Posted on April 29, 2013 by
Over the past three years, the Florida Department of Revenue has targeted a growing number of businesses for sales-tax audits. While the state has always taken a hard line in identifying tax fraud, it has recently stepped up its enforcement efforts and narrowed its focus on a specific businesses and industries, including, but not limited to, convenience stores, used car dealers and VoIP service providers. Not only do targeted businesses face stiff penalties for underreporting sales tax, but owners and managers also face criminal prosecution and the possibility of imprisonment for five to 30 years.
On the surface, sales tax appears to be a fairly simple and straightforward concept. However, laws governing state and local taxes are often changing, and the interpretation of them can be rife with hidden dangers. Some of the most problematic gray areas of sales tax compliance involve commercial real estate rentals, manufacturing, and Internet and cloud computing.
Commercial Real Estate Rentals
Florida is the only state that levies a sales tax on commercial real estate rentals. In fact, this tax is the number one revenue generator for the state. Revenue generated from sales tax imposed on commercial rental exceeds total revenue generated by Florida’s corporate income tax.
The state’s laws have several unique nuances that, to the surprise of many business owners, can prompt tax requirements. The most common sales tax triggers are those that involve interrelated companies.
For example, business owners may assume they are limiting their financial risk by establishing special purpose entities to lease property they own back to their businesses. However, in these cases, the state of Florida considers both parties separate entities engaged in an implied intercompany agreement that is, in fact, subject to rental sales tax. The same holds true for property owners renting space to businesses in which they own stock. State law requires the related business tenants to pay sales tax to the property owners on the rent, as well as on all other fees detailed in the lease agreement, which can include maintenance fees, property taxes and even predetermined improvement costs paid by the landlord and credited back to the lessee.
The Florida court system has weighed in on issues relating to leasehold improvements. Traditionally it has held that the Department of Revenue may consider the amount tenants agree to pay for improvements as “rent in kind” and therefore subject to sales tax. However, in 2011, the court ruled that money tenants spend on office build-outs are not always subject to sales tax, specifically when lease agreements do not include predetermined spending amounts for such improvements.
Due to a general lack of uniformity in tax laws across different states, business owners are often surprised to learn about incentives and exemptions available to manufacturers operating in Florida.
For example, the most common exemption that Florida businesses overlook involves repairs to manufacturing equipment. Unlike repairs to automobiles, repairs to fix or replace equipment required for production are exempt from sales tax. Specific equipment purchased by manufacturers starting or expanding a business may also be exempt from sales tax. This includes machinery used for pollution control, research and development, and any equipment that the manufacturer can later prove led to a measurable increase in production. Currently, manufacturers must prove a 5 percent increase in product output or sales. However, the state legislature recently proposed to eliminate this requirement and make the tax exemption for expanding businesses the same for new businesses entering the state: businesses need only prove they purchased the equipment for use in Florida. A final decision in this matter is expected on June 30, 2013.
Internet and Cloud Computing
Unlike many states across the country, Florida takes a very liberal approach to its tax treatment of Internet and cloud-computing services. Because the state does not consider remote data storage and third-party applications in the cloud (i.e. Software as a Service) as tangible assets, it does not subject them to sales tax. Similarly, Florida does not tax purchases of electronically downloaded software and information services. However, if customers purchases software via CD, DVD or other tangible format, they become subject to sales tax.
While Florida’s Department of Revenue continues its aggressive, criminal enforcement of sales tax fraud, business owners in all industries need to take a proactive approach to compliance. This includes maintaining accurate and detailed records and relying on professional tax advisors who are up-to-date and knowledgeable about the many nuances of sales tax regulations. A sales tax advisor can help businesses plan strategies, and structure agreements and corporate systems for collecting, reporting and minimizing tax liabilities.
About the Author: Karen A. Lake CPA is a State and Local Tax (SALT) specialist with Berkowitz Pollack Brant. For more information, call (305) 379-7000 or e-mail email@example.com.
Posted on April 25, 2013 by
Many employers are still confused about the rules and penalties related to providing health insurance under Affordable Care Act. A recent article in BusinessWeek reported that the biggest rumor is that all businesses would need to provide insurance or be penalized.
Three years after Obamacare became law and less than nine months before its biggest reforms take effect, many employers still don’t grasp its basic elements.
