such property brought into the state in order to expand a Kansas business. Also, "low cost" items of machinery, equipment, materials, and supplies to be used in a business, costing under $400 "when new" in 2005 and 2006 are exempt, and new legislation has increased the threshold cost of such items to $1,500 for 2007 and subsequent tax years.

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. 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 -- 16%

[LA. REV. STAT. Sec. 47:603] Under additional legislation enacted in 2008, the above phase-out of the tax on debt capital will be accelerated by one year, so that the franchise tax on debt capital will be completely repealed by 2011, rather than 2012.

MAINE EDITION. Under new legislation in 2009, effective in 2010, Maine has 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 will also apply.

In addition, the Maine sales tax will increase from 7% to 8.5% on January 1, 2010 on liquor sold in licensed establishments; on rental of living quarters in any hotel, rooming house, or tourist camp (but not trailer camps); and on prepared food (which now includes candy). The sales tax has been broadened to apply to also apply to various services, including amusement services, installation, repair, and maintenance services, leases of tangible personal property, personal property services, and transportation and courier services.

Effective October 1, 2009, the tax rate on short-term auto rentals is increased from 10% to 12.5%.

MAINE EDITION. Beginning in 2009, Maine requires large businesses to begin filing sales, use, Service Provider, and withholding tax returns electronically. After the first quarter of 2009, this requirement will apply 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.

MAINE EDITION. Maine has repealed its overtime pay exemption that formerly applied to workers employed in the restaurant, hotel, and motel industries.

MAINE EDITION. Under new state law that went into effect in 2008, the Maine Family and Medical Leave Act requirements have been extended to provide workers leave in the event of the death or serious illness of a sibling with whom the worker shares financial and living arrangements.

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 has enacted sweeping new "tax reforms," effective in the 2008 taxable year. These include 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 will be 5.5% on income in excess of $500,000 and 6.25% on income in excess of $1 million.

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. Overriding a veto by the governor, the Maryland Legislature enacted a new law in January, 2006 that requires certain employers to contribute to the state's Medicaid fund. The law only applies to employers with over 10,000 employees in the state who pay less than 8% of their total payroll for employee health care. Such employers must pay the difference between 8% of payroll and the amount they actually incur as employee health care expenses over to to the state Medicaid program, as a special tax. However, this legislation was carefully designed to apply to and punish only one company, Wal-Mart, and thus is not a concern for small businesses, unless the Legislature decides at some point to lower the 10,000 employee threshold to a much smaller number, which some political and labor leaders have urged.

In July, 2006, a federal district court held that the "Wal-Mart law" is invalid under federal law, but the state has appealed the decision to the federal Court of Appeals.

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. 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. Besides those usual legal forms of business (corporation, LLC, etc.), the state of Massachusetts also has long offered another form of business entity, the Massachusetts Business Trust, as yet another way to organize your business. However, recent (2008) legislation has abolished the separate tax classification of corporate trusts as of 2009, and there will no longer be any separate corporate trust tax returns. Business trusts will now be treated either as corporations, partnerships, or disregarded entities, depending upon the federal tax treatment elected by the trust entity.

MASSACHUSETTS EDITION. The Massachusetts legislature has enacted tax cut legislation in 2008 that will reduce corporate tax rates from 9.5% at present to 8.75% in 2010, with additional further cuts 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 2009 and 2010.

MASSACHUSETTS EDITION. Massachusetts imposes a room occupancy tax on room rentals for periods of 90 days or less, but the Department of Revenue has long taken the position that the tax applies to the first 90 days of a room rental, even if a room or apartment is leased for a longer period. However, the Massachusetts Appeals Court held recently that no tax applies to the first 90 days where a room is rented to someone for more than 90 consecutive days, in Lowney v. Commissioner of Revenue, Mass. App. Ct. (2006). In 2007, the Department of Revenue announced that it will not appeal this decision. [Mass. Technical Information Release, 07-2, January 26, 2007]

MASSACHUSETTS EDITION. The Massachusetts General Court (legislature), in April, 2006, enacted an innovative but controversial new universal health care insurance law that, in effect, treats health care insurance much like auto insurance, requiring all Massachusetts residents to obtain such coverage by July 1, 2007, or face loss of their state personal exemption for the 2007 tax year, or a large fine in 2008 or later years. Residents will choose from a wide range of private insurance policies at varying rates, ranging from large sums per month to free, for low-income individuals, whose insurance premium costs will be largely or entirely subsidized by the state. Individuals who fail to obtain coverage by January 1, 2008 are subject to a fine of $219.

