This is where we announce recent tax, legal, and regulatory news
developments that may be of major importance to your small business.
If you've visited us before or own one of our state-by-state
"Starting and Operating a Business in ..." (CA, NY, etc.) business
guidebooks, and want to know what has changed lately, take a look
here first. The "Starting and Operating in ..." books have all been
updated regularly for all subsequent federal and state legislation since
the the book series was re-introduced in e-book format in 2005, including
the Small Business and Work Opportunity Act of 2007, which raised the
federal minimum wage and made a number of important federal tax law
changes, and also for last-minute tax changes enacted by Congress in
December, 2007, plus:
As always, the books in this series are remarkably up-to-date.
They have to be, since old, out-of-date legal or tax information is
worse than useless -- it is dangerous!
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.)
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.