Beginning in 2014, companies with more employees than 50 employees who work 30 or more hours per week face penalties of up to $2,000 per employee if they do not offer insurance coverage. These parameters mean that 96 percent of all employers are exempt from the rules.
Large businesses that comply with the mandate can still be fined if their plans cost workers more than 9.5 percent of their income or if their insurance doesn’t cover at least 60 percent of medical costs.
One state health exchange employee notes that companies with fewer than 25 workers that offer insurance may qualify for tax credits. For more specific details, visit www.healthcare.gov/using-insurance/employers or call your Berkowitz Pollack Brant CPA. We can help you determine how the change in law impacts your company and analyze your best course of action.
John G. Ebenger CPA is a director in the Real Estate and High-Net-Worth Tax Services practice of Berkowitz Pollack Brant. For more information, call (561) 361-2010 or e-mail firstname.lastname@example.org.
It was a great day for the Berkowitz Pollack Brant, Provenance Wealth Advisors and BayBridge Real Estate Group families – we celebrated the end of another successful busy season by closing down the firm and enjoying lunch at Joe’s Stone Crab.
It was a well-deserved afternoon of fun, celebration and teamwork. Tuesday we’ll back back to solving problems for our clients.
By Lee Hediger, Director of Provenance Wealth Advisors, an affiliate of Berkowitz Pollack Brant Advisors and Accountants in Miami
One of the biggest fears parents face is what will happen to their children if the parents die before the children are old enough to care for themselves. This concern can become significantly more daunting and complex when it involves special-needs children, who may never become fully capable of living independently and supporting themselves. For these families, it is crucial that parents develop appropriate plans to ensure their children continue to receive required care and attention after the parents are no longer around to do so.
Tending to children with special needs demands a unique set of responsibilities and requirements, which can include medical and nursing care, therapy, special education, private tutoring and transportation. All of these services come with costly premiums, which will most certainly rise during children’s lifetimes, especially when considering the steady increase in health care costs.
There are several government programs, including Medicaid, Supplemental Security Income, Healthy Kids, and Kid Care, that address the financial burdens of special-needs families. To qualify for need-based assistance, children’s personal incomes and assets must fall below set limits. Should their incomes rise above these thresholds, perhaps through inheritances or legal settlements, children may no longer be eligible to receive entitlements in the future. Fortunately, parents can overcome these restrictions by preparing for the inevitable and developing comprehensive estate plans that can incorporate special-needs planning within holistic frameworks, as deemed feasible, to protect the eligibility their children may have for need-based benefits.
Contrary to popular belief, estate planning is not just for the wealthy. Rather, it can provide invaluable benefits to families on all levels of the income scale. An effective estate plan looks at all personal assets and resources of an individual or a family and relies on those facts to develop a strategy that targets the securing of a lifetime of financial security, while simultaneously providing for loved ones at death. It may include a will that details an individual’s specific wishes, a life insurance policy that provides financial support to surviving family members, or a durable power of attorney that appoints an “attorney in fact” to handle financial affairs. Additionally, estate plans may include the naming of a guardian to look after children who cannot care for themselves or the formation of specific types of special-needs trusts.
Similarly, special-needs planning helps families safeguard assets they wish to set aside to maintain the well-being of their disabled children before and after they are gone. Such plans typically focus on two priorities: preserving children’s eligibility for public benefits, and protecting and extending the life of personal assets intended to pay for children’s ongoing care and quality of life. A prudent way to accomplish both goals is to establish a Special Needs Trust, also known as a Supplemental Needs Trust.
Special Needs Trusts are instruments that safeguard assets and allocate money for the continuous care of special-needs children without jeopardizing those children’s eligibility for need-based government aid. Not only can they be tailored to meet a family’s unique circumstances and the specific requirements of special-needs children, but they may also include such details as where the children should live; what specific care they should receive; and how much money should be allotted for their medical costs, discretionary expenses and so on.
Monies held in trusts are not considered assets of the beneficiaries. Therefore, parents may establish trusts named as beneficiaries of life insurance policies or retirement accounts and safely pass those funds onto their disabled children without risking a loss of entitlements. As a result, families may not only reduce their out-of-pocket costs for children’s medical care by relying on discounted Medicare rates, they may also rely on trust funds to pick up expenses where government assistance stops.
