Posts Tagged ‘state tax policy’

Tax Roundup, 8/27/15: Iowa cheap for the factory, costly for the headquarters. And: Instant Tax indictments.

Thursday, August 27th, 2015 by Joe Kristan

All the state taxes. The Tax Foundation has issued its 2015 Location Matters report, “a comparative analysis of state tax costs on business.” It provides a summary of the costs of operating different kinds of business, state by state, with wonderful charts like this one for Iowa:

Source: The Tax Foundation

Source: The Tax Foundation

This chart seems to show that Iowa is relatively easy on manufacturing, but a very expensive place for a service business or a distribution center — with an effective state and local rate of around 40% for distribution facilities. It also shows that the corporation income tax really only clobbers retailers and corporate headquarters.

The charts really get interesting when you compare states. Let’s turn to our neighbors in South Dakota:

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Source: The Tax Foundation

While most industries fare much better in South Dakota than in Iowa, capital-intensive manufacturers — especially new ones — do a little worse. This is because South Dakota has a higher sales tax, and, presumably, because of the presence of Iowa’s tax incentives for new manufacturers. Once you settle in, there is little difference.

Here’s what the report says about Iowa (my emphasis):

Despite having the highest top corporate income tax rate in the nation at 12.0 percent, Iowa’s mature capital-intensive manufacturing firm experiences the lowest effective tax burden in the nation at 3.9 percent, due in large part to Iowa’s single sales factor apportionment formula and the lack of a throwback rule, which have the effect of exempting nearly all of a firm’s income from in-state taxation. The operation also experiences a relatively low property tax burden due to the lack of property taxes on equipment and inventory.

If Iowa's income tax were a car, it would look like this.

If Iowa’s income tax were a car, it would look like this.

Iowa offers a 50 percent deduction for federal income taxes paid, which helps mitigate the burden of the state’s high corporate and individual income taxes but is also responsible for those high rates.

In addition to its favorable apportionment factors for businesses selling goods out of state, Iowa’s benefits-based sourcing rules work to the advantage of Iowa-based firms selling services out of state. However, effective property tax rates can be exceedingly high for some firms—nearly double the national average for mature distribution centers, for instance—greatly increasing overall tax costs. Qualifying new firms (the manufacturing operations and the distribution center) receive a full abatement of the property tax on improvements for three years, though the abatement does not cover taxes on the value of the land itself.

Manufacturing machinery and research and development (R&D) equipment are exempt from the state sales tax, and the R&D facility receives other incentives as well. Iowa also offers generous investment and job creation tax incentives to new firms, though due to the state’s high tax rates, most new firms continue to experience above-average tax burdens.

This offers some lessons for Iowa’s ongoing tax reform debate:

– The Iowa Corporation Income Tax, where it isn’t futile, is a job killer, making it very expensive to locate a corporate headquarters here.

– Iowa’s vaunted tax incentives benefit the lucky and the well connected, while stifling start ups: “most new firms continue to experience above-average tax burdens.”

– Despite the recently enacted property tax reforms, Iowa’s real estate taxes still are a big cost for Iowa businesses.

The full report can be found here.

Related:

Can Iowa tax reform happen?

Tax Update’s Quick and Dirty Iowa Tax Reform Plan

 

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Instant tax unhappinessThe tax prep franchise outfit Instant Tax Service had a colorful history before it was ordered to close by a federal judge. It was notorious for “paystub” returns, prepared to claim refunds for a mostly low-income clientele before they got their W-2s. That’s something preparers aren’t supposed to do.

Yesterday things got worse for the owners of Instant Tax Service with an indictment on tax charges. A Department of Justice Press Release lists some of the allegations (my emphasis):

From about January 2004 through November 2012, Ogbazion and Wade executed a scheme to obstruct the Internal Revenue Service (IRS), wherein numerous ITS franchises filed false federal income tax returns without valid Forms W-2 and without the permission of their taxpayer clients.  The false returns included false and inflated sole proprietorship Schedule C income in an attempt to increase the Earned Income Tax Credit.  Over the course of several years, Ogbazion also instructed an ITS employee to electronically file large volumes of unsigned tax returns on the first day of the “tax filing season,” then falsely backdated customer filing authorizations.  In an attempt to obstruct IRS civil compliance audits, ITS maintained and filed false documents with the IRS, including fabricated Forms W-2 created by ITS employees using tax preparation software, and forged client signatures on various false IRS forms.

Earned income tax credit skeptics are often scolded that the 25% rate of improper payments isn’t all due to fraud; it’s because taxes are hard and all. Taxes are hard, but if there isn’t massive fraud, it’s not for lack of trying. Rather than trying to run a welfare system through the tax code, we should be looking at a universal benefit along the lines proposed by Arnold Kling.

Related:

Arnold Kling, The EITC in Practice

Tax Update, Helping the poor by increasing their marginal tax rate.

 

Vox.com, H&R Block snuck language into a Senate bill to make taxes more confusing for poor people (Via the TaxProf).

H&R Block’s entire business model is premised on taxes being confusing and hard to file.

