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Work Opportunity Tax Credit Now Available to Qualified Tax-Exempt Organizations

Posted 12:14 PM by

The VOW to Hire Heroes Act of 2011 provides an expanded Work Opportunity Tax Credit (WOTC) to businesses that hire eligible unemployed veterans and for the first time also makes the credit available to certain tax-exempt organizations.

The Act allows employers, including qualified tax-exempt organizations, to claim the credit for qualified veterans who begin work on or after Nov. 22, 2011, and before January 1, 2013.

The credit is claimed as a credit against the employer's share of social security tax by separately filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans.

IRS Notice 2012-13 contains additional guidance for tax-exempt employers claiming the credit.

Note: For purposes of the credit, a qualified tax-exempt organization is "an employer that is an organization described in section 501(c) and exempt from taxation under section 501(a)."

For more information, including how to claim the credit, read the IRS news release and related materials (including FAQs), or contact your KSM advisor.

Source: Internal Revenue Service



State & Local Tax Update - 2/3/12

Posted 2:58 PM by

Indiana Use Tax Not Due on Promotional Items: An Indiana corporation was not liable for use tax on items it manufactured and pulled from its inventory in Indiana for use as promotional items in other states because the items were only temporarily stored in Indiana for subsequent use outside Indiana. The items were consumed in the course of demonstrations at non-Indiana locations. The products did not return to Indiana. This is temporary storage for use outside Indiana and does not constitute storage subject to Indiana use tax. See LOF 04-20110134 for more information.

Connecticut To Issue Debit Cards for Refunds: The CT Department of Revenue Services will issue personal income tax refunds in the form of debit cards, rather than checks, to taxpayers who do not use direct deposit. DRS has contracted with JP Morgan Chase to administer the debit card program. Taxpayers will have to call Chase to activate the card and select a PIN. The debit card can be used at ATMs; banks and credit unions displaying the VISA logo; gas stations and retail locations that accept VISA. If the taxpayer does not activate the debit card within 365 days, the debit card account will be closed and the available balance will be returned to DRS. If the debit card is activated and a balance remains, after the 12th consecutive month of inactivity (365 consecutive days of inactivity), Chase will begin charging an inactivity fee of $1.00 per month. Visit the FAQs for more information on the program.

Kentucky Requires Estimates of Nonresident Withholding for 2012: Effective for taxable years beginning after December 31, 2011, every pass-through entity required to withhold Kentucky income tax will be required to make a declaration and pay estimated tax if : (1) the nonresident individual owner's tax liability can reasonably be expected to exceed $500; and/or (2) a corporate owner doing business in Kentucky only through its ownership interest in a pass-through entity has a tax liability that can reasonably be expected to exceed $5,000. When withholding on the distributable share income of nonresident individuals, estates, trusts and corporations, no withholding is made for partners or members that are pass-through entities. The distributive share income will continue to pass through as Kentucky source income requiring withholding at each level of each pass-through entity of multiple tier structures. Therefore, withholding, as well as the calculation to determine if an entity is required to make declaration payments, will be at each level of the structure using only the nonresident individual and corporations doing business in Kentucky only through their ownership interest in the pass-through entity. Trusts and estates are entities treated as individuals and are included in the withholding requirement. See KY Tax Alert 1 for additional information.


State & Local Tax Update - 1/20/12

Posted 3:40 PM by

Indiana Updates Sales Tax Guidance for Colleges and Universities:  The IDOR has revised Information Bulletin 68 concerning nonprofit and state colleges and universities to include separate sales tax treatment for colleges and universities that operate as nonprofit organizations and those that operate as governmental agencies. Indiana state colleges and universities that are nonprofit organizations or governmental agencies are entitled to certain exemptions from sales and use tax for purchases and sales that support the exempt government function or educational mission of the institutions. Transactions that do not support the exempt educational mission of a nonprofit educational institution or that are associated with a proprietary activity on the part of a state government educational institution are subject to tax. The bulletin details: purchases and sales by nonprofit colleges and universities; purchases and sales by state colleges and universities; application of the key terms “educational materials,” “proprietary activity,” “accommodations,” and “student”; furnishing or selling intrastate telecommunication services; and student organizations at state colleges and universities.

Missouri Upholds Use Tax on Repair Parts: The MO Sup Ct. held that a company that provides maintenance and repair services for mainframe computers is liable for use tax on parts it purchased and used in fulfilling maintenance contracts because it engaged in taxable use in MO. The company did not just store the parts temporarily in MO, but unpacked, inspected, tested, and repackaged the parts then certified them for use and shipped them to its customers. Further, it was not entitled to resale exemption because it did not purchase the parts for subsequent taxable sale. For more information, see Custom Hardware Engineering & Consulting Inc. v. Director of Revenue.