Employers with 11 or more employees are required to either provide health insurance or offer a (federal tax code) Section 125 Plan that allows employees to purchase health care insurance with pre-tax dollars. Employers must also make a "fair and reasonable contribution" towards the cost of such employee coverage or else pay a "Fair Share Contribution" to the state of up to $295 per employee.

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.

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 is scheduled to decrease by 0.1% each year until October 1, 2015, when it will decrease from 3.95% to 3.9% once more.

MICHIGAN EDITION. The Michigan legislature, in August of 2006, approved a repeal of the Michigan Single Business Tax ("SBT") two years earlier than had currently been scheduled. Under prior law, the SBT was to be eliminated after December 31, 2009. The measure repealed the SBT for tax years that begin after December 31, 2007.

MICHIGAN EDITION. In July, 2007, Governor Granholm signed into existence two new state taxes to replace the Single Business Tax, effective January 1, 2008. These new taxes are a 4.95% tax on business net income (with various adjustments) and a 0.8% tax on modified gross receipts, which is total gross receipts less purchases from other firms.

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 2009 and 2010.

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. 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 increased to $50,000. (This change was originally to have gone into effect on July 1, 2008.)

MISSISSIPPI EDITION. Effective January, 1 2005, the new Uniform Partnership Act was enacted in Mississippi. The revised law, among other changes, provides significantly increased liability protection for partners in limited liability partnerships (LLPs). [MISS. LAWS Sec. 79-13-306]

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 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, but that web page was still "under construction" as of early June, 2009.

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, 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, and has increased again to match the federal minimum wage of $7.25 an hour on July 24, 2009.

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 will require contractors to withhold state income tax at the rate of 5% on the amounts paid to subcontractors, beginning January 1, 2009. The withholding will not be required if the subcontractor is licensed as a contractor or has registered with the state Department of Revenue.

NEBRASKA EDITION. Changes in Nebraska's age discrimination law, enacted in 2007, extends its coverage to employers with 20 or more employees, generally, and extends its protection to anyone aged 40 or older. Before the amendments, the law only applied to employers with 25 or more employees and to employees between the ages of 40 and 70.

NEBRASKA EDITION. Under a new property tax law adopted in 2007, new farmers or livestock producers are eligible for a $100,000 (per year) exclusion from property tax assessment of their agricultural equipment and machinery, for up to 3 years. The exemption must be applied for with the county assessor before December 31st of the preceding year.

NEBRASKA EDITION. Nebraska now requires withholding on payments of directors' fees to nonresident corporate directors. The percentage of the annual payments to a nonresident director that is taxable in Nebraska and subject to withholding by the corporation is the total of such income multiplied by a fraction, in which the numerator is the number of directors' meetings attended in person in Nebraska or by phone while the director is physically present in Nebraska and the denominator of the fraction is the total number of board meetings of the corporation that the director attended either in person or telephonically during the year. [Nebraska Revenue Ruling, 21-07-1, March 6, 2007]

NEVADA EDITION. The $100 annual state business license fee is increased to $200 for the period from July 1, 2009 through June 30, 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 is only to be in effect from July 1, 2009 through June 30, 2011. The tax rate for financial institutions remains unchanged, at a flat 2% of payroll.

NEVADA EDITION. Nevada has 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.

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%. Beginning July 1, 2009, the adjusted minimum wage is $7.55 an hour, or $6.55 if health benefits are provided.

NEVADA EDITION. Until 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, 2009 Edition). Click here for ordering information.

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. 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. Governor John Lynch had already indicated he would sign the bill into law, if enacted by the legislature.

NEW HAMPSHIRE EDITION. Under recent legislation, the New Hampshire unemployment tax rate can be reduced, for all new employers and for experience-rated employers with normal rates of 2.7% or less, if the state unemployment fund reserves exceed certain levels. The rate reduction can be either 0.5%, 1%, or 1.5%, if the state unemployment fund reserves exceed specified levels, beginning at $225 million. Thus, in 2008, the rate for new employers is reduced by 1% for all four quarters, to 1.7%.

NEW HAMPSHIRE EDITION. Since July 1, 2006, new state securities legislation in New Hampshire requires all business entity registrations (incorporation, formation of LLCs, limited partnerships, or LLPs, or registration of such foreign-formed entities) to file an addendum, Form SRA, stating that they are in compliance with New Hampshire's securities laws, for any securities issued by the entity in New Hampshire. An additional filing fee of $50 must accompany the addendum.

