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Bramwell’s Lunch Beat: States with the Best Business Tax Climates

Oct 29th 2014
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Judge dismisses AICPA lawsuit against the IRS
Michael Cohn of Accounting Todayreported on Tuesday that a federal judge has dismissed a lawsuit against the IRS by the American Institute of CPAs (AICPA) over its new program offering voluntary education and testing of non-CPA tax preparers.

Judge James Boasberg, the same judge who handed down theLