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Nevada Tax Commission Approves Comped Meals Tax

June 27th, 2012 No comments

Last January the Nevada Tax Commission upheld a decision requiring a major casino company (Boyd Gaming) to collect and remit sales tax on the value of complementary meals provided to its gamblers. Boyd apparently plans to take the case to the Nevada Supreme Court.

In the meantime, the Nevada Tax Commission passed regulations on Monday requiring the state’s casinos and restaurants to pay sales tax on complementary meals provided to its employees and its patrons, reports the Las Vegas Review-Journal.

The Nevada Tax Department issued the regulations last February; casinos and restaurants must remit to the state, by July 15, taxes on meals comped as of February 15, 2012.

The tax base for comped employee meals is the cost of the food when purchased by the employer. The tax base for comped patron meals is the menu price.

Some implicated businesses may stop offering comped meals. Others may refuse to pay up awaiting a court decision and could face a possible 25 percent penalty, plus interest.

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.

State of the Amazon: Update

April 29th, 2012 No comments

Last Wednesday I wrote a brief “State of the Amazon.” Between then and now, the piece became incomplete. It’s already time for an update.

Illinois:

In March 2011, the Main Street Fairness Act was passed. The law expanded the definition of “physical presence.” A seller is required to collect and remit sales tax only if it is deemed to have a physical presence within the state. The new law implicated affiliate companies, many of which earn commissions for directing web surfers to an online store.

The Chicago Tribune is reporting the Main Street Fairness Act was declared unconstitutional by Cook County Circuit Judge Robert Lopez Cepero last week. The interstate commerce clause of the U.S. Constitution limits who a state can tax, and the judge took the position the State of Illinois overstepped its authority.

I suspect the defendant, the Illinois Department of Revenue, will file an appeal if it hasn’t already.

Texas:

The Houston Chronicle is reporting the Lone Star State reached an agreement with Amazon on Friday for the online retail giant to begin collecting sales tax in the state on July 1. In addition, Amazon agreed “to create at least 2,500 new jobs in Texas over the next four years and make at least $200 million in capital investments in the state.”

All parties seem to be in support of some federal solution, but that doesn’t mean anything will get done. We’ll see.

More Amazon Sales Tax Agreements

April 25th, 2012 No comments

Amazon.com is currently the world’s largest online retailer. Many of Amazon’s products, if sold in brick and mortar locations, would be subject to sales tax in the state of sale. And it’s at least an arguable—if not compelling—case that those same products sold on the internet would be subject to sales tax in the state where the consumer sits.

Currently, Amazon.com collects sales tax in only five of 45 states that impose a sales tax. The five states: Kansas, Kentucky, New York, North Dakota, and Washington.

Many if not all of the other 40 states also want their share. Amazon has responded to such demands by threatening to end or actually ending relationships with local affiliates or by simply leaving a state.

Most recently, however, Amazon appears to be backing down. Within the past year Amazon has reached agreements with California, Indiana, South Carolina, and Tennessee to collect sales tax at a later date.

The Citizens for Tax Justice is reporting the latest developments, including an agreement with The Silver State:

  • In Nevada, Amazon.com will begin collecting sales taxes in 2014 under a new agreement announced on Monday. The company already has major warehouses and distribution centers in the state. Amazon’s agreement with Nevada is similar to deals struck in California, Indiana, South Carolina, Tennessee, and Virginia.
  • As in Nevada, Amazon’s deal to begin collecting sales taxes in Tennessee won’t take effect until 2014, but a lesser known part of that agreement has already taken effect. Amazon is mailing notices to all its Tennessee customers from throughout the past year letting them know that they may owe sales tax on the items they bought from the company, even though Amazon didn’t collect those taxes for them. Similar annual notices will be sent by February 1st in both 2013 and 2014.
  • The Massachusetts Main Street Fairness Coalition is continuing its calls for the state to require that Amazon collect sales taxes, and The Boston Globe just chimed in to support the idea as well. As the Globe explains, the company’s new offices in Massachusetts should be enough to bring the company within reach of the state’s sales tax collection laws.

This piecemeal process is far from ideal, but it’s progress. As far as a possible national solution, federal lawmakers are making efforts. But as everyone knows, controversial pieces of legislation on Capitol Hill are unlikely to gain significant traction during an election year.

The federal versus state debate in this context in some ways draws similarities to the debate on the legalization and regulation of internet gambling. Under both the sales tax and gambling tax regimes, the generated revenues end up in state coffers. Each state should reserve some significant powers to regulate these areas in the internet space to meet its own needs.

