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Internet Poker Under Consideration in New York?

March 12th, 2013 No comments

Newsday is reporting New York State Senate co-leaders Jeff Klein and Dean Skelos have included language in their proposed state budget that signals their support for “authorizing and regulating internet gaming for games of skill, including poker, to reflect recent changes in the classification of these games.”

Aides to these lawmakers, according to Newsday, claim the basis for authorizing internet poker in New York is a state court ruling that held poker as a game of skill, and not a game of chance.

Say what?

Indeed, there is a very relevant federal court ruling from the Eastern District of New York. Last August, in United States v. Dicristina, Judge Weinstein held that poker is a game of skill, and thus not gambling, under the federal Illegal Gambling Business Act (“IGBA”).

In his opinion, however, Judge Weinstein made very clear the classification of poker under New York State law:

New York courts have long considered that poker contains a sufficient element of chance to constitute gambling under that state’s laws.

Judge Weinstein noted the defendant did raise the argument (which was later waived) that poker should not be considered gambling under state law. The Judge’s response: “[The argument] has no merit.”

Under N.Y. penal law, profiting from unlawful gambling activity is considered criminal promotion of gambling.

I am puzzled about the senators’ purported basis for authorizing online poker in New York. There is no New York state court decision to support this position. Perhaps instead Klein and Skelos meant to suggest that the state legislature should consider the reasons described in detail in Dicristina as a basis for changing the current interpretation of poker as a “contest of chance” under NY law.

There’s likely more to this story than initially reported. Stay tuned.

Tweetbag: Withholding Gambling Winnings of U.S. Nonresidents

September 17th, 2012 4 comments

Today I received the following inquiry:

“[L]ooking for some info why 30% was tak[en] out of an $83 winning in poker at a NY state casino when most states tax after 5k.”

The casino in this case was the Seneca Niagara Casino, located in Niagara Falls, NY.

To evaluate the issue, we need to know whether the taxpayer is a U.S. resident. That’s because the rules for withholding and informational reporting of gambling winnings under the Internal Revenue Code depend on the residency status of the taxpayer.

It turns out this taxpayer is a resident of Canada. In general, gambling winnings paid to foreign individuals are subject to 30% withholding, assuming the income is not effectively connected with a U.S. trade or business. Proceeds from a wager placed in blackjack, baccarat, craps, roulette, or big-6 wheel, however, are not amounts subject to reporting.

Here, it seems that Seneca properly withheld thirty percent of the $83 winnings, as poker is not exempt from nonresident withholding.

Note that an applicable tax treaty between the United States and a treaty partner may reduce the amount withheld by Seneca Niagara. The United States-Canada Tax Treaty, however, offers no such relief.

Is there any other relief? Suppose the same taxpayer enters in only one other poker tournament during the year paying an $83 entry fee, and loses. Now the taxpayer has net $0 of gambling winnings for the year, yet approximately $25 was withheld on the $83 win. One shouldn’t pay $25 in U.S. tax on net zero gambling winnings. To possibly obtain a refund, the taxpayer could file a Form 1040NR to claim the winnings and losses for the year and the amount withheld.

Keep in mind that the withholding and informational rules discussed above are pursuant to federal law, not state law. Again, U.S. casinos are required to withhold 30% and issue a Form 1042-S to nonresidents unless an exception applies.

Of course, some states have their own separate informational and withholding rules for state income tax purposes. But they are not in lieu of federal law, which still must be followed, but are in addition.

The comment that “most states tax after 5k” is likely a reference to the federal rule that requires all U.S. casinos to issue a Form W-2G to U.S. residents who win more than $5,000 in a poker tournament, net of the entry fee. Note, however, whether a W-2G is actually issued has no bearing on whether the actual winnings are taxable, as all gambling winnings of U.S. residents are taxable, regardless of the amount.

NY Cigarette Wholesalers Violate CCTA

August 28th, 2012 1 comment

The battle between New York and its federally recognized tribes over the taxation of cigarettes continues.

In the most recent development, other players involved were on the losing end of a recent ruling in federal court. The judge held that wholesalers failed to collect New York City cigarette tax on the sale of millions of cigarette cartons to tribal retailers located on reservations in New York. The New York Times estimates the wholesalers could have to pay penalties up to $15 million to New York City.

New York City brought this action alleging that the wholesalers violated federal law. The Contraband Cigarette Trafficking Act prohibits persons from selling “contraband cigarettes,” which are defined as “a quantity in excess of 10,000 cigarettes, which bear no evidence of the payment of applicable State or local cigarette taxes in the State or locality where such cigarettes are found, if the State or local government requires a stamp, impression, or other indication to be placed on packages or other containers of cigarettes to evidence payment of cigarette taxes.”

Defendant wholesalers Mauro Pennisi and Gutlove & Shirvint each sold from May 2008 to January 2011 more than 10 million cartons to Indian retailers mostly on the Poospatuck Reservation, where fewer than 500 people live. Although cigarette packs sold to tribal members on reservation are exempt from NY cigarette tax, packs sold off-reservation in NYS are taxable.

New York City asserted that the cartons sold by the wholesalers were trafficked into New York City without payment of the New York City cigarette tax and re-sold. The judge ruled that New York City met its burden of proof to establish that the wholesalers should have known the vast majority of the untaxed cigarettes sold to the tribes were re-sold to non-tribal members.

This case will only further encourage tribes located in New York to manufacture their own cigarettes. Whether or not NYS will again seek to stop such activity remains to seen.

Now Shooting Himself in the Foot

August 6th, 2012 No comments

Former New York Giant and New York Jet Plaxico Burress owes New York State over $59,000 in back taxes from his 2007 tax year, reports TMZ.

via Wikipedia

In 2007, Burress was a member of the New York Giants, playing under a 6-year, $25 million contract. The Giants won Super Bowl XLII that season in one of the greatest games of all time. Burress caught the game winning touchdown in the 17-14 victory over the New England Patriots, who ultimately came up one win short in their quest for the perfect 19-0 season.

Burress made major headlines in November 2008 after accidentally shooting himself in the leg at a New York City nightclub. New York State law mandates a 3 1/2 to 15-year prison sentence for any person convicted of possessing a gun without a license. At the time, his firearm license issued by Florida had expired, and he had no NY license.

In August 2009 Burress accepted a plea agreement resulting in a two-year sentence. Burress was released from prison in June 2011.

New York State tax warrants are public information. After a tax warrant is filed, the State may seek to collect on the liability by pursuing the taxpayer’s personal property. For example, the State could seize funds from a taxpayer’s bank account. I’ve seen the State issue bank levies without first warning the taxpayer, aside from filing the warrant.

The State maintains an electronic database of the warrants presented by the Department of Taxation and Finance. They may be searched by a combination of the taxpayer’s name or city, or county of filing.

Turning 35 on August 12, Burress is currently a free agent. In his first season after the prison release, he caught 45 passes for 612 yards and 8 touchdowns for the Jets. Standing 6’5″, he could provide help to a team looking to add a legitimate red zone target.

We’ll see if an NFL team takes a shot with him. (Poor pun intended.)

Update: Some NYC Yoga Classes Taxable

July 30th, 2012 1 comment

Two weeks ago I wrote about whether yoga classes held in New York City are subject to sales tax.

Perhaps the NYS Department of Taxation & Finance took notice, because one week later the Department issued a tax bulletin clarifying its interpretation of the sales tax law as applied to yoga classes in NYC:

Facilities in New York City that offer only instruction in various yoga disciplines are not considered to be weight control salons, health salons, or gymnasiums. As a result, charges by these facilities for yoga classes are not subject to the New York City local sales tax. …

Charges for yoga instruction by a facility that otherwise qualifies as a weight control salon, health salon, or gymnasium (e.g., a facility that also offers its customers access to exercise equipment or to Pilates or aerobics classes) are subject to the New York City local sales tax.

Previously, NYC yoga studios were under the impression that all yoga classes were considered weight control salons, health salons, or gymnasiums, and thus subject to the local sales tax.

Interesting that the State is now opening the door for yoga studios to structure their businesses such that classes aren’t subject to the sales tax. My guess is that when initially approached about the issue, the Department took the safe route with a blanket position. But after assigning the task to counsel, they realized the legal interpretation was too broad.

Back to mind-body therapy…

(Hat tip: Kay Bell)

Categories: New York, Sales Tax Tags:

New York Expands Film Tax Credit Program

July 27th, 2012 No comments

I give a thumbs up for the HBO series Boardwalk Empire. The title refers to the longest boardwalk in the world, located in Atlantic City, NJ.

But the series hasn’t been filmed in New Jersey. $5 million was spent to build a 300 foot long boardwalk in Brooklyn in order to shoot scenes there. In March, filming for the upcoming Season 3 began at Historic Richmond Town on Staten Island. Season 3 is set to air this fall.

New York is a popular place to television and film producers because of the State’s post-production tax credit. Post-production refers to editing activity after filming is complete, such as visual effects, color correction, sound editing and mixing.

The State has become even more attractive to producers after Governor Cuomo earlier this week signed legislation expanding the post-production tax credit. From the Governor’s press release:

Under the new law, the qualified film and television post production credit increases from 10 percent to 30 percent in the New York metropolitan commuter region, including New York City and Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk and Westchester counties. An additional five percent (for a total of 35 percent) in tax credits would be available for post-production expenditures in locations elsewhere in the state.

In contrast, California does not offer a specific post-production tax credit. Although the cost of visual effects may qualify for the credit in the Golden State, the movie also must be filmed in the state. New York’s post-production credit does not have that requirement.

Whether a film tax credit program is good policy is another story. The folks at the Tax Foundation released this report in April, and made these key findings:

  • Film tax credits cost states revenue and require either higher taxes or lower government spending elsewhere.
  • At best, film tax incentives largely shift production from one sector to another without producing a net increase in economic activity or employment.
  • However, the program is unlikely to produce a self-sustaining state film industry.
  • Content restrictions raise concerns about censorship.

Film tax credits are also known to invite tax fraud. For example, Dennis Brouse was convicted in March for claiming improper tax credits exceeding $9 million from the Iowa Film Program.

These points must not have carried significant weight to New York lawmakers, as the new legislation received strong support. Only time will tell whether the initiative generates a net positive to the State.

Rotten Fruits of a Former Assemblyman’s Labor

July 25th, 2012 1 comment

In 2004, Jimmy Meng made history after becoming the first Asian American elected to the New York State legislature. His daughter, Grace Meng, followed in her father’s footsteps by winning the 2008 election for the 22nd assembly district in Flushing, Queens. She still holds the position today and is now seeking a seat in Congress as the Democratic nominee for New York’s 5th congressional district.

Not all is well with the Meng family, however. Yesterday, Jimmy Meng was arrested on federal wire charges, reports the New York Times.

Allegedly, in late 2011 Meng solicited $80,000 from a friend facing criminal tax charges in Manhattan. In exchange, Meng promised to bribe federal prosecutors in order for his friend to receive a more lenient sentence.

Yesterday, Meng’s friend showed up at Meng’s lumber yard in Flushing with a fruit basket and handed it over to Meng. Inside the basket was $80,000 cash.

After Meng was arrested, federal authorities sought to turn him into a cooperating witness as part of a larger corruption investigation, according to the NY Daily News.

He refused the offer, and now faces up to 20 years in prison.

The complaint notes there is no evidence Meng actually approached any federal prosecutors regarding his friend’s tax charges.

Meng’s daughter is doing what she can to minimize the blow to her campaign, saying, “I am independent of my father—always have been, always will be.”

NYC Yoga Classes Are Taxable

July 17th, 2012 No comments

Attention New York City yoga studio attendees: Your dues may increase.

The WNYC News Blog is reporting that due to a tax bulletin issued by the New York State Department of Taxation and Finance, yoga studios located in the city must collect and remit a 4.5 percent sales tax on yoga classes.

NY Tax Law Section 1212-A(a)(2) imposes tax on the receipt of sales in New York City for services provided by weight control salons, health salons, gymnasiums, turkish and sauna bath and similar establishments.

Before the bulletin was issued, yoga studios apparently believed that they were not considered a “similar establishment” under the tax law. And the State probably didn’t care to address the interpretation until yoga became so popular.

The State interprets “similar establishment” to mean a health and fitness club. It seems reasonable given the specific types of taxable services listed in the statute. Since people participate in yoga exercises in order to improve their health, I believe yoga is taxable under the law.

If, however, the health and fitness club also provides access to participant sporting activities and facilities, then it may instead be considered an athletic club. In New York, sales tax is imposed on dues and membership fees paid to any athletic club in the state, not just in New York City.

As for the “new” NYC yoga tax, the Department of Taxation and Finance plans to issue regulations shortly.

Categories: New York, Sales Tax Tags:

Tribal Manufactured Cigarettes Sold out of NYS Not Taxable

June 24th, 2012 No comments

In the ongoing war over cigarette taxes between the State of New York and its federally recognized tribes, the latter scored a victory in the most recent battle.

Supreme Court Justice David Demarest issued an order last week requiring the State to return cigarettes seized last January by state police. The 26,160 cigarette cartons and 72 bags of tobacco were sold by the St. Regis Mohawk Tribe to HCI Distribution, Inc., a political division of the Winnebago Tribe of Nebraska.

Some of the State’s tribes began to manufacture and sell their own cigarettes after losing a court case requiring them to pay the $4.35 per pack cigarette tax on their purchase of name-brand cigarettes from wholesalers located off reservation.

NY Tax Law imposes a cigarette tax on on-reservation sales of cigarettes to non-members of an Indian tribe. The consumer bears the responsibility to pay the tax.

In this case, however, the cigarettes were sold to out-of-state purchasers, which, according to Justice Demarest, are not subject to the State’s cigarette tax. Therefore, the State had no authority to seize the cigarettes and loose tobacco en route to Nebraska.

A spokeswoman for NY Attorney General Eric T. Schneiderman confirmed the AG will appeal the decision.

The Indian Country Today Media Network has more.

Next Round of Tax Breaks for NY Brewers

June 13th, 2012 No comments

Just over a month ago I wrote about the end of tax and fee exemptions for brewers located in New York. The benefits ceased because of a lawsuit brought by a Massachusetts brewer challenging the constitutionality of the exemptions.

Via the Wall Street Journal, the New York legislature fired back earlier today by introducing a new package of laws, which, among other things, restores the per-gallon tax exemption for in-state brewers.

Senate Majority Leader Dean Skelos assuaged any concerns that the measure would be funded by taxpayer dollars. Instead, he said, the per gallon exemption would be replaced by an equivalent tax credit.

I haven’t read the bills yet, but I suppose they were carefully drafted in order to withstand another possible challenge by out-of-state brewers.

The Brooklyn Brewery certainly applauds today’s news. Although I was left unsatisfied after taking a “tour” of their brewery (I stood in one room for 15 minutes and listened to the tour guide explain the beer making process), I am pleased to no longer expect a higher price the next time I order a pint of the Weisse or Summer Ale.

Bottoms up!

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