NEW JERSEY EDITION. The New Jersey legislature has 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 is not allowed for taxpayers with gross income of over $250,000 and is 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.

NEW JERSEY EDITION. The 4% corporation income surtax (which increases the effective maximum corporate tax rate from 9% to 9.36%) was scheduled to expire on July 1, 2009, but has been extended for another year, to July 1, 2010.

NEW JERSEY EDITION. New legislation enacted in April, 2008 has 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 is to be 0.09% of an employee's wages, up to the amount of the taxable wage base (which is $27,700 in 2008) and the tax rate will increase to 0.12% in 2010. 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 JERSEY EDITION. Effective since December 20, 2007, New Jersey requires employers with 100 or more full-time employees to give layoff notifications to the state Department of Labor and Workforce Development, the local municipal government, and the laid-off employees, when terminating jobs of 50 or more employees within a 30-day period in connection with a termination of operations or transfer of operations, or when 500 or more employees in the state are to be laid off. Failure to give such notice will cause the employer to be liable for severance pay to the affected employees, equal to one week's pay for each year of full-time employment.

NEW JERSEY EDITION. Effective for payments made on or after January 1, 2007, business are required to withhold New Jersey Gross Income Tax at the rate of 7% from payments made to unincorporated contractors. "Contractors" are firms or persons who do construction or repair work on real estate generally, though payments for certain professional services are excluded from the withholding requirements. Withholding is not required if the person making the payment has obtained from the person receiving the payment proof of its registration with the Division of Revenue, Department of Treasury. [N.J. REV. STAT. Sec 54A:7-1]

NEW JERSEY EDITION. On December 21, 2006, Governor Corzine signed into law a New Jersey "civil unions" act, which confers marriage-like benefits (including tax filing status and other benefits) for same-sex couples who have entered into civil unions, making New Jersey the fifth state to do so (only Massachusetts allows gay marriage under state law at present).

NEW JERSEY EDITION. The New Jersey minimum wage increased from $6.15 an hour to $7.15 an hour on October 1, 2006. It increased again to $7.25 an hour on July 24, 2009, when the federal minimum wage also increased to that level. [N.J. STAT. ANN. Sec. 34:11-56a4]

NEW JERSEY EDITION. Effective January 1, 2007, New Jersey requires any business operating in New Jersey that pays an unincorporated contractor in the building trades for services to withhold tax as if the person were an employee, rather than an independent contractor.

NEW MEXICO EDITION. Beginning July 1, 2010, the New Mexico gross receipts tax rate is increased from 5% to 5.125%.

NEW MEXICO EDITION. The maximum individual income tax rate in New Mexico has 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 2010.

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]

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 are a 5% additional tax on car rentals within the MCTD, beginning June 1, 2009; 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 has increased the special 5% statewide sales tax on auto rentals to 6%, effective June 1, 2009.

NEW YORK EDITION. Governor Paterson has 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 current tax rates will remain 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 has 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 is 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 adjustable gross incomes over $1 million may only claim charitable deductions for 50% of their charitable contributions.

NEW YORK EDITION. In a move intended to make New York state more tax-friendly towards businesses, the legislature in 2007 enacted a cut in the general corporate franchise tax rate, effective for tax years beginning January 1, 2007 or later, reducing the top rate of 7.5% to a new maximum rate of 7.1%. The new legislation also reduces two tax rates relevant to manufacturers: the overall tax rate on manufacturing income, from 7.5% to 6.5%; and the alternative minimum tax, which tends to disproportionately affect manufacturers, from 2.5% to 1.5%.

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, 2010, the county living wage is $10.83 per hour for employers that provide health care coverage to employees and $12.33 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. [N.Y. LABOR LAW, Art. 19, Sec. 652]

NORTH CAROLINA EDITION. Facing a major budget shortfall, North Carolina has 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.

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.

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 from 6.5% on taxable income over $30,000 to a rate of 6.4% on income over $50,000, while the top individual rate was reduced from 5.54% to 4.86%.

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 will allow an income tax credit for 10% of real estate taxes paid by homeowners, ranchers, and commercial businesses. The new tax credit will be limited to $1,000 each year for married couples filing jointly, or for farmers, ranchers, and businesses, and will be 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 will transfer $295 million of its surplus oil tax revenue to local school districts that agree to reduce their property tax mill levies by up to 75 mills.

NORTH DAKOTA EDITION. The maximum North Dakota corporation income tax rate, on taxable income in excess of $30,000, was 7% in 2006, but has decreased to 6.5% for taxable years beginning after December 31, 2006 and to 6.4% for taxable years beginning after December 31, 2008.

