10.28.11

Los Angeles, CA Institutes a Voluntary Disclosure Program for Unregistered Businesses

The Los Angeles Office of Finance recently announced the offering of a Voluntary Disclosure Program (“VDP”) to encourage unregistered in-city and out-of-city businesses to voluntarily register and pay their Los Angeles Business Tax obligations to Los Angeles (the “City”).  The initiation of this program offers business with a presence in the City the opportunity to anonymously come clean regarding their reporting obligations while receiving the benefits and protections offered under the program, such as a waiver of delinquency penalties.

Benefits:

• Limited Look-Back Period:  from October 4, 2011 to October 3, 2012 taxpayers will receive a limited look-back period of three (3) years.  Beginning on October 14, 2012 the look-back period will be limited to five (5) years.  Normally the look-back period is eight (8) years in the City;
• Waiver of delinquency penalties (not interest); and
• Written confirmation as to acceptance into the program while maintaining anonymity.

Qualifications:
To qualify for the VDP, taxpayers must meet the following conditions:

• Be engaged in business in the City;
• Cannot have previously filed an application for a Business Tax Registration Certificate, been registered with the Office of Finance, or filed a Business Tax renewal form;
• Have not been previously contacted by the Office of Finance or its contractors regarding tax liabilities, and are not currently under audit for or otherwise contesting such liabilities;
• Voluntarily come forward, prior to any unilateral contact with the Office of Finance or its contractors and file both an application for a voluntary disclosure agreement and a full and accurate statement of your activities within the City of Los Angeles for the eight immediately preceding annual tax periods;
• Fully and completely cooperate with an investigation of the taxes at issue in the Voluntary Disclosure Agreement, including providing all books and records to the Office of Finance; and
• Failure to register and pay the Business Tax was not as a result of fraud or intent to evade the provisions of the Los Angeles Municipal Code.

A person shall be deemed “engaged in business” within the City and required to obtain a Business Tax Registration and pay Business Tax if:

• The person or his employee maintains a fixed place of business within the City for the benefit or partial benefit of such person, or
• The person or his employee owns or leases real property within the City for business purposes, or
• The person or his employee regularly maintains a stock of tangible personal property in the City for sale in the ordinary course of business, or
• The person or his employee regularly conducts solicitation of business within the City, or
• The person or his employee performs work or renders services in the City on a regular and continuous basis involving not less than seven working days per year for all such employees, or
• The person or his employee utilizes the streets within the City in connection with the operation of motor vehicles for business purposes.

Application Process:
An application must be submitted to the Office of Finance. Taxpayers will then have 30 days to file annual tax renewal forms and pay all applicable taxes and interest once the voluntary disclosure agreement is signed. In addition, taxpayers must also agree to continue filing annual tax renewal forms and pay any Business Tax due in the future.

Agreement Violation:
The Voluntary Disclosure Agreement (“VDA”) will be null and void if the taxpayer:

• Misrepresents material facts provided to the Office of Finance with respect to the VDA;
• Fails to file annual renewal forms or pay Business Tax for the periods covered by the agreement; and/or
• Defaults on an installment payment plan for the taxes at issue under the VDA.

Companies with a presence in Los Angeles, or those that are unsure as to whether they are engaged in business in the City, please contact Mike Fletcher at mfletcher@argy.com or 703-770-0533 or to learn more about this voluntary disclosure program.

California Provides Guidance on “New Business” and “Eligible Small Business” NOLs

The California Franchise Tax Board (“Board”) issued guidance through its “Legal Division Guidance 2011-10-01 Publication” (“Publication”) on its “new business” and “eligible small business” NOL provisions.  The Publication stated that the “new business” and “eligible small business” provisions of Cal. Rev. & Tax. Code § 17276.20 and § 24416.20 no longer continue to apply for taxable years after 2007 under California law. 

Under these sections of the California tax code, the amount of NOLs eligible for carryover for California purposes into subsequent years are limited based on the provisions of those subdivisions.  However, the “new business” and “eligible small business” provisions provide exceptions to the NOL carryover limitations and allow 100 percent of the carryover if certain requirements are met.  Since NOLs attributable to taxable years beginning on or after January 1, 2004, are now eligible for 100 percent carryover in California, according to the Publication, the “new business” and “eligible small business” provisions are no longer relevant because NOLs may be fully carried over without any limitations.

California recently suspended its applicability of California modifications to the federal NOL carryover period for taxable years beginning on or after January 1, 2008, which results in the “new business” exception becoming no longer applicable since California currently conforms to the 20-year federal NOL carryover period pursuant to I.R.C. § 172. 

Taxpayers who have California NOLs please contact Mike Fletcher at mfletcher@argy.com or 703-770-0533. 

Michigan Corporate Income Tax Updates

The Michigan corporate income tax becomes effective January 1, 2012.  Michigan has recently enacted legislation that provides various amendments to the corporate income tax laws.  Such amendments include changes to various corporate tax law definitions, the taxation of foreign persons and the recapture of certain business tax credits.  Some of these amendments are discussed in more detail below.