Electronic Filing of Some Tax-Exempt Forms Delayed to March 30

Posted 9:16 PM by

The Internal Revenue Service (IRS) recently announced that the filing date for tax-exempt organizations with annual returns due in January and February will be March 30, 2012.

The extension applies to organizations that electronically file Forms 990, 990-EZ, 990-PF, or 1120-POL. Form 990-N filers are not affected and no form needs to be filed to get the March 30 extension.

The IRS explained that it moved the filing deadline because the part of the service's modernized e-File system will be offline during January and February.

The IRS has issued Notice 2012-4, which provides more details about the deadline extension.

Source: Internal Revenue Service


State & Local Tax Update - 1/13/12

Posted 10:53 PM by

Indiana and Amazon Agree on Tax Collection
Indiana Governor Mitch Daniels has announced that will begin collecting Indiana sales tax on Internet purchases under an agreement reached between Amazon and the IDOR. Amazon will voluntarily begin to collect and remit Indiana sales tax beginning Jan. 1, 2014, or 90 days from the enactment of federal legislation, whichever is earlier. Indiana will not assess the company for sales tax for other periods. See the governor's news release for additional details.

Michigan Amends Apportionment Calculation
Effective Jan. 1, 2012, the Michigan sales factor numerator of a corporate taxpayer must include its proportionate share of the total sales in Michigan of a flow-through entity that is unitary with the taxpayer. The denominator of a taxpayer must include its proportionate share of the total sales everywhere of a flow-through entity that is unitary with the taxpayer. A flow-through entity is unitary with a taxpayer when that taxpayer owns or controls, directly or indirectly, more than 50 percent of the ownership interests with voting rights or ownership interests that confer comparable rights to voting rights of the flow-through entity, and that has business activities or operations which result in a flow of value between the taxpayer and the flow-through entity, or between the flow-through entity and another flow-through entity unitary with the taxpayer, or has business activities or operations that are integrated with, are dependent upon, or contribute to each other. Sales between a taxpayer and flow-through entities unitary with that taxpayer, or between flow-through entities unitary with a taxpayer, must be eliminated in calculating the sales factor. See SB 673 for details of the new law.

Michigan to Follow Federal Classification for Disregarded Entities
Effective retroactive for taxes levied on and after Jan. 1, 2008, Michigan law has been amended to provide that a person that is a disregarded entity for federal income tax purposes under the Internal Revenue Code must be classified as a disregarded entity for purposes of the MBT. This legislation negates the requirement outlined in Notice to Taxpayers Regarding Federally Disregarded Entities for entities to amend prior year MBT returns to separate activities of disregarded entities resulting from the Kmart decision. See SB 369 for additional information.


Reporting of 2011 Organizational Actions Affecting Basis of Securities Due January 17

Posted 8:03 PM by

The IRS has released a new form, Form 8937, for the reporting of transactions that affect a security holder's basis. Examples of transactions that may require Form 8937 are stock splits, stock dividends, nontaxable dividends, mergers, and acquisitions. This form is required retroactively to report transactions occurring on or after Jan. 1, 2011.

Form 8937 has two parts. Part I is the general information regarding the reporting entity. Part II requires the information related to the specific transaction.

Who must file: Any taxpayer that takes an organizational action that affects the basis of all holders of the security.

Exceptions: Form 8937 is not required to be filed with the IRS if, by the due date of the form, a completed Form 8937 is posted to a primary public website. In addition, the form is not required if all the holders of the security are exempt recipients.

Special rules: S corporations can satisfy the reporting requirement by reporting any actions that affect the basis of the stock on a timely filed Schedule K-1 for each shareholder and timely gives a copy to all proper parties. A real estate investment trust (REIT) that reports undistributed capital gains to shareholders on Form 2439 satisfies the reporting requirements if Form 2439 is timely filed and given to all the proper parties.

Due date: For transactions occurring during 2011, the form is due Jan. 17, 2012. For transactions occurring after Dec. 31, 2011, the due date for Form 8937 is the earlier of: (1) the 45th day following the transaction; or (2) Jan. 15th of the year following the calendar year of the transaction.

For more information, please contact your KSM advisor.


Repeal of Withholding for Government Contractors

Posted 3:19 AM by

In 2005, a provision for withholding 3% on every payment made to a government contractor was placed into law. This would have affected payments received from the federal government, state governments, local governments and state agencies. In 2010, this provision was deferred until 2011 and, subsequently, deferred to 2012.

On November 21, the president signed a law that repealed the 3% withholding requirement for payments made after 2011. In explaining the reasons for repeal, the House Ways and Means Committee looked at the economic impact on contractors - including a reduction in cash flow - and the potential for small businesses to adjust the pricing to address the change in cash flow. The committee also looked at the substantial costs of the government to withhold on the payments being made to the contractor.

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