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 for the 2005 Energy and Transportation Acts (tax law changes) and, in 2006, for the Tax Increase Prevention and Reconciliation Act that was passed in May, 2006, as well as the Pension Protection Act of 2006 (signed into law by President Bush on August 17, 2006) and the Tax Relief and Health Care Act of 2006 (signed into law on December 20, 2006). All editions have also been updated for the Small Business and Work Opportunity Act of 2007, which was enacted on May 25, 2007, raising the federal minimum wage and making a number of important federal tax law changes, and also for last-minute tax changes enacted by Congress in December, 2007 as well as:

• The Economic Stimulus Act of 2008;
• The Tax Extenders and AMT Relief Act of 2008;
• The Worker, Retiree, and Employer Recovery Act of 2008;
• The Tax Extenders and AMT Relief Act of 2008;
• The Emergency Economic Stabilization Act of 2008; and
• The American Recovery and Reinvestment Act of 2009.

As always, the books in this series are always remarkably up-to-date. They have to be, since old, out-of-date legal or tax information is worse than useless -- it is dangerous!

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

Listed below are highlights of recent significant federal and state tax, legal and other developments, each of which is excerpted from one of the 51 various editions of the "Starting and Operating a Business in the U.S." book series. (All such excerpts are from "generic versions" of the books, which have not been customized for a particular user -- the Small Business Advisor software that installs the books for you will create either a generic version or a customized version, at the user's option.)

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FEDERAL/NATIONAL DEVELOPMENTS:

FROM CHAPTER 2 (IN ALL S&O EDITIONS). For a number of years, the tax law has provided a 50% exclusion from income of capital gains on certain "qualified small business stock" of a C corporation that is held for at least five years. The American Recovery and Reinvestment Act of 2009 has increased the excludible percentage to 75% for such stock that is acquired between February 17, 2009 and January 1, 2011.

FROM CHAPTER 2 (IN ALL S&O EDITIONS). Starting in 2009, IRS tax regulations treat all "disregarded entities" with employees as the employers, for purposes of federal withholding taxes. Thus, for example, a single-member LLC with employees is now required to file a Form SS-4 to obtain a Taxpayer Identification Number (T.I.N.) to use on payroll tax returns, beginning in 2009. Previously, the individual who owned a disregarded entity was considered to be the employer and used his or her Social Security Number on payroll tax returns, so that it was not necessary to apply for a T.I.N.

FROM CHAPTER 2 (IN ALL S&O EDITIONS). Under new IRS regulations, an LLC that makes an S corporation election by filing Form 2553 will now automatically be considered a corporation. Previously, it was necessary for an LLC that wished to be taxed as an S corporation to first file a Form 8832 to elect to be re-classified as a corporation for tax purposes, before it could then file an S corporation election on Form 2553.

FROM CHAPTER 2 (IN ALL S&O EDITIONS). As a general rule, only individuals may own stock in an S corporation, with a few special exceptions. Otherwise, if another corporation or an LLC or partnership becomes an S corporation shareholder, the S corporation will lose its "S" status. However, in 3 recent Private Letter Rulings (#200816002, #200816003, and #200816004), the IRS has ruled that a single-member LLC may own stock in an S corporation, provided that the LLC owner is an individual and the LLC is a "disregarded entity" (i.e., it has not elected corporation tax status). The IRS reached this conclusion because the LLC was disregarded as an entity separate from its individual owner. While Private Letter Rulings cannot be relied on as legal authority in a tax controversy, they do give a good idea of what the IRS position is regarding an issue, and these rulings also seem to make good sense with respect to this particular issue.

FROM CHAPTER 2 (IN ALL S&O EDITIONS). Chapter 2 now discusses the possible downside of operating as a single-member LLC, if your business goes bankrupt in this harsh economic climate, while owing unpaid federal payroll taxes. You may not be insulated from liability by having such an LLC, after all.

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

FROM CHAPTER 5 (IN ALL S&O EDITIONS). The IRS has announced the 2009 taxable wage base for the OASDI portion of the self-employment tax and FICA tax, which is $106,800. 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. 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.

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.