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.

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 has been postponed for two years, until 2011 by the legislature. The highest tax bracket of 6.24% will remain 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.

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 2010, it is $7.30 for larger employers and $7.25 an hour for employers grossing $267,000 or less.

OHIO EDITION. Personal income tax rates in Ohio are gradually being reduced the corporate franchise (income) tax and the personal property tax are being phased out entirely by 2009. In 2008, the maximum individual tax rate is reduced to 6.24%, and will be 5.925% in 2009. The corporate franchise tax, computed on income or on capital, whichever is higher, is reduced from 2/5 of the pre-2005 tax rate in 2007 to 1/5 in 2008, and is phased out entirely in 2009. Personal property, which was assessed at 25% of true value before 2005, was assessed at only 12.5% of true value in 2007, 6.25% in 2008, and is repealed entirely in 2009.

OHIO EDITION. Effective July 1, 2007, the discount allowed to businesses that collect sales or use tax and pay the tax on a timely basis has been reduced from 0.90% of the tax collected to 0.75%. Vendors are allowed to keep this "discount" portion of the sales tax they collect to help defray their administrative costs of collecting the sales and use taxes and filing returns. No discount is allowed if the vendor uses a Certified Service Provider as an intermediary for sales and use tax compliance, if such Certified Service Provider receives a discount allowance on tax collections on behalf of the vendor.

OKLAHOMA EDITION. Bucking the trend, when most other states are drastically raising unemployment taxes and facing insolvency in their unemployment insurance trust funds, Oklahoma has instead been able to decrease its new employer unemployment tax rate in 2010 to 1.0% (down from 1.2% in 2009). Tax rates for experience-rated employers remain unchanged from 2009, ranging from as low as 0.1% to as high as 5.5%. The taxable wage base increased from $14,200 in 2009 to $14,900 in 2010.

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 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]

OKLAHOMA EDITION. Effective November 1, 2007, a new Oklahoma law requires businesses that retain the services of independent contractors to withhold state income tax at the maximum tax bracket rate, unless the contractor provides documentation that he or she is authorized to work in the United States. This is intended to be a means of collecting state income tax from illegal immigrant laborers who might not voluntarily report such income. Tax is to be withheld when payments exceed the minimum amount ($600 at present) that requires a federal Form 1099-MISC to be filed by a payor. [68 O.S. Sec. 2385.32]

OKLAHOMA EDITION. Under recent (June, 2006 and May, 2007) tax legislation, reductions in the maximum Oklahoma individual income tax rate will go into effect over a period of several years, gradually reducing the top rate from 6.25% in 2006 to 5.65% in 2007, 5.5% in 2008, and to 5.25% by 2009.

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 will become 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 is repealed, as of January 1, 2009.

OREGON EDITION. The Oregon minimum wage is adjusted each year for inflation, and increased from $7.50 for 2006 to $7.80 an hour for 2007, to $7.95 for 2008, and to $8.40 for 2009 and 2010. [OREGON REV. STAT. Sec. 653.025]

OREGON EDITION. Beginning in 2008, Oregon state law prohibits employment discrimination that is based on sexual orientation. A number of cities in Oregon already had banned such discrimination. [S.B. 2, enacted in 2007]

OREGON EDITION. Also beginning in 2008, Oregon has begun to require withholding of state income tax on most sales of Oregon real estate interests by nonresident individuals or by corporations that are not doing business in the state and have no offices in the state.

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 pay a minimum wage of $7.25 an hour, beginning on 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 2009, the applicable tax rate on the tax base is 1.89 mills per dollar (0.189%), reduced from 2.89 mills in 2008. The rate is scheduled to be reduced to 0.89 mills per dollar in 2010 and the tax is repealed in 2011.

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 will be reduced from 9.9% to 5.99% and itemized deductions will no longer be allowed, but the standard deduction will be increased. Personal exemptions will be reduced from $3,650 to $3,500 and both the standard deduction and personal exemptions will be 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) will 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 will be 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 2010.

RHODE ISLAND EDITION. Effective as of January 1, 2007, Rhode Island has adopted the Streamlined Sales and Use Tax Agreement (SSUTA).

SOUTH CAROLINA EDITION. Effective January 1, 2009, South Carolina businesses may not take a tax deduction for wages or remuneration paid to illegal aliens, and withholding will be 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. Effective July 1, 2009, the South Dakota state tourism tax rate was increased from 1% to 1.5%, effective until July 1, 2011, at which time it is scheduled to revert back to the 1% tax rate.