Reaping the full benefits and mitigating any potential disadvantages of special needs trusts requires proper administration and the guidance of experienced estate planners. For example, expert planning can help to minimize or eliminate pay-back provisions that require trusts to repay the government for monies it paid out during persons’ lifetimes, upon the beneficiaries’ deaths. Additionally, families can prevent a loss or reduction in benefits and the mismanagement or improper use of funds by relying on professional counsel to draw up trust plans that follow all current legal regulations and restrictions and take into account extraordinary family circumstances.
While it may be frightening for parents to think about how their children will carry on without them, it is even more worrisome to leave those children alone, unable to advocate on their own behalf and unprepared to survive on their own. Estate planning led by experienced counsel can help families meet the long-term financial, residential and medical requirements of special-needs children who outlive their parents. Furthermore, it can provide parents with peace of mind in knowing that their dependents will continue to receive high levels of care and enjoy an enhanced quality of life during the parents’ lifetimes and long after they are gone.
Lee Hediger is a director and financial planner with Provenance Wealth Advisors, an affiliate of Berkowitz Pollack Brant. For more information, call 954-712-8888.
Posted on April 12, 2013 by
The Tax Foundation think tank determines Tax Freedom Day. This is the day that most Americans will have earned enough to pay their total tax bill for the year. The 2013 tax freedom day falls on April 18, five days later than last year.
Economists at the Tax Foundation divide all federal, state and local taxes by the nation’s income. They use federal budget projections, data from the U.S. Census Bureau and the Bureau of Economic Analysis, and projections of state and local taxes.
The fiscal cliff deal that raised taxes on payroll and individual incomes for high-earning taxpayers were shared as the reasons for the five extra days.
Terry Schultz is a director in Berkowitz Pollack Brant’s Taxation and Financial Services practice. For more information, call (954) 712-7000 or e-mail email@example.com
Posted on April 11, 2013 by
Barry Brant, Tony Gutierrez, Alex Molieri and the International Tax practice of Berkowitz Pollack Brant were profiled in the April issue of Accounting Today. The article appeared in the Practice Profile section of the magazine, a monthly feature that highlights leading firms and their unique practice areas.
The team explained what it takes to build a thriving international practice, and the nuances of working with cross-border clients. Click here to read the article.
Posted on April 08, 2013 by
Taxpayers who added energy-efficiency to their homes in 2012 may qualify for credits.
- Adding certain energy-saving items to a US primary residence can create eligibility for a credit equal to 10 percent of the cost. Insulation, windows, doors and roofs are typical upgrades.
- For some items, the entire cost is eligible to be claimed, including qualified water heaters and qualified heating and air conditioning systems.
- There is a maximum lifetime limit of $500, of which only $200 can be used for windows.
- The credit was recently extended through the end of 2013. T
A second type of credit is called the Residential Energy Efficient Property Credit and related to alternative energy sources.
- The tax credit is 30 percent of the cost of alternative energy equipment, including solar hot water heaters, solar electric equipment and wind turbines.
- There is no limit on the amount of credit available for most types of property.
- Credits are available only for US properties, but are not limited to primary residences.
- The credit is available through 2016.
Jeffrey Mutnik CPA/PFS is a director in Berkowitz Pollack Brant’s Taxation and Financial Services practice. For more information, call (305) 379-7000 or e-mail firstname.lastname@example.org.
Posted on April 02, 2013 by
Companies that hired veterans in 2012 are eligible for tax credits up to $9,600. The Work Opportunity Tax Credits typically must be claimed within a short 28-day window.
Because of the delays related to the Fiscal Cliff negotiations, the IRS has granted an extension up to 15 months. The deadline to submit claim requests is April 29, 2013, so times is running out.
The Work Opportunity Tax Credit is a federal tax incentive program created to promote the hiring of individuals who face significant barriers to employment, most notably veterans, disabled persons and food stamp recipients. This program was on a prolonged hiatus in 2012 and has affected employer’s hiring and tax planning.
For more information, contact Karen Lake, a senior manager in Berkowitz Pollack Brant’s tax practice at (305) 960-1202 or e-mail email@example.com.