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 will increase again, 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. Like the previous version of the form, this one has an expiration date of June 30, 2009. However, it has a revision date of February 2, 2009, and 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 analyzining 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 will increase from $45 to $65, unless Congress acts to reject the fee increase.

FROM CHAPTER 9 (IN ALL S&O EDITIONS). The new federal bankruptcy act that went into effect recently added to and clarified the asset protection treatment of various types of tax-qualified retirement plans, including IRAs. For details and analysis of these new bankrupcty exemptions, and similar state laws in the various states, see the current state edition of the Starting and Operating a Business in the U.S. book series for your particular state. (Ordering information at: www.roninsoft.com/sbzorder.htm.)

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 (only). Also, for 2008 and 2009 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. 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 (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. Limits on elective contributions to a 401K plan were increased from limited to $15,500 per participant in 2007 and 2008, to $16,500 in 2009.

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 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 the first 6 months of 2008, which is a rate of 50.5 cents per mile. For the last 6 months of 2008, the mileage rate is increased sharply to 58.5 cents per mile. The standard mileage rate for 2009 is 55 cents per mile. [IRS Notice 2008-63 and Rev. Proc. 2008-72]

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). 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 14 (IN ALL S&O EDITIONS). The 2007 tax law enacted in May, 2007 provides for a simplification of the tax treatment for a "qualified joint venture" owned solely by a husband and wife. The new law lets the couple elect, if filing joint returns, to treat the venture as a sole proprietorship for each spouse, depending on the ownership of each, rather than being required to treat the business as a partnership or file partnership tax returns. Both spouses must elect to treat their business as a "qualified joint venture" to obtain the favorable treatment. Each spouse will also report his or her share of the self-employment income for purposes of the self-employment tax.

FROM CHAPTER 16 (IN ALL S&O EDITIONS). The IRS has announced various inflation adjustments that are relevant to estate planners for 2009. The $12,000 annual gift tax exclusion that was in effect in recent years is increased to $13,000 in 2009. 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 (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. Effective 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. 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. From October 1, 2008 on, the Arizona Corporation Commission will no longer be mailing out corporate annual report forms in advance of the due date. Instead, they will be mailing corporations a notice before their annual reports are due, reminding them to file their annual report.

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 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 is 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. 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. 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 will be 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. The amount of wages subject to withholding, which was $83,389 in 2007 is $90,669. Thus, due to the higher tax rate and increases taxable wage bas, the maximum that must be withheld in 2008 has increased from $500.33 in 2007 to a maximum of $693.58 in 2008 and $997.36 in 2009, an increase of 43.8% from last year, or a 99.4% increase since 2007.

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 remains 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. Under legislation enacted on July 12, 2006, the California environmental tax, which formerly applied only to corporations, was extended to all types of legal entities, including LLCs, partnerships, and sole proprietorships, effective on January 1, 2007

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 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 the November, 2006 election, Colorado voters passed an initiative (Amendment 42) to increase the state minimum wage to $6.85 an hour, beginning January 1, 2007, and indexed for inflation in each subsequent year. The 2008 minimum wage was $7.02 an hour and increased to $7.28 in 2009.

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. 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 is scheduled to increase to $8.25 in 2010. [CONN. GEN. STAT. Sec. 31-58(j)]

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 remains at $7.15 in 2009, but will increase to $7.25 on July 24, 2009, to match the scheduled increase in the federal minimum wage.

DELAWARE EDITION. The State of Delaware has recently established a "one-stop" website, the One Stop Business and Licensing Registration System, where you can register your business with the Delaware Division of Revenue, the Division of Unemployment Insurance, and the Office of Workers' Compensation, with links to the Delaware Division of Corporations to access incorporation, partnership, or LLC forms, and to reserve a legal entity or name.

DISTRICT OF COLUMBIA EDITION. The D.C. minimum wage increased to $7.55 an hour on July 24, 2008. [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 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 will increase along with the federal minimum wage on July 24, 2009, to $7.25 an hour.

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 15, 2015.

HAWAII EDITION. The Hawaii Department of Health has issued brochures for businesses on their obligations to remain 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 is the lowest state unemployment tax rate in the nation.

IDAHO EDITION. The Idaho Legislature has 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 practice 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. 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, will increase to $7.50 on July 1, 2007. A sub-minimum wage of $6.00 an hour is required for employees under the age of 18.

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. 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. 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. 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 is 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. 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 is scheduled to increase 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. Stay tuned.

MARYLAND EDITION. The Maryland minimum wage increased to $6.15 an hour on February 15, 2006, and will automatically increase 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 in 2009, pass-through entities (partnerships, LLC's, and S corporations) that have Massachusetts-sourced taxable income will be 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. Massachusetts voters will vote on an initiative petition in the November, 2008 election, to reduce the state's personal income tax rate to 2.65% in 2009 and to repeal the tax entirely on and after January 1, 2010.

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.

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 new measure repeals 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.

MINNESOTA EDITION. In the 2008 election, Minnesota voters decided whether 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 increases 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 is 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.

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 wiill increase 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 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, new legislation in 2007 has made the 0.63% tax rate permanent.

NEVADA EDITION. In the November, 2006 election, Nevada voters approved an amendment to the Nevada Constitution (Nevada Question 6) which will require employers to pay at least $6.15 per hour worked if the employer does not provide health benefits. The employer can still pay the federal minimum wage of $5.15 if health benefits are provided. Rates will be 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%. For 2008, the adjusted minimum wage is $6.33 an hour, or $5.30 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. On September 1, 2007, the New Hampshire minimum wage increased to $6.50 an hour and increases further to $7.25 an hour on September 1, 2008.

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. 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. After undergoing a serious budgetary crisis and brief state government shutdown in the summer of 2006, the New Jersey legislature finally agreed to Governor Corzine's urging that various state taxes be increased immediately. The new legislation, in attempting to balance a severe state budget deficit, added or increased the following taxes:

• Increased the sales tax rate from 6% to 7%, effective July 15, 2006;
• Imposed a new surtax on the existing corporate income tax, equal to 4% of the regular tax liability, after taking into account any tax credits (for privilege periods ending after July 1, 2006 and before July 1, 2009);
• Increased the minimum corporate income tax (previously $500) for any corporation with over $100,000 in gross receipts in 2006 or later years, to either $750, $1,000, $1,500, or $2,000, depending on the amount of a corporation's gross receipts;
• Made it clear that pre-written ("canned") computer software is generally taxable (for sales and use tax purposes), unless it is electronically delivered and used directly and exclusively in the purchaser's business, but also specifies that no exemption is allowed for delivery of pre-written software by a "load and leave" delivery method;
• Increased the rental car daily surcharge (tax) from $2 to $5 per day; and
• Imposed a new tax of 1% on the conveyance of any commercial property for more than $1 million of consideration.

NEW JERSEY EDITION. The New Jersey minimum wage increased from $6.15 an hour to $7.15 an hour on October 1, 2006. It will increase to $7.25 an hour on July 24, 2009, when the federal minimum wage also increases 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. 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 will increase again to $7.50 on January 1, 2009.

NEW MEXICO EDITION. The City of Santa Fe has 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 will then increase in line with inflation, beginning in 2009. However, the $10.50 rate increase has been canceled, but the Santa Fe minimum wage now applies to business of any size that are licensed to do business in the city. [CITY OF SANTA FE ORDINANCE No. 2003-8]

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. Until recently, New York City taxpayers who were subject to both the city Unincorporated Business Tax (UBT) and the city personal income were allowed to take a tax credit on their personal (city) income tax return for 15% to 65% of the UBT they paid, depending on their income level.

Effective for tax years beginning in 2007, new legislation increases the minimum percentage credit allowed from 15% to 23% and, for taxpayers with incomes of $42,000 or less, increases the maximum allowable credit from 65% to a full 100% credit.

NEW YORK EDITION. In a move intended to make New York state more tax-friendly towards businesses, the legislature in 2007 has 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 July 1, 2008, the county living wage is $10.69 per hour for employers that provide health care coverage to employees and $12.17 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 will increase to match the federal minimum wage when the federal minimum increases on July 24, 2009. [N.Y. LABOR LAW, Art. 19, Sec. 652]

NORTH CAROLINA EDITION. Effective January 1, 2009, North Carolina's gift tax is 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 will increase 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. North Carolina's bulk sale law was repealed in 2005. Accordingly, this is one less bit of red tape you need to be concerned with, when acquiring assets of an existing business in North Carolina.

NORTH CAROLINA EDITION. On December 1, 2006, the statewide North Carolina sales tax rate decreased from 4.5% to 4.25%. On July 1, 2007, the tax rate was scheduled to decrease further to 4%, but new legislation in 2007 has extended the 4.25% sales tax rate until October 1, 2008, at which time the rate will INCREASE to 4.5%, followed by a further increase to 4.75% on October 1, 2009. [N.C. GEN. STAT. Sec. 105-164.4(a)]

NORTH CAROLINA EDITION. LLCs are not generally subject to the North Carolina franchise tax, unlike corporations. However, under 2006 legislation, LLCs that elect to be taxed as C corporations become subject to the franchise tax, for tax years beginning in 2007 or later. Such LLCs will receive a $175 tax credit in 2008, 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. Under subsequent legislation, effective January 1, 2009, LLCs that elect to be taxed as corporations (C or S) are subject to the franchise tax.

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.

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.

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 along with the federal minimum wage to $6.55 an hour on July 24, 2008 and will increase again to $7.25 an hour on July 24, 2009.

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. Ohio retailers whose delivery sales in calendar year 2005 totaled less than $30 million were given a break in 2007 from a provision of the Streamlined Sales Tax Agreement that would have required them to shift in 2007 to a destination-based means of calculating sales tax. The Department of Taxation announced early in 2007 that those retailers can continue to calculate sales tax using origin-based sourcing, or location of the sale, which is normally their store location. However, most businesses will be required to use destination-based sourcing to determine which local tax rates apply to a sale, beginning in 2008.

In a further development in the summer of 2007, the Ohio legislature has enacted a small business provision that may permanently exempt businesses with annual delivery sales in Ohio of less than $500,000 from destination-based sourcing, but this may jeopardize Ohio's attempt to harmonize its sales tax laws with the Streamlined Sales and Use Tax Agreement (SSUTA), which was to go into effect in Ohio in 2008. These new sourcing rules are effective June 30, 2007. It remains to be seen whether the small business exception will be acceptable under SSUTA and whether Ohio will be able to become a fully participating member of SSUTA on January 1, 2008.

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.

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. 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. 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 and to $7.95 for 2008. [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.

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 will 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. 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 2008.

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

RHODE ISLAND EDITION. Also effective as of January 1, 2007, sales and use tax applies to pre-written computer software, which is now defined by law as "tangible personal property" and thus taxable. [R. I. GEN. LAWS Sec. 44-18-16]

SOUTH CAROLINA EDITION. The South Carolina sales and use tax rate increased from 5% to 6% on June 1, 2007, but the rate increase does not apply to unprepared food purchased with food stamps, which remains subject to a reduced tax rate of 3% and will be tax-exempt, beginning November 1, 2007.

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. 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 will increase again when the federal wage increases 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 will increase further to $9,500 in 2009 and to $10,000 in 2010. The unemployment tax rate for new employers remains at 1.75% for non-construction and 6.55% for construction employers in 2008, unchanged from 2007.

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. 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 has been 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.

Thus, the expanded tax will apply to the tax year 2007, and some fiscal year businesses may become subject to the new franchise tax as early as June, 2006. 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 will be exempted. That is, the franchise tax will not apply to taxable entities whose franchise tax, as computed, is less than $1,000 or whose total gross receipts are less than $300,000. Those exempted firms will still have to file returns, showing no tax is due.

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.)