A federal bill that sets minimum standards and offers each state the flexibility for how to structure its own tax system sounds like a win-win to me. But again, that requires Congress to get something done. I’m not holding my breath.

Oneidas Roll-Their-Own Cigarettes

February 26th, 2012 No comments

The ongoing war between the State of New York and cigarette sellers is nothing new. Last November, New York City authorities filed a suit against a Chinatown shop that doesn’t collect the $5.85 tax per pack sold because its customers roll the cigarettes on the store’s premises.

Last week, the New York Times ran a story about far bigger cigarette sellers also engaged in the war: New York’s eight federally recognized Indian tribes.

The tribes lost one battle in court that lasted several years. The ruling requires them to pay the cigarette tax on their purchase of name-brand cigarettes from wholesalers, which are located off reservation.

Their latest move: Stop purchasing name-brand cigarettes and manufacture the cigarettes themselves. For example, the Oneidan Indian Nation bought a plant’s equipment and set up shop in a former bingo hall located on the reservation. Tribes are taking the position that as sovereign nations the state’s cigarette tax does not apply to sales made on their reservations.

I think this reasoning may hold if the cigarettes are sold to tribal members. And some are. The problem is that tribes sell their own manufactured cigarettes to non-Indians as well. To me, it sounds like the equivalent of asserting that non-Indian New York residents who gamble at an Indian casino aren’t subject to the state’s income tax on gambling winnings because the activity took place on a reservation. Of course, New York residents must report and pay state income tax on all gambling winnings won at Tribal casinos in the state.

Whether this most recent maneuver by the tribes is a calm before the storm remains to be seen. New York State Tax Commissioner Thomas Mattox has said it’s far more efficient to focus enforcement at the wholesale level as opposed to going store-to-store. Problem is, the wholesale level is shrinking.

Your move, Mr. Mattox.

Hog Loses Some of His Nuts

February 23rd, 2012 1 comment

Politicians in Illinois are struggling to keep their tax affairs in straight order. Last October, the Mayor of Channahon pleaded guilty to two counts of income tax evasion.

Earlier today, William Beavers, a Commissioner of Cook County, was indicted for three separate counts for filing false income tax returns. Beavers is known for calling himself the “Hog With the Big Nuts.”

You can read the indictment here. From the U.S. Department of Justice press release:

Beavers allegedly concealed his under-reporting of income and underpayment of taxes on thousands of dollars that he converted to personal use from his campaign accounts – including more than $68,000 in personal gain on one occasion that was not reported – as well as from his county discretionary spending account. Between 2006 and 2008, Beavers allegedly paid himself more than $225,000 from three separate campaign accounts and used at least a portion of those funds for personal purposes, including gambling. In 2006, he used more than $68,000 from a campaign account to boost his city pension, and between 2006 and 2008, he used his $1,200 monthly county contingency account for personal purposes without reporting any of these funds as income on his federal tax returns, the indictment alleges.

A Chicago Tribune reporter reached out to Beavers for comment. Beavers claims he was indicted because he refused to wear a wire to assist authorities with an investigation of John Daley, a fellow Commissioner of Cook County.

“They wanted me to wire up, and I’m not wiring up. I’m no stool pigeon. It’s just not going to happen,” Beavers said.

Beavers is 77 years old. He sounds like a man who doesn’t like to get pushed around. At his age, I don’t blame him. But that’s no excuse for tax fraud. We’ll see how this plays out.

Anonymous Lottery Winner Walks Away with Nothing

February 7th, 2012 2 comments

Some state lotteries require their winners to provide identification information. Not all winners, however, want to thrust themselves into the public spotlight. For example, last September I wrote about a New York lotto winner who gave his $3 million winning ticket to a store clerk under the false pretense that as an illegal immigrant, he would be deported after coming forward.

In that case, the holder of the winning ticket came forward. But would a winner actually refuse to come forward to avoid release of identification information and thus forego the winnings? As reported by Joe Kristan at Going Concern, apparently so:

[A] New York lawyer acting on behalf of holder of a winning lottery ticket purchased at a Des Moines convenience store let the ticket expire rather than revealing the identity of the ticket owner.

The ticket was turned in hours before its expiration by a Des Moines law firm hired by a New York attorney employed by a Belize trust claiming to be the ticket owner.  The lottery wouldn’t approve the prize without knowing who was behind the trust, and the trust wasn’t telling.  Apparently $14 million wasn’t enough money to get the human(s) behind the trust to come out of the cold.