Well, that and promoting IRS preparer regulation to put competitors out of business.

Robert Wood, Trump Firing H&R Block Could Actually Help Immigrants

 

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Jason Dinesen, Things a Business Owner Needs to Know Before Hiring Employees

Robert D. Flach, WHAT DEDUCTIONS WOULD YOU KEEP?

Tony Nitti, 2013 Tax Changes Raised The Tax Bill On The Wealthiest 2 Percent By $60 Billion. “Whether an additional $60 billion in revenue is enough to satisfy the current administration remains to be seen.” No, we already know it won’t.

TaxProf, The IRS Scandal, Day 840. More about Toby Miles. Meanwhile, Commissioner Koskinen dismisses the revelations of Lois Lerner’s canine email address under the “old news” ploy, and tells Tax Analysts ($link) that even though she hates Republicans and Tea Partiers, Lerner’s team was fair and square in dealing with their exemption applications.

Kay Bell, Lois Lerner used her dog’s email to conduct IRS business

 

Joseph Thorndike, When it Comes to Taxes, Americans Are of Two Minds – or Three, or Five or Eight. “While trying to make sense of Donald Trump’s statements on tax policy, I was struck by their disparate quality; to call them random is to exaggerate their coherence.”

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Tax Roundup, 6/4/15: Iowa session-end frenzy: What if a young farmer drives his ATV to the laundromat?

Thursday, June 4th, 2015 by Joe Kristan

IMG_1291Sound tax policy? What’s that? Three minor tax bills advanced in the Iowa General Assembly yesterday in the pre-adjournment frenzy. They are all examples of the pursuit of tax legislation unmoored from consideration of sound tax policy.

ATVs. Iowa farmers don’t have to pay sales tax on equipment used “directly and primarily” in the production of agricultural products. The Iowa Department of Revenue holds that the exemption doesn’t apply to general-purpose all-terrain vehicles used to get around the farm — say, to check on crops or livestock (or, incidentally, to go to the good pheasant-hunting spots). The Iowa Senate passed SF 512 yesterday to exempt ATVs “used primarily in agricultural production” from sales tax.

Too bad this isn’t part of a broader movement to exempt all business inputs from sales tax. To the extent that ATVs are a business input, exempting them from sales tax is good policy. I suspect, though, that everyteenage farm boy will have an ATV used primarily in agriculture.

Young Farmers. HF 624 makes minor changes in the tax credit available for custom farming contracts with beginning farmers. No amount of tax credits will change the fundamental difficulties involved in getting into farming. It’s a capital-intensive business that has been consolidating for over a century into larger and more expensive units. This bill isn’t that big a deal, but “Young Farmer” tax credits have no more policy justification than “Young Factory Owner” credits or “Young Cold Storage Warehouse Operator” credits.

20140611-2To the cleaners. Probably the worst tax policy to advance yesterday was HF 603, which excludes the use “self-pay” washing machines from sales tax. While business inputs should not be subject to sales tax, all final consumer expenditures should be. A broader base enables lower rates for everyone. O. Kay Henderson reports on this break:

Representative Josh Byrnes, a Republican from Osage, has met with a couple from St. Ansgar who sold their laundromats in Iowa and opened coin-operated laundromats in Minnesota, which does not charge the sales tax.

“The other part of this is just economic development in general,” Byrnes says. “We have a company that manufactures self-pay units in Fairfield, Iowa, called Dexter and actually they’re looking at some expansion and growth of their company I believe that this will help them get over that hump and help to further their business as well.”

You can make the same “economic development” argument for pretty much anything manufactured in Iowa, including the home laundry machines historically made by Iowa manufacturers Maytag and Amana. It takes a leap of faith to think this will sell even one additional washing machine.

 

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Joseph Henchman, Illinois Governor Suspends New Film Tax Credits, Makes Other Spending Cuts (Tax Policy Blog):

With the two sides at a stalemate, Rauner announced that he is issuing administrative orders to cut $400 million in spending wherever he can. Including:

  • Immediate suspension of all future incentive offers to companies for business attraction and retention, including EDGE credits and the film tax credit program. Commitments already made will be honored.

Unilateral disarmament in the incentive wars is actually doing a big favor for Illinois taxpayers. Those credits enable the well-connected to pick the pockets of the rest of the taxpayers. It is excellent public policy. I hope Iowa decides it needs to ditch its crony tax credits to compete with Illinois.

 

Jason Dinesen, Are HRAs Always Appropriate for Sole Proprietors? Part 2. “HRAs are often — but not always — a good strategy for sole proprietors. Here are some numbers that lay it out.”

Robert Wood, Another Tax-Exempt Marijuana Church—Green Faith Ministry

Kay Bell, IRS working with tax industry, states to upgrade security

 

Dean Zerbe, Tax Court Decision – Good News For Whistleblowers (Procedurally Taxing). “This decision and the actions of the IRS in this case are not going to make administration of the IRS whistleblower program easier – and could have easily been prevented by the IRS.”