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 $6.55 an hour on July 24, 2008, and increased again to equal the federal minimum wage when the federal minimum wage increased to $7.25 on July 24, 2009.

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. Beginning with returns due in 2010, businesses that have long been subject to local business taxes will begin 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. The Business Tax returns for 2009 are due at various different dates in 2010 which depend upon the business classification. [Tenn. DOR Notice #09-11, October, 2009]

TENNESSEE EDITION. Effective January 1, 2009 (retroactively), new legislation enacted on June 26, 2009 has 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% has been 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 remains 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. On June 16, 2009, Governor Perry signed into law an amendment to the Texas Franchise Tax that increases the small business exemption from the tax from $300,000 to $1 million of total revenue, which will relieve 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.

TEXAS EDITION. Under legislation passed by the Texas Legislature in 2006, the state franchise tax was expanded to cover limited partnerships, limited liability partnerships, and other limited liability business entities (but not sole proprietorships and general partnerships), effective January 1, 2008, for reports originally due after December 31, 2007.

The new legislation, which was signed into law by Governor Perry, also makes significant changes in the way the franchise tax is computed and will lower the tax rate, generally. Small businesses are exempted. That is, the franchise tax was not to apply to taxable entities whose franchise tax, as computed, is less than $1,000 or whose total gross receipts are less than $300,000 (since expanded to exempt those with gross receipts of less than $1 million). The exempted firms will still have to file returns, showing no tax is due, however.

Texas Comptroller Strayhorn estimated that the new version of the franchise tax would require some 200,000 (unincorporated) businesses that were not previously taxable to file franchise tax returns and, in many cases, pay franchise taxes, and that total franchise taxes collected will increase by $6 billion.

Instead of the previous, highly complex manner of computing the franchise tax, a different and somewhat simpler method is now used. For an explanation and more details of this revolutionary change in the Texas business tax laws, see the current edition of Starting and Operating a Business in Texas. (Ordering information at: www.roninsoft.com/sbzorder.htm.)

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 new 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 will increase 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) is 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 dales 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. 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 is 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 is reduced from 9.5% to 9.4%, and is reduced further to 8.95% in 2010.

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 2010 minimum wage remains at $8.06 per hour. The Vermont minimum wage law applies to any employer of two or more employees. [VT. STAT. ANN., Tit. 21, Secs. 382 and 384]

VERMONT EDITION. Effective as of January 1, 2007, Vermont adopted the Streamlined Sales and Use Tax Agreement (SSUTA). In doing so, Vermont implemented a number of changes in its sales and use tax laws, including such items as treatment of delivery charges, which are now taxable, even if separately stated, if the item being sold is taxable. "Canned" computer software is now taxable even if it is delivered electronically, by download or otherwise.

VIRGINIA EDITION. Beginning in 2008, Virginia requires 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 who die 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. Effective January 1, 2010, businesses that make purchases for resale will no longer use resale exemption certificates to purchase without paying sales tax. Instead, wholesalers will be 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 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]

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 will remain at $8.55 in 2010.

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.

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]

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.

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.

WEST VIRGINIA EDITION. Back on January 1, 2006, the West Virginia sales tax rate on food and food ingredients (for human consumption) was reduced from 6% to 5%. "Food and food ingredients" does not include prepared foods or alcoholic beverages. "Prepared food" is defined as any of the following:

• Food sold in a heated state or heated by the seller;
• Two or more food ingredients mixed or combined by the seller for sale as a single item; or
• Food sold with seller-provided eating utensils, including plates, knives, forks, spoons, glasses, cups, straws, or napkins.

The tax rate on such food items decreased further to 4% on July 1, 2007 and decreased again to 3% on July 1, 2008. However, on July 1, 2007, the sales tax rate on soft drinks and all food sold through vending machines increased to 6%.

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 is increased to $12,000 of wages per employee for 2009 and 2010 (previously $10,500). The general new employer tax rates for 2010 are 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).

WISCONSIN EDITION. Beginning January 1, 2009, Wisconsin employers whose employee withholding payments of Wisconsin income tax in 2008 were $10,000 or more will be 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. Effective October 1, 2008, the sales and use tax rate in Laramie County increased from 5% to 6%. The Wyoming minimum wage, at $5.15 per hour, remains unchanged in 2010.

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 applies 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.) [WYO. STAT. Sec. 39-16-105(a)(viii)(D)(I-III)]

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.

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