As usual, I’m taking a moment this Monday to write to you about ways to grow your business.
Yes, we’re in the middle of the crunch of tax season, but it’s NOW that I wanted to continue to provide this information to you, so that you know how important your success really is to me.
As you’ve probably gathered, I’m not a “normal” accountant, because one of my great goals in our relationship is that we not only help you and your team watch and reduce expenses (thereby, of course, increasing profits), but that I would give you real-world tools and strategy for increasing your TOP-line (sales) growth.
But this week, I do have some tax information you need to understand. There’s a trap being set for unwary business owners, and the IRS has been paying close attention. More about that in a moment, but in the meantime, I am asking of you a favor:
Would you take a few moments and leave an honest review on Yelp or Google Maps about your experience with us? And obviously, if you have NOT yet used our services for preparing your taxes or helping with your books, it wouldn’t quite make sense yet to do this (!) … but you can probably agree that getting others’ words about a place can make a great difference. So, thank you in advance!
Yelp Review: http://bit.ly/VenutiOnYelp
Google Review: http://bit.ly/VenutiOnGoogle
Now, back to the (potentially) scary stuff…
Telecommuters and Nexus for Newtown Square, PA Businesses
“The price of anything is the amount of life you exchange for it.” – Henry David Thoreau
If you think the IRS is your biggest tax concern, think again. States are broke and they’re getting aggressive (and sometimes nasty) in collecting what they think is theirs.
Now … before you panic as you read this article, remember that our role in the life of your business is to help you avoid these problems. We are a simple solution for such matters, and rest assured that if you are an existing client of ours, that we are working on this sort of thing on your behalf.
Also, every business is a little bit different, and there is not an easy “one size fits all” for this issue.
So all that said, there was a tax court case a few years back, in the state of New Jersey, which caught my eye, and is a good way to introduce this issue to you.
A company called “Telebright” is incorporated in Delaware, and has primary offices in Maryland. And an unnamed employee worked in Maryland before moving to New Jersey when her husband changed jobs. Since she was a valued employee, according to the court documents, Telebright allowed her to telecommute after she signed an employment contract with a non-compete provision.
That was enough for the N.J. court.
In the case of Telebright, the court said that New Jersey is not imposing its corporate tax on Telebright because the company’s employee lives in the state, but because she performs work for Telebright on a full-time basis in the state.
“Taxing a business based on its employing one full-time employee in the taxing state does not violate the Due Process Clause,” wrote the court.
The company argued that the state’s attempt to collect corporate tax on this business violated the U.S. Constitutional due process and commerce clauses.
But the N.J. court noted that previous rulings found that the presence of “a small sales force, plant, or office” could subject a foreign business to taxation.
“The fact that Telebright’s full-time employee works from a home office rather than one owned by Telebright is immaterial … She is producing a portion of the company’s web-based product here, and the company benefits from all of the protections New Jersey law affords this employee,” wrote the court.
Since Telebright already withholds and pays New Jersey state income tax from the employee’s salary and it did not offer any explanation as to why the additional effort of calculating and paying the state’s corporation business tax would constitute an undue burden on its conduct of interstate commerce, the court found the commerce clause argument unpersuasive.
The bottom line for Telebright? Welcome to the Garden State and its taxes.
The bad news? If you’re a business with telecommuters everywhere but New Jersey, don’t get complacent.
Many states have considered whether one employee in a state creates nexus for an out-of-state company and the majority of the reported cases and administrative rulings conclude that just one employee creates nexus, for both income tax and sales/use tax purposes.
That finding was similar to the responses Bloomberg media got last year when it asked state tax officials if they would draw a different conclusion if the out-of-state corporation made no sales into their jurisdiction or if the employees telecommuted for only part of their total work time.
Arizona, Indiana, Minnesota, Montana, Nebraska, New Hampshire, New Jersey, North Dakota, Pennsylvania, Rhode Island and Tennessee representatives said that in such cases, nexus would still result, leading to taxes.
Don’t be complacent on this issue. Help us help you avoid this, and let’s figure out together how to get ahead of the curve.
After all — paying taxes in ONE state is burdensome enough.
I’m personally dedicated to your success. Can other accountants say that?
Feel very free to share this article with a Newtown Square, PA business associate or client you know who could benefit from our assistance — or simply send them our way? While these particular articles usually relate to business strategy, as you know, we specialize in tax preparation and planning for Newtown Square, PA families and business owners. And we always make room for referrals from trusted sources like you.
Warmly,
Stephen Venuti
610-353-0686
Stephen J. Venuti, CPA, MST, LLC