Jack Townsend, Whistleblower Case Apparently Involving Wegelin. “Perhaps most interesting for many readers of this blog is that the underlying criminal prosecution and guilty plea appears to involve Wegelin Bank, the Swiss Bank that met its demise for its U.S. tax cheat enabler activities.”

 

 

Renu Zaretsky, There’s Always Room for Improvement. Today’s TaxVox headline roundup covers the IRS data breach, climate-change tax promises, and charitable tax deduction policy, among other things.

Kelly Davis, Kansas Considers Tax Hikes on the Poor to Address Budget Mess (Tax Justice Blog).

 

TaxProf, The IRS Scandal, Day 756

 

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So tell me again how IRS regulation of preparers will fight fraud? IRS Employee Files Hundreds of Fraudulent Tax Returns:

The former IRS worker, 38-year-old Demetria Michele Brown, stole names, birth dates and social security numbers, and provided false information about wages, deductions, addresses and workplaces in order to obtain the refunds.

The documents were filed from her computer and the money returned by the IRS was sent to bank accounts controlled by Brown, St. Louis newspaper reports.

According to prosecutors, the fraudster carried out the activity from 2008 until 2011 and collected $326,000 / €290,000.

I’m sure it wouldn’t have happened if she had to take an ethics exam.

 

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Tax Roundup, 2/4/14: Sometimes the tax crime isn’t the worst crime. And the Carnival moves on.

Tuesday, February 4th, 2014 by Joe Kristan

WashingtonRule 23 of George Washington’s Rules of Civility has a lot going for it:

When you see a Crime punished, you may be inwardly Pleased; but always show Pity to the Suffering Offender.

Yet even the Father of His Country might have had a hard time suppressing a smile over a federal tax sentencing in California yesterday.  From the Contra Costa Times:

A former San Ramon family law attorney was sentenced to two years in prison Monday for evading taxes and illegally eavesdropping on a client’s estranged spouse with the help of a now-incarcerated private investigator who set up divorcing men for drunken-driving arrests.

Mary Nolan, 62, of Oakland, already relinquished her law license and paid $469,000 in back taxes Sept. 27 after she pleaded guilty to four counts of tax evasion and one count of illegal eavesdropping.

Nolan represented the ex-wives of two men who were arrested after [the private investigator’s] attractive female employees lured them into drinking and driving. Those convictions were expunged after the scheme became known in 2011, when Butler and jailed former Contra Costa Narcotics Enforcement Team Commander Norman Wielsch were caught selling drug evidence and admitted to pimping and robbery, among other crimes.

Oddly, the sentencing judge not only failed to impose the 33-month sentence requested by the prosecution, but he also seemed to think the tax charge was more serious than the honey-trap thing, reports Concord Patch:

Breyer told Nolan during the sentencing today, “To eavesdrop on conversations that clearly weren’t intended for an adversary to hear is a
very unfair thing to do.”

But he said he was especially concerned about the failure of Nolan, as a lawyer, to pay the taxes due.

“What I find most troubling is the fact that you were a lawyer. Lawyers have that special responsibility not just to know the law but to follow it,” he told Nolan.

Yes, evading $400,000 of taxes is a bad thing, whether or not you are a lawyer.  Still, ruining lives setting up and framing people to win divorce cases strikes me as worse than making the IRS work hard for its money.   Maybe when you’re a federal judge, things start to look a bit funny.

 

 

Lois Lerner, ex-IRS, ex-FEC

Lois Lerner, ex-IRS, ex-FEC

Well, technically “a bunch” isn’t “a smidgeon.”   ‘Not Even a Smidgeon of Corruption’ at IRS, Obama Says.  (Tax Analysts, $link).   If so, it sure is funny how Lois Lerner was so quick to invoke her 5th amendment right against self-incrimination.  

Clint Stretch, Dumb Mistakes Aren’t Crimes.  (Tax Analysts Blog)  He says “IRS employees will not knowingly do someone’s political bidding.”  History shows otherwise.

 

 

TaxProf, OMB: EITC Is 4th Most Error-Prone Federal Program, With 22.7% Error Rate.  If it makes you feel better, the three worse ones are all Medicaid or Medicare.  Makes you want the government and IRS to pay in a bigger role in health care, for sure.

 

Minnesota:  Come for lovely winter weather, and stay for the annual tax hit!  The Minnesota Center for Fiscal Excellence has computed the annual cost for a high-earning individual of life in the tundra.  It’s not cheap:

MNvIA

Of course, beautiful Iowa doesn’t have a lot to crow about, as it looks good only by comparison with Minnesota.  While the hypothetical taxpayer could only buy a nice new sedan annually for the savings of moving from Minnesota to Des Moines, she could buy some really nice wheels every year with a move to Sioux Falls.