TEXAS EDITION. The new Texas franchise tax law was amended in 2007 in a number of ways, most of which will reduce the tax burden on small businesses. These changes include:

• Calculation of the tax for taxable entities with total revenue between $300,000 and $900,000 will be modified by applying a sliding discount scale ranging from 80% for taxable entities with total revenue of less than $400,000 to a 20% discount for taxable entities with total revenue greater than $700,000 but less than $900,000. Those taxable entities that have total revenue of less than $300,000 will owe no tax;
• Businesses with total revenue of less than $10 million will be able to use an alternative method of calculating the franchise tax, by simply multiplying their apportioned total revenue by 0.575%; and
• A small employer (as defined) that computes its tax based on gross revenue minus compensation will be allowed an additional compensation deduction for initiating health care coverage for employees during the first and second years of provided coverage. The extra deduction will be 50% of the employer's cost for the first year and will be 25% for the second year.

Each of the above law changes is effective as of January 1, 2008.

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.

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 since July 1, 2007, retail establishments (such as restaurants, taverns, and clubs) licensed by the Department of Alcoholic Beverage Control (DABC) to resell liquor, wine and heavy beer can purchase liquor, wine and heavy beer exempt from sales tax using the resale exemption on Form TC-721, Exemption Certificate. When reselling liquor, wine and heavy beer, the seller must collect sales tax at the tax rate in effect for the business outlet location. The sales price is also subject to the 1 percent restaurant tax when sold by business entities located in jurisdictions that have adopted the restaurant tax. The seller must separately state the tax on the sales receipt given to the purchaser.

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. In September, 2006, Governor Huntsman signed into law a new flat-rate state individual income tax. Utah taxpayers were able (for 2007 only) to choose between filing under the old tax system, with numerous deductions but a higher maximum tax bracket of 6.98%, or the new flat tax, which applied at a single rate of 5.35%. Further legislation enacted in March, 2007 reduced the flat tax rate to 5%, starting in 2008, and did away with the alternate graduated tax system after 2007. Starting in 2008, Utah taxable income will begin with federal adjusted gross income, rather than federal taxable income, and most deductions (including the deduction for 1/2 of the federal tax liability) are no longer allowed, although credits will be allowed in lieu of itemized deductions and personal exemptions.

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.

VERMONT EDITION. Beginning January 1, 2007, clothing and footwear are not subject to Vermont sales or use tax regardless of price (formerly, only clothing items costing under $110 were exempt).

VERMONT EDITION. The Vermont minimum wage increased to $7.25 an hour on January 1, 2006, and will increase each subsequent January by the lesser of 5% or the increase in the Consumer Price Index, CPI-U, U.S. City average. The 2008 rate has been set at $7.68 an hour and will increase again to $8.06 on January 1, 2009. 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 has 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. 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-47.

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 $7.93 an hour on January 1, 2007, 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.) With the annual inflation adjustment, the Washington minimum wage for 2008 is $8.07 per hour.

WASHINGTON EDITION. The unemployment tax wage base, per employee, to which the state unemployment tax applies, increased to $34,000 in 2008, up from $31,400 in 2007.

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 will further reduce the franchise tax rate from .55% to .48% in 2009, with additional decreases to .41% in 2010, .34% in 2011, .27% in 2012, and .21% in 2013 and thereafter. The current 8.75% corporate income tax will be gradually 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.

WEST VIRGINIA EDITION. Additional tax legislation in 2008 provides that the corporate franchise tax will be reduced further to 0.10% in 2014 and will be repealed, for tax years starting on or after January 1, 2015. In addition, the corporate license tax was repealed, effective as of July 1, 2008.

WEST VIRGINIA EDITION. Effective January 1, 2008, West Virginia will begin 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 will increase from 4% to 6.5%, beginning in 2008.

WEST VIRGINIA EDITION. Effective 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 will decrease 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. Beginning in February, 2009, a new online service called "My Tax Account" will be 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 (previously $10,500). The new employer tax rates remain unchanged from 2008, at 3.25% for small employers and 3.4% 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)] 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 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 has amended its sales and use tax law to exempt sales of food for domestic home consumption. The exemption applies to substances, whether liquid, concentrated, solid, frozen, dried, or in dehydrated form, that are sold for ingestion or chewing by humans and are consumed for their taste or nutritional value. (This exemption had been applied on an emergency basis since March 20, 2006.) The exemption was to only be in effect for two years, unless extended beyond July 1, 2008, but has now been made permanent by act of the legislature in 2007.

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