Live free or die smoking. The Tax Foundation has released its Monday Map: Tobacco Tax Revenue as a Percentage of Total State & Local Tax Revenue (Richard Borean). The Granite State, which has no personal income tax, gets 4.4% of its revenue from smokers. Iowa, which is 18th on the list, gets only 1.8% of its revenue.
As states boost their taxes on smokers, they increase their dependence on coffin nails for funding.
Lawyers from Big Sky Country have publicized Montana since the 1990s as a place for out-of-state residents to set up a shell company and register a recreational vehicle under the firm’s name. By doing so, RV owners have avoided paying millions of dollars of taxes in Iowa and other states because Montana residents do not pay general sales taxes.
But a crackdown has begun on recreational vehicle owners trying to escape Iowa taxes under state legislation signed in June by Gov. Terry Branstad.
I don’t think that ever really was legal, just hard to detect. The new rules don’t make detection easier, but by making it a potential felony, it becomes a lot less attractive to take the chance.
Tony Nitti, S Corporation Shareholder-Employee Loses Reasonable Compensation Case, Sun Rises In East. Tony discusses some recent taxpayer defeats when the IRS reclasses K-1 income as compensation subject to payroll taxes:
It is no coincidence that each case cited in this discussion involves a professional services corporation, such as sales, accounting, and consulting firms. It is the view of the IRS that in these businesses, profits are generated primarily by the personal efforts of the employees, and as a result, a significant portion of the profits should be paid out in compensation rather than distributions.
It the owner of a professional business is still working full time but draws less pay than his employees, that’s a red flag.
The person is married in Iowa but they filed as a single person (or head of household). What is the fix?
The proper thing to do is file amended Iowa tax returns as a married couple.
Jason also explains how Iowa taxes for married folks are “kind of weird.”
Kaye Thomas, Key Tax Question on Gay Marriage: “What happens if a couple has been married in a state where same sex-marriage is legal but now resides in a state where such marriages are not recognized?”
Russ Fox, Nite Moves Asks Supreme Court to Rule on Constitutionality of Taxing Pole Dances in New York. The case turns on whether pole dancing is “art.” It can’t be art, it makes money!
TaxProf, The IRS Scandal, Day 96
I don’t think we have enough teeth. Getting the Tooth Fairy to Pay for Tax Reform (Clint Stretch, Tax Analysts Blog). The longtime lobbyist doesn’t think Congress has the stomach for the intrusive legislation needed to collect more taxes via stricter enforcement:
The solutions most likely to be effective would be hard for politicians and taxpayers to swallow. They would include:
- Mandatory withholding on interest, dividend, pensions, and other income now subject only to 1099 reporting;
- Mandatory segregation of small business accounts from personal accounts;
- 1099 reporting of payments to contractors as a prerequisite to deduction or addition to basis;
- Tightening independent contractor rules and withholding on payments to contractors for personal services; and
- Dramatic increases in audit resources devoted to examining small retail businesses and farms.
Recent compliance improvement efforts haven’t stuck
If it were easy, they’d have already done it.
Robert D. Flach has his Tuesday Buzz up, including a tribute to Eydie Gorme.