 

Tony Nitti, Tax Geek Tuesday: Reasonable Compensation In The S Corporation Arena:

The IRS Fact Sheet provides “The amount of the compensation will never exceed the amount received by the shareholder either directly or indirectly. However, if cash or property…did go to the shareholder…the level of salary must be reasonable and appropriate.”  This language would seem to indicate that there is no requirement that compensation be paid to a shareholder-employee provided the shareholder also foregoes distributions. Even with that bit of guidance from the IRS, it is prudent advice to encourage a profitable S corporation to start making reasonable salary payments to its shareholder-employees as soon as it has the means to do so.

Unfortunately, the IRS has shown that it will attempt to force a salary even when the means are lacking.

Paul Neiffer, You Can File Income Tax Returns Now (Maybe)

 

Jeremy Scott, Making Tax Reform a Partisan Issue (Tax Analysts Blog):

And it isn’t hard to see why. Linking tax reform to the debt ceiling risks making it a partisan issue. Forcing Congress to take up reform is a GOP victory, because it causes Democrats to give up on a clean bill. So Democrats, many of whom are sympathetic to the tax reform process, will have to oppose tax changes because Republicans have politicized the debate, defining tax reform as a win for their side.

Ah, the majesty of government.

 

Lyman Stone, New Study: High Excise Taxes Drive Cigarette Smuggling in Boston, New York, Providence (Tax Policy Blog).  That has to be the most predictable news of the day.

Sad news from Kay Bell “The time has come, however, to put the Tax Carnival on hiatus.”  It’s a lot of work to put one together.  Thanks, Kay, for all of the help you’ve given tax bloggers over the years with the Carnival of Taxes.  So until she feels like reopening the Carnival, let’s have one last ride on the Midway.

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Going Concern, Here Is a Short List of People Less Deserving of Bonuses Than IRS Employees.  Hard to argue with the list, especially the first two, but I would throw in the other branches as well.

 

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Tax Roundup, 11/6/13: Relief for the road warrior? And the futile state corporation income tax

Wednesday, November 6th, 2013 by Joe Kristan
Flickr image courtesy Tom Hilton under Creative Commons license

Flickr image courtesy Tom Hilton under Creative Commons license

Relief for the traveling employee?  Tax Analysts reports ($link) that the “Mobile Workforce State Income Tax Simplification Act of 2013” (S. 1645) was introduced yesterday.  The bill would make the tax lives of employers and employees who cross state lines much easier by preventing states from taxing folks, other than athletes and entertainers, who are in a state for less than 30 days.  From the Tax Analysts:

The bill is “a modernization of everything,” Maureen Riehl, vice president of government affairs for the Council On State Taxation, told Tax Analysts. It is “about supporting the mobility of an economy that has people moving around a lot more often than when the income tax laws went into effect in the states back in the ’30s and ’40s,” she said.

Who would oppose such sensible simplification?

The Federation of Tax Administrators does not share Riehl’s enthusiasm. Deputy Director Verenda Smith said the bill “does not strike an appropriate balance between administrative simplification and necessary tax policies.”

Smith took issue with the safe harbor provision, saying the 30-day threshold “is beyond a level necessary to deal with the vast majority of individuals who would be temporarily in a jurisdiction.”

The states want to tax you on their whim if you sneeze in their jurisdiction.

Still, they should have one more threshold: no state tax if you earn less than some threshold amount in a state, maybe $5,000.  That way they can still pick LeBron’s pocket when he comes to town from his tax-free home in Florida, but a carload of struggling musicians couch-surfing from town to town would be saved the hassle of filing a tax return in every state where they have a gig  — or more likely, saved the need to ignore the filing requirement.

 

Peter Reilly,  Mobile Workforce Act Good Idea But May Need More Limits  “Over the years I have studied the rules for what invokes state income tax withholding requirement.  It varies substantially from state to state.”

 

Elizabeth Malm, Richard Borean, Map: Share of State Tax Revenues from Corporate Income Tax (Tax Policy Blog)

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Notice that it’s a relatively paltry part of Iowa tax receipts, even in a good year, and even with the highest rate in the nation.  Better to repeal it as part of the Tax Update’s Quick and Dirty Iowa Tax Reform Plan.

 

David Brunori, Feckless Legislators and Corporate Welfare (Tax Analysts Blog)

If I ran a big corporation in Illinois, I would have my lobbyists asking for tax breaks daily. Why not? The tax incentive racket is a profit center for most corporations in Illinois. Is it blackmail? Sure. But it is cold, calculated, rational blackmail.

…if once you have paid him the Dane-geld

You never get rid of the Dane.

 

Tax Justice Blog,  Let’s Face It: Delaware and Other U.S. States Are Tax Havens

 

Paul Neiffer, Crop Insurance Deferral Options.  “When a crop insurance claim relates directly to a drop in price, those claims cannot be deferred to the next year.”  Paul explains what the choices are if the recovery relates to a yield loss.

Tony Nitti, Shareholder Computes Basis In S Corporation Stock Incorrectly, $1.5 Million Loss Becomes $2 Million Gain

 

Jana Luttenegger, Interactive Form to Assist in Applying for 501(c)(3) Status (Davis Brown Tax Law Blog) 

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

The EITC as a poverty trap: phaseouts of the benefit impose stiff marginal tax rates on the working poor.