Amendments to Corporate Income Tax Definitions
Effective January 1, 2012, the newly enacted Michigan legislation amends the definition of “person”, “corporation”, and “tax year”.  Michigan House Bill 4956 (P.A. 176), provides that the definition of “person” for corporate income tax purposes also includes a flow-through entity.  Prior to the amendment, the term “person” only included an individual, firm, bank, financial institution, insurance company, limited partnership, limited liability partnership, co-partnership, partnership, joint venture, association, corporation, subchapter S corporation, limited liability company, receiver, estate, trust, or any other group or combination of groups acting as a unit. 

Also, House Bill No. 4964 (P.A. 179) amends the definition of “corporation” to provide that a corporation means a person (formerly, a “taxpayer”) that is required or has elected to file as a C corporation as defined under section 1361(a)(2) and section 7701(a)(3) of the Internal Revenue Code. 

Additionally, Michigan House Bill No. 4946 (P.A. 170), amends the definition of “tax year” for corporate income tax purposes to provide that a person in included in a unitary business group that joins or departs the unitary business group other than at the end of that person’s federal tax year shall have a tax year beginning with its federal income tax period and ending on the date of joining or departing the unitary business group, and another tax year beginning on the date immediately after joining or departing the unitary business group and ending with its federal income tax period. 

Taxation of Foreign Persons
Also effective January 1, 2012, House Bill No. 4955 (P.A. 175) provides an amendment to Mich. Comp. Laws Ann. §206.625(2), which discusses the corporate income tax of foreign persons.  The legislation provides that the corporate income tax base shall not include net income from sales of tangible personal property where title passes outside the United States. Prior to the amendment, the law previously provided that the corporate income tax base shall not include proceeds from sales where title passes outside the United States.

The legislation also provides that the sales factor for a foreign person is a fraction, the numerator of which is the taxpayer’s total sales in Michigan during the tax year and the denominator of which is the taxpayer’s total sales in the United States during the tax year.  For sales of tangible personal property, only those sales where title passes inside the United States shall be used in the sales factor, and for sales of property other than tangible personal  property, those sales shall be apportioned in accordance with chapter 14 (Mich. Comp. Laws Ann. §206.661, et seq.).

Recapture of Business Tax Credits

Michigan House Bill No. 4967 (P.A. 181), effective January 1, 2012, provides that a taxpayer that has claimed a credit under the Single Business Tax (“SBT”) or under the Michigan Business Tax (“MBT”), that included a provision that allowed for a reduction in the credit amount, a termination of the credit, or a percentage of the credit amount previously claimed added back to the tax liability of that taxpayer under that tax if the taxpayer failed to comply with any terms of the agreement or other conditions of that credit or if the taxpayer sells or otherwise moves the property for which a credit was claimed less than five years after the year in which the credit was originally claimed under the SBT or MBT, shall have a percentage, or the entire amount, of the credit amount previously claimed under the SBT or the MBT, added back to the taxpayer’s tax liability for corporate income tax purpose in the year that the taxpayer failed to satisfy or breached the conditions of the credit set forth under the SBT or the MBT. 

Additionally, a taxpayer that has claimed a credit under the SBT or the MBT, for a tangible asset that the taxpayer has sold, transferred out of Michigan, or otherwise disposed of during the current tax year shall to the extent the credit was used and at the rate at which the credit was used under the SBT or at the rate at which the credit was used under the MBT, have an amount added back to the taxpayer’s liability equal to the amount calculated in accordance with a formula set forth by statute.

Should you have any questions about how this development might affect you, please contact Mike Fletcher at mfletcher@argy.com or 703-770-0533.

Minnesota Worker Classification Voluntary Compliance Program for Withholding Tax

Employers who have discovered improper classification of one or more employees as independent contractors now have a limited-time opportunity to correct the misclassification with reduced consequence for Minnesota withholding tax. The Minnesota Department of Revenue’s worker classification voluntary compliance initiative will be available through December 16, 2011.

Qualifications:
The business must meet all eligibility requirements for the federal Voluntary Classification Settlement Program (page 1 of federal Form 8952) and the following requirements:

• Be an active business with Minnesota employees,
• Agree to register for Minnesota withholding tax (if not registered),
• Furnish information identifying the misclassified workers and the compensation paid to each,
• Pay a tax at the rate of 3% of compensation paid to the affected workers for the calendar year 2010 and the applicable interest,
• Agree to treat all workers in the affected classes as employees beginning January 1, 2012 and for all periods thereafter, unless the relationship between the worker and the employer changes, and
• Upon request from the Department of Revenue, make records available for audit to verify the tax liability and the accuracy of any statements.

Benefits:
Taxpayers can get waivers of all penalties and limitation of tax obligations for past tax periods, and avoid an audit.

Application Process:
Internal Revenue Service Form 8952 along with a cover letter indicating to apply for the Minnesota Voluntary Compliance Initiative should be completed and submitted to Minnesota Department of Revenue by December 16, 2011.

Should you have any questions about how this development might affect you, please contact Mike Fletcher at mfletcher@argy.com or 703-770-0533.

Download Document »

« Back to all Publications