February 2010 Archives

The California Senate passed a bill last week that would force internet merchants to pay sales tax to the state for sales done within California. 

Such a tax, dubbed an "Amazon Tax," is similar to the New York State law that requires the payment of sales and use tax by out-of-state retailers, should they have a commission agreement with an in-state resident based on the referral of customers. Of course, that New York resident would have to earn in excess of $10,000 from in-state sales in order for this law to apply.

The purpose behind such a tax is similar to the legislative intent behind the oft-forgotten "use" tax. Essentially, a buyer can cross state lines and buy an item in a state that has less sales tax. The sales tax, as it is collected at the point of sale by the seller, is a burden on in-state companies since they are often required to collect it and to remit it to the state. If buyers go out of state to purchase items, due to sales tax, the local and in-state businesses suffer.

The Yelp review site just got more notorious this week. The widely used website that allows users to write reviews in order to help people find great local businesses is under fire again. The New York Times reports that Yelp is involved in a class action lawsuit filed by two law firms on behalf of a veterinary hospital in Long Beach, California. The Yelp lawsuit details issues that have been plaguing the company recently.

The lawsuit was filed last Tuesday in federal court in Los Angeles. Some of the claims against Yelp include: unfair business practices, running an "extortion scheme," and having Yelp employees call businesses in order to have them pay Yelp monthly in order to remove or adjust negative reviews about their business.

Is your nonprofit formed with an exempt purpose? If it's not, then the IRS might reject your tax exemption application and you might simply lose the benefits of being a tax exempt nonprofit. 

The IRS definition of "exempt purpose" is long and somewhat difficult to read. In a nutshell, your nonprofit needs to show that it is formed to further the purpose of philanthropy. 

But where does this all come in to play when filing your nonprofit 501(c)(3) application? 

Don't dump your clients' financial records in a public dumpster, or your former clients might become identity theft victims.

Or worse, you might get cited by the Federal Trade Commission.

That's the lesson learned in the mortgage industry. A mortgage broker recently settled a complaint with the Federal Trade Commission and was forced to pay a civil penalty of $35,000.

The mortgage broker allegedly failed to accurately dispose of personal financial records of his clients. Allegedly, the mortgage broker inappropriately discarded 40 boxes of sensitive consumer records, including tax returns, mortgage applications, bank statements, photocopies of credit cards and drivers' licenses and over 230 credit reports. He left these documents in a dumpster, easily accessible by the public.   

Is your business thinking of accepting credit or debit cards for transactions? 

Consumer privacy is a very big issue these days. Credit card information, as well as other personal information, is rampantly available and the availability can cause consumers to fear for the safety of their credit history. Credit card identity theft is a very big problem for consumers as well as for businesses. 

Some businesses accept credit cards online via a system like Paypal or Google Checkout. And while these methods seemingly alleviate all liability for the business, you can never be too safe these days, especially in light of certain pieces of law know as the Fair Credit Reporting Act and the Fair and Accurate Credit Transactions Act. 

The big homebuilders  are lining up for their tax refund, thanks to an expansion of stimulus legislation. Toll Brothers announced that it will be receiving a 2009 tax refund of $162 million. Lennar estimates a whopping $320 million anticipated tax refund!

But here's the good news for your business -- you don't need to be a massive corporation with a powerful Washington DC lobby to get your own little bailout package!  If your once flourishing business has taken a hit in 2008 and 2009, you might not need to see red anymore.

Last year, we discussed the the net operating loss carryback rules when they were available only to businesses with gross receipts under $15 million. The NOL income tax rules, allowing businesses with gross receipts under $15 million to "carry back" their losses up to 5 years, were set to expire on October 15, 2009. 

What if the government could lend money directly to the small businesses -- wouldn't that be wonderful?

Would it really?

President Barack Obama addressed that very question earlier this month at a town-hall type meeting in Tampa. 

The question was posed by small business owner, Steve Gordon, where he asked why it was so easy to lend to the large banks and the auto industry, but that small businesses have to go through their banks in order to get an SBA loan. 

Who would have expected that the culture for philanthropy would have grown in such a ravaged economy? The Wall Street Journal reported that although private giving has fallen 6% in 2008. Nonetheless, the recession seems to have triggered altruism in certain individuals and the urge to help others is stronger than ever. 

If you're of those who gave in to their altruistic instincts and started a philanthropic organization, you might have already considered making your organization a tax exempt nonprofit under section 501(c)(3) of the Internal Revenue Code. If so, you've probably already had a look at some of the formation requirements.  

But let's backtrack a bit. What is a tax exempt nonprofit under section 501(c)(3)?

A tax exempt nonprofit is one which is recognized as tax exempt by the Internal Revenue Service (IRS).  

If you have any tax skeletons in your closet, beware of the IRS rat. They're everywhere, scurrying about our small and large business in search of fodder; running rampant in our accounting departments, our social circles and yes, even our homes. 

Indeed, a family law attorney once told me, spurned ex-wives sing their songs of bittersweet vengeance to the IRS. 

It's true. The Internal Revenue Service actually pays people to turn in tax cheats. 

Correction; it pays them in theory. 

The IRS has a special program, the Whistleblower Program, designed to entice citizens to turn informer. Pre-2006, this award was discretionary.  After the 2006 Tax Relief and Health Care Act, however, the tables turned. 

Well, the tables turned for big-dollar informants. The little rats were still left out in the rain, fending for themselves. Under the new regime, informants on cases of $2 million or more could be paid between 15% and 30% of the taxes, penalties and interest collected. 

It looks like the Republicans and Democrats can reach across the aisle.

Some of the time.

On Saturday, a White House Official told the Associated Press that it plans to repeal the 1989 cell phone tax. In fact, the promise of this repeal is included in President Barack Obama's new budget and spending plan for 2011.   

If you're like the rest of America, you're probably scratching your head right now. Cell phone tax?

Perhaps a discussion on "taxable fringe benefits" is mandated before we go any further.  A taxable fringe benefit is considered pay, even if it's not monetary. The use of a company-owned Blackberry, for example, is a taxable fringe benefit. The employee must report, as income (on his or her tax return), the fair market value of the non-work related use of that phone.   

Not surprisingly, President Obama's recently released budget proposal for fiscal year 2011 has elicited polarized views from the business community. He's beginning to stand up to Wall Street and large corporations, at least rhetorically, while promising much-needed relief for small to mid-size businesses (US News). 

Beyond the president's expected populist stance, however, are a few arguably substantive budget proposals for Main Street:

The US Chamber of Commerce-fueled controversy over greenhouse gas emissions, which the Environmental Protection Agency has indicated it plans to regulate, proves that there is room for divergent opinions on environmental issues among US businesses (The New York Times).

While the EPA is asking businesses that emit the largest portion of greenhouse gasses to pay for the environmental costs (Science Daily) of potentially rising oceans and changing climate patterns, the Chamber claims that climate change regulation would stifle the economy and curb job growth at a time of global fiscal crisis. The business organization even indicated it might sue the EPA for its actions (US News).