William Perez, CBO: Marginal Tax Rates Faced by Low- and Moderate-Income Individuals.  Helping the poor stay that way.

Andrew Mitchel, 2014 Inflation Adjustments for Individuals in the International Tax Arena

Roger McEowen, Inflation Adjusted Amounts for 2014

TaxProf,  The IRS Scandal, Day 181

TaxGrrrl, Bayern Munich Keeps Winning Even As Their Chief Faces Trial For Tax Evasion.

 

Brian Mahany,  More Guidance on Taxation of Same Sex Marriages

Jack Townsend,  Should You Opt Out of OVDI/P?.  He examines Robert Wood’s discussion of opting out of the IRS “amnesty”

Phil Hodgen’s Exit Tax Book: Chapter 7 – Taxation of Deferred Compensation 

 

Joseph Thorndike, Forget Carried Interest–It’s All About Taxing Capital Gains (Tax Analysts Blog).   He’s right when he says “The only issue that really matters is how we tax capital gains.”  Then he goes off the rails in so many ways.  Read Joseph, and then read Steve Landsberg.

 

A Wednesday Buzz from Robert D. Flach!

May you have this problem.  The Tax Treatment of Olympic Gold Medals (TaxProf)

News from the Profession.  Recruiting Season: Salaries and Offers for the Public Accounting Class of 2014 (Going Concern)

 

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Tax Roundup, 1/30/2013: Bah. Humbug. And where states get their cash.

Wednesday, January 30th, 2013 by Joe Kristan

20130130-4Why so grumpy?  Because it’s the first “official” day of tax season as the IRS begins processing returns.   But only some of them.  The last-minute Fiscal Cliff tax law is delaying the processing of many forms, delaying most business filings until “late February or into March.”  They also have delayed processing of returns with education credits until sometime next month.

Oh, and the streets are a mess.

Kay Bell,  Tax filing on hold for taxpayers who need 31 federal forms

TaxGrrrl, IRS Opens For Business Today, Many Taxpayers Qualify To File For Free

 

Taking your money to give to the well connected.  From Taxing the Rich to Pay for Big Business Tax Credits by Veronique de Rugy:

 

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Taking from the small businesses, giving to the big business with pull.

 

Brian Gongol on the decision of Senator Harkin to not seek an umpteenth U.S. Senate term:

Wouldn’t it be wonderful if we could start with a blank slate and ask ourselves (as Iowans): Who is the smartest, most dependable, most thoughtful person we could send to an august body of decision-makers who are challenged with bringing wisdom and sobriety to the decision-making process of government?

Like somebody like that would stand a chance.

 

Why bother with a state corporate income tax?  While state income taxes are a reliable source of work for people like me, they do surprisingly little for the states, according to a new report released by the Tax Foundation yesterday.  Nationwide state corporate income taxes accounted for only 3% of 2010 state revenues.  In Iowa, it’s even lower.  Here are the revenue sources from Iowa and some nearby states:

Source: Tax Foundation

Source: Tax Foundation

 

The corporation income tax raises little revenue, is expensive to administer, is exploited by the well-connected and well lobbied, and is almost certainly a job-killer.  Why not go for a low-rate, low-loophole system like The Tax Update’s Quick and Dirty Iowa Tax Reform Plan?

TaxProf,  A Distributional Analysis of the Tax Systems in All 50 States, passing on a report from the Center on Budget and Policy Priorities says state tax systems are regressive.  Keep this in mind:

Source: Heritage Foundation/

Source: Heritage Foundation/

If you only look at the distribution of taxes paid and ignore the value of services and cash payments received, you miss a lot.

 

Janet Novack,  IRS Tips Won’t Protect You From Identity Theft Tax Fraud.

Jack Townsend,  Article on Importance of Jury Instructions in White Collar, including Tax, Crime Cases

Jason Dinesen, An Obligatory 1099-K Post for 2013

Trish McIntire,  Before You Sign.  A timely reminder that you are responsible for what’s on your return, even when you use a paid preparer.

Patrick Temple-West,  Mickelson and the sports star migration, and more (Tax Break)

William McBride, CRS: Tax Rates Do Matter for Profit Shifting (Tax Policy Blog)

Joseph Thorndike, The Income Tax Is Inquisitorial — Get Over It(Tax.com) May he have a good National Research Project exam in his future.

Robert Goulder, French Budget Minister Caught In Tax Probe (Tax.com)

That wouldn’t take much.  Payroll Tax Cuts May Boost the Economy More than You Think (Howard Gleckman, TaxVox)

 

Bad news, good news:  The Twinkie is Dead! Long Live the Twinkie! (Megan McArdle).

News you can use.  Tax Law Warning: Don’t Cut Mom a Rent Break (Jim Maule)

 

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Tax Roundup, 10/24/2012: Despite the Yankees, New York is #1!

