Happy tax filing month. To help celebrate, this month’s newsletter includes a fun tax quiz. In addition, there are articles outlining state revenue department’s new strategy of harassing out-of-state businesses to collect their sales/use tax for them and an article outlining the risks children can place on parents with their internet behavior.

Tax Quiz

As April is tax month, included here is a short quiz to see how well you know your taxes. Since everyone tends to think they have it worse than their neighbors, this year’s quiz revolves around state imposed taxes. Enjoy!

Kids Say the Darndest Things

But the impact today can be far-reaching

Art Linkletter (from 1945 – 1969) and Bill Cosby (from 1998 – 2000) hosted popular radio and television shows that featured kids aged 5 to 10 answering interesting questions. The answers were unrehearsed and often led to hilarious entertainment. Here is an example;

Q. What is the first thing you would do if you were president?

“I’d keep my mouth shut.”

“That husbands would have to kiss wives a hundred times.”

[See more examples]

Unfortunately, in today’s social media environment what was once a cute/innocent means of entertainment can quickly become a nightmare. Example: $80,000 discrimination settlement is lost after a daughter announced the settlement on her Facebook account.

In this example, a former head of a preparatory school in Miami, FL won an age discrimination suit against his former employer. As is normal in cases like this, the results of the settlement were legally required to be kept confidential. However, in expressing her happiness for her father, his daughter posted this on Facebook:

“Mama and Papa Snay won the case against Gulliver. Gulliver is now officially paying for my vacation to Europe this summer…”

That was all it took to have the settlement check canceled.

Example: Dad is fired after his son posts a video of the new phone he brought home from work.

The 15 year old son of an employee at HTC took his dad’s phone. This phone was a prototype of a yet to be released model. He thought it would be cool to video the features of the new phone and post it on the internet. The video went viral. The phone’s serial number was visible on the video so it was only a matter of time before the company could trace it back to its source. Since employees are required to sign non-disclosure (confidentiality) agreements, this employee got in big trouble and lost his job.

What can be learned

Why’s Everybody Picking on Me?

States now harassing small out-of-state businesses for use tax collection Many revenue starved states are now using a new strategy of harassing small out-of-state businesses for tax collection. Here is what you need to know.

Sales/use tax obligation

Whenever you purchase an item that has a sales/use tax obligation attached to it, the purchaser is required to pay the tax. To enable the collection of this tax, states have passed this collection obligation to the retailer. The seller must then collect the sales tax on behalf of their customer and send it in to their state revenue department. When your purchase is made from an out-of-state business, if that business does not have a physical presence in your state (called nexus), the purchaser (you) is required to send the correct tax to your state by complying with the state’s use tax laws.

What is happening now

As no surprise to anyone, widespread self-reporting of use tax is not being done. To combat this challenge there is pending Federal legislation called the Marketplace Fairness Act that would create requirements for the collection of these internet and interstate sales. No one is sure this bill will see the light of day. In the meantime, many states are taking matters into their own hands by sending notices to out-of-state businesses. States are telling these businesses they must fill out forms to show they adhere to their state tax laws. These forms are often complicated and the unwary business owner could inadvertently create a tax liability if they are unsure how to respond. Here are some things to know:

Unfortunately, small out-of-state businesses are readily identified during state sales tax audits of other in-state businesses. State auditors follow the invoice trails and send out their notices. The paperwork burden this is putting on out-of-state small businesses that already follow sales tax laws can become overwhelming. If you receive any of these notices from out-of-state revenue departments, please call for help.

In the News:

Severance Pay is Subject to Employment Taxes In a recent Supreme Court decision, pay received as severance is subject to Social Security and Medicare tax. The case involved an employer who went out of business but paid severance checks to employees based on their seniority and pay. The company’s position was that this pay was not wages.

In the unanimous decision, the Supreme Court ruled that the severance payments were deemed wages and the employment taxes were owed. The impact of this ruling is far reaching. It is estimated that there are pending claims for refunds of over $1 billion from similar tax cases.

What you need to know

While you may never find yourself in this situation, should you receive a severance check please pay special attention to how the payment is treated. If you receive a Form 1099, or receive a W-2 without Social Security and Medicare withheld you could have a problem. Should this happen to you, immediately ask your former employer why they believe Social Security and Medicare payments are not required. Seek advice as soon as possible. If you delay you might be required to pay the employer’s portion of this tax as well as your own.
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