Truly bizarre. The question on all our minds: Why?!

Joe offers a few plausible reasons. The winner may be a fugitive or a tax evader. Or perhaps the winner is already grossly wealthy from offshore investments and doesn’t want to bring that to light, he suggests.

Even if any of these possibilities is the case, what was stopping the ticket winner from just giving it to someone else to claim?

It feels like I must be missing something. Maybe the act of giving the ticket to someone else would be considered a gift, giving rise to other issues. Or maybe Iowa law simply prohibits it.

Now a criminal investigation into the matter is underway and whoever had the winning ticket lost out on $14.3 million. Well played, people.

Mailbag: Same-Sex Marriage in New York

January 26th, 2012 2 comments

Yesterday evening, I was part of a panel discussion at St. John’s University School of Law to discuss some tax implications arising from the Marriage Equality Act. Last August, I covered a few items. An audience member wrote to me earlier today with some follow up questions. They are good questions, so I decided to post the answers here.

Question 1: Some of the benefits available to heterosexual couples are available to same-sex couples such as domestic partner health insurance coverage, especially employment and health insurance benefits. How does this change impact the tax circumstances of married same-sex couples?

Answer: For federal income tax purposes, there is no change. In general, an employee’s health benefits are tax free for spouses and dependents under an employer-sponsored program. If a domestic partner does not qualify as a dependent under section 152 of the Internal Revenue Code, then the cost of providing the benefits for the domestic partner is taxable income to the employee.

The Tax Parity for Health Plan Beneficiaries Act is a bill that would put domestic partners on equal footing with spouses and dependents in this situation. Four previous versions of the bill died in committee.

For New York income tax purposes, however, there likely is a change. It seems clear that the cost of providing health care benefits to a same-sex married spouse is no longer subject to New York state income tax.

Keep in mind the NYS Tax Department has not yet commented on this specific issue. Considering the Marriage Equality Act mandates equal treatment of same-sex and different-sex married couples under all laws of the state, I cannot see how the tax department would view otherwise.

Question 2: Can same-sex spouses who were married in a different state prior to the enactment of the Marriage Equality Act retroactively file as married spouses in New York?

Answer: No.

The Marriage Equality Act is effective for tax years ending on or after July 24, 2011. A same-sex married couple who was legally married in another state sometime before July 24, 2011 is considered not married for New York tax purposes until July 24, 2011. Therefore, a same-sex married couple cannot use a married filing status prior to the 2011 tax year.

Sales Tax on Comped Meals Heading to Nevada Supreme Court

January 25th, 2012 No comments

Last August, I wrote about a tax case in Nevada requiring Boyd Gaming to collect and remit sales tax on the value of complementary meals provided to its gamblers. Boyd Gaming then appealed the decision to the Nevada Tax Commission.

The Las Vegas Sun is reporting that the Nevada Tax Commission affirmed the ALJ determination. The millions paid by Boyd to the State representing the sales tax at issue for certain periods will stay with the state. At least for now.

This issue isn’t significant only for Boyd Gaming. According to the article, every casino in the state has a similar appeal pending. I have no reason to believe the results of pending appeals will be any different.

The issue is whether the comped meals are provided in exchange for the player’s agreement to gamble. If so, the transaction is considered a retail sale subject to sales tax in the state. The Nevada Supreme Court is likely to examine the issue.

If the Nevada Tax Department prevails, we may see a major change to how casinos approach providing rewards to its patrons.

Tax Cheat’s DNA Breaks Cold Murder Case

January 11th, 2012 No comments

Last October, David Lee Hedrick was found guilty by a Florida jury of failing to pay sales tax to the state. In 2007, he had sold $764,000 worth of televisions to Tishman Hotel Corp., the owner of the Swan and Dolphin hotels at Walt Disney World, properly withheld $72,000 in sales tax, but never remitted the funds to the state. He was sentenced to fifteen years probation.

We read stories about taxpayers failing to remit sales tax all the time. What’s interesting about this story is what we learned after the conviction. As a convicted felon, Mr. Hedrick was required to provide the state his DNA.

The Orlando Sentinel is reporting that Hedrick’s DNA matched a blood sample taken from a murder scene over twenty years ago. On Monday, Hedrick was charged with first-degree murder.

Hedrick was a temporary employee at MyComp, the computer store where Betty Clair Foster was brutally murdered in 1991. At the time, authorities had no idea who killed her or why. Thanks to advanced technology and the DNA requirement, authorities now have a very strong idea regarding the who.

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