Wednesday, October 24th, 2012 by Joe Kristan

A deserved number 1 rating for New York.  The Yankees may have left the postseason meekly, but their state still gets a richly deserved number 1 rating:  State and Local Tax Burdens Highest in New York (Tax Foundation):

 

It certainly is a better measure of New York’s tax system (bad) than the strange rating we reported on yesterday, ranking New York as the best system in terms of “Progressivity, adequacy and efficiency.”

Related: Russ Fox,  Tax Foundation Releases State & Local Tax Burdens

 

Jason Dinesen has an excellent analysis of how “targeted” tax breaks fail:  Small Business Health Insurance Credit — Nice in Theory But Not in Execution: 

There are many, many problems with this credit. One,  it’s quite possible that a business might be better off NOT taking the credit and instead just taking a deduction for the premiums paid. In other words, some businesses might owe more tax by claiming the credit! (I have run the numbers on this, and it’s true.)

In addition, the credit has unfriendly phaseouts: as soon as your employee count gets above 10 or average wages tick above $25,000, the credit starts to phase out. Plus, the calculation of full-time employees, and the calculation of the credit in general, is cumbersome.

With these things in mind, it’s no wonder that most businesses aren’t taking the credit.

The tax law is a big clumsy hammer.  When you try to use it as a scalpel, nothing good happens.

 

A parting gift to preparers from Doug Shulman:  IRS Sells Confidential Information of 850,000 Tax Preparers for $35 (TaxProf)

Jim Maule thinks its fine for the government to track your auto use: Defending the Mileage-Based Road Fee.  He trusts the government much more than it deserves.

Robert D. Flach posts his Wednesday Buzz roundup of tax posts.

 

Brutal Assault on Reason Watch: 

Kay Bell,  Tax talk sneaks into foreign policy debate

Patrick Temple-West,  Essential reading: Checking tax facts from the presidential debate, and more (Tax Break)

Howard Gleckman,  The Ten Biggest Differences between the Romney and Obama Tax Plans (TaxVox)

Philistines.  NY’s Highest Court Rules 4-3: Lap Dances Are Not ‘Art’ and Thus Not Exempt From Sales Tax  (TaxProf).  More from Peter Reilly and Anthony Nitti. Lest you think this is of interest only to the boy bloggers, Adrienne Gonzalez posts Majority of New York Court Rules Lap Dances Taxable; Questions the Artistic Integrity of Strippers Everywhere.

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Tax Roundup, 6/19/2012

Tuesday, June 19th, 2012 by Joe Kristan

20071101-5.jpgIowa cracks down on marshmallow scofflaws.  Radio Iowa reports:

Victoria Daniels, at the Iowa Department of Revenue, briefed a state legislative committee. “It’s very important that the department maintains its compliance pretty much to the letter and what this rule has to do with is the definition of candy,” Daniels says.

Under the revised guidelines, candy-coated fruit, candy-coated popcorn and marshmallows will now be called candy and taxed accordingly. One lawmaker asked about a snack he was munching on.

“That’s candy,” she says, laughing. “Chocolate-covered peanuts, that’s candy.” States can choose whether to tax groceries. Iowa does not. Retailers will also be advised that energy bars may need to be taxed if they don’t contain flour.

The distinction between candy with flour and candy without is a critical part of Iowa tax law, without which the whole edifice would collapse.  If Milky Way (with flour) and Milky Way Midnight (flour-free) were taxed the same, next it will be dogs and cats living together.

But government spending has been cut to the bone!  Tax Policy Blog releases an eye-opening map of the real increases in state spending from 2000 to 2010, inflation-adjusted, per capital.  Shockingly, Alaska’s real increase in state spending over that period was 17%.  More shocking:  That was the smallest increase in real spending by any state.  Iowa was #31, at a 34% increase in real state spending.  Oklahoma lapped the field with a real spending increase of 74%.

Map via Tax Policy Blog

Robert D. Flach interviews Enrolled Agent Trish McIntire.  Robert is also interviewing a lawyer and a CPA as he tours the universe of tax preparation. Trish has this useful observation:

There is no real hierarchy in the designations for a taxpayer when it comes to tax preparation. The ability and interest to do a type of return depends on the preparer and their practice. 

Robert will represent “unenrolled” preparers himself.

Trish talks about the Office in Home Deduction at her own blog.

Janet Novack: Target Date Funds And Do-It-Yourselfers Both Beat Brokers’ Advice In 401(k)

Kay Bell: Do you know how much you pay in federal, state and local taxes?

 

But it already is!Professor Todd Henderson supports the Buffett Rule but says it should be voluntary” (Peter Pappas). Nothing is stopping Warren from writing a big check to the Bureau of the Public Debt right now.

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Tax Roundup, 5/24/2012: Vikings pillage taxpayers, Giant, Eagle choose not to help, and why it’s harder to do taxes than to eat right.

Thursday, May 24th, 2012 by Joe Kristan

Like the Vikings of Old: Pillaging Minnesota’s Budget (Tax Policy Blog):

This week in Minnesota politics has been instructive in what kinds of projects warrant state money and attention.  Governor Dayton signed a bill approving the construction of a new stadium for the Minnesota Vikings which he boasted would create thousands of jobs and would not use “a single dollar of General Fund tax revenues“. The state agreed to pay $498 million of the $975 million price tag for the new stadium, with $150 million of their contribution coming from the revenues of Minneapolis’s “hospitality tax” (a sales tax surcharge) and $348 million from electronic pull tabs.

Dayton championed the deal despite the growing body of research that, as academics have observed, “contains no evidence supporting the idea that sports facilities are important engines of economic growth.” That is in part because, as analysts at UBS note, the economic analyses used to support sports stadiums tend to over-estimate the benefit of stadiums by ignoring the substitution effect; individuals who would travel to spend money on live music and restaurants in the downtown area instead spend them on the professional sports team. 

It’s similar to the way Iowa’s economic development officials say they create jobs with tax credits, ignoring the jobs lost by the unsubsidized competitors of the corporate welfare recipients, and the economic activity that would have occurred had the state not taxed the money from us to give away in the first place.

$452 billion tax hike in 2013: Taxmageddon by the numbers (Tax Break):

The expiration of tax breaks like the 2001/2003/2009 tax cuts, as well as the payroll tax cut, estate tax breaks, the R&D tax credit for businesses, combined with the cost of the Patient Protection and Affordable Care Act (“Obamacare”), and other sundry items, will add up to the overall tax increase in 2013 of $451.8 billion.

Repeal of Tennessee Gift and Inheritance Tax Official (Tennessee Tax Guy).  “Without a true income tax, and now without gift and inheritance taxes, Tennessee will likely be viewed as one of the most taxpayer-friendly states of the nation.”  Are you listening, Iowa?  (No.).

Former Dwarf, Crow believed to be in compliance. Former Giant, Eagle Fails to File Tax Returns (TaxDood)

 TaxVox: A Path Forward on Tax Reform.  We’ll go down that path when there are no others left. 

Peter Pappas:  I Am Aaron Worthing (or My Contribution to “Everybody Post about Brett Kimberlin Day”). Is a convicted deomestic terrorist using a 501(c)(3) and celebrity money to threaten and silence political opponents?  More here.

Brian Strahle: Teeter-Totters, Musical Chairs and Tug of Wars: The World of Multistate Income Taxes

Anthony Nitti: Doctor Done In By Tax Court’s “Too Good To Be True” Logic.  The Tax Court says that there was no reasonable cause to file returns based on the word of a promoter of a Sec. 419 tax benefit scheme.

Kay Bell: Beware unsolicited — and questionable — property tax payment plans

More Americans are very confused: More Americans Believe It’s Easier To Understand Tax Than How To Eat Healthy (TaxGrrrl)

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Yes, state taxes matter

Thursday, March 15th, 2012 by Joe Kristan

At least they do to Russ Fox, whose business was one of 254 that fled California last year. He explains:

Well, as one of those 254 businesses that fled the Bronze Golden State, I can say that Nevada has been a wonderful change. California may have a far better meteorological climate but from a business standpoint Nevada is far, far better.
What does California need to do to improve its business climate? Cut regulations, cut taxes, cut the pervasiveness of government. What are Governor Jerry Brown and the Democrats in Sacramento proposing? More taxes, more regulations, more of the same.
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It’s futile and wasteful. Why do they do it? To show they care.

Thursday, January 12th, 2012 by Joe Kristan

State corporation income taxes don’t work. Iowa’s corporation income tax has the highest rate in the country, but it contributes only about $366 million to the state’s $6 billion in tax revenues.
State tax expert David Brunori wonders why the states bother:

It’s not the fault of departments of revenue. Their staffs do Herculean work against well financed adversaries. But no amount of enforcement dollars will change the fact that the state corporate tax laws do not work. And truth be told, they never will.
The tax does not raise a lot of revenue, a mere $36 billion (out of $1 trillion of state revenue) in 2010. But it consumes an inordinate amount of resources. So we cannot say we impose the tax to raise revenue. There are better ways to do that. The corporate tax laws reward companies for building and investing in the state. That may be a good thing. But it belies the argument that the corporate tax is designed to make companies pay for government services. And we are not ever sure who pays the tax. There is an increasingly influential school of thought that says the tax is borne by labor in the form of lower wages. If that is true, the tax can hardly be said to increase progressivity.

I think it’s for show. Politicians want to say they are sticking it to the big bad corporations, to assure the people who are really paying the bills with their sales taxes and property taxes that they are also going after the fat cats. Never mind that it’s futile and inefficient; it’s the show that counts. It’s like airport security that way.
In Iowa the contingent liability for tax credits — things like economic development subsidies, research credits and historic building credits — was $362.7 million for 2012. That’s almost the same amount as the net take from corporate taxes. Getting rid of both would do more for Iowa’s economy — and the “bottom 99% — than the tax credits and corporate tax ever will. But the usual caring suspects will bulldoze an Occupy encampment before they will let those evil corporations stop paying income taxes.
Related: This doesn’t look like the year they’ll fix Iowa’s income tax

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Iowa: bodies move in, income moves out.

Wednesday, December 14th, 2011 by Joe Kristan


The Tax Policy Blog has a map showing which states have gained and lost income via moves over the last year. An interactive calculator shows that Iowa lost 411 returns and $83 million in adjusted gross income from 2009 to 2010, while gaining 1,681 exemptions. More kids, fewer earners, in other words. Going back to 1993, Iowa shows a net loss of 79,546 returns and $4.2 billion in AGI.
Hey, Iowa legislators: this is a clue that Iowa’s tax system of high rates and dozens of economic development tax credits doesn’t work. It’s time for simplicity and low rates. It’s time for The Quick and Dirty Iowa Tax Reform.

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A deductible last ride in Virginia?

Wednesday, December 14th, 2011 by Joe Kristan

Few of us think of the tax implications of that last ride in the black Cadillac. The estate tax return allows a deduction for funeral expenses, but most of us aren’t blessed with $5 million estates.
Fortunately, a delegate to the Virginia General Assembly is thinking about it for us. He wants to provide a deduction for launching your mortal remains into space — if you use a Virginia space port, and you die between 2012 and 2020. Howard Gleckman has the scoop at TaxVox:

One firm, Celestis Inc, advertises several memorial spaceflight services. The low-end earth rise service is just $995 but that sounds like little more than a high-tech elevator ride. According to its Website, the trip “affordably launches a symbolic portion of cremated remains to space, and after experiencing the zero gravity environment, returns the individual flight capsules and modules back to Earth.”
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Fleeing Paradise

Friday, December 2nd, 2011 by Joe Kristan

Tax blogger and poker player Russ Fox cashes in his chips at Casino California:

My tax bite is roughly 10% to California. For every dollar I make, ten cents goes to Sacramento. (Yes, I get a benefit from that in that state income tax is deductible on federal tax. However, because of the Alternative Minimum Tax even that benefit is capped.) For the past few years I

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Can buying a limited partnership make you taxable in other states?

Thursday, October 6th, 2011 by Joe Kristan

Yes it can. Brian Strahle has the scoop at Leverage/SALT.

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They stay because they can’t afford the gas to leave

Friday, September 2nd, 2011 by Joe Kristan

David Brunori, August 17, 2011: “Income Taxes do Not Lead to Out Migration
Illinois Policy Institute report, August 19, 2011 (via Russ Fox):

I regularly deal with clients moving from Iowa to Florida, and the idea that taxes don’t affect where people choose to live strikes me as absurd. Of couse taxes aren’t the only reason people move to Florida; I understand that the weather is nicer there in February. But taxes are definitely part of the discussion. The weather is at least as nice in Southern California as in Florida, but clients with a choice (i.e., it’s not a job transfer) always end up in low-tax Florida.
People respond to incentives. Illinois has created an incentive to do business elsewhere. The only surprising thing about the tax increase hurting jobs is that some people are surprised.

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Beer again flows in Minnesota

Monday, July 25th, 2011 by Joe Kristan

The Minnesota State Government was shut down during almost my entire vacation there the last two weeks, until the threat of a beer shortage shocked legislators into action. The dire consequences:
– No fishing licenses were available.

Good thing nobody told the fish.
– The state parks were closed, so the usual weekly permits to visit state parks weren’t available for purchase. That meant visitors to the state parks parked along the roads and went in anyway.
Somehow we all survived. The Tax Policy Blog draws some lessons:

Lessons for other states (and for the federal government, with its debt ceiling deadline)? Depending on exemptions, shutdowns may not create political pressure to end them. The end result may not be satisfactory to anyone, certainly not after the costs of a shutdown showdown. A bigger budget than the last one may still be called a “cut.” Forcing a tiny percentage of people (i.e., high-income earners) to pay for the costs of government services to everyone may be a harder sell politically than it sounds.

Until the beer runs out, anyway.

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Is this the week the legislature will finally go home?

Monday, June 27th, 2011 by Joe Kristan

This article says the Iowa General Assembly may finally end their ridiculously long 2011 session this week. Whether they will allow taxpayers to claim the 2010 tax benefits they enacted at the end of the filing season on 2011 returns — rather than having to amend 2010 — remains up in the air.

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We have to raise taxes, we’ve cut spending to the bone

Monday, June 27th, 2011 by Joe Kristan

Peter Pappas: Ohio Toll Collector Paid $103,150 in 2010.

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Taxing the clouds away

Thursday, June 23rd, 2011 by Joe Kristan

How is revenue from “cloud computing” taxed by the states? If you sell “software as a service,” where do you have to pay taxes? Brian Strahle says:

Most states still don’t know how they are going to tax cloud computing. But one thing is certain, they are going to definitely try.

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He has 12 questions to ask if you are trying to figure out your state tax exposure in the cloud.

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Harold Hill pining for the fjords of Nevada

Monday, June 20th, 2011 by Joe Kristan

Tax Policy Blog: Nevada Film Tax Credit Proposal Dead
Why on earth would a state with no income tax be granting tax credits? Maybe they’ve learned something from Iowa’s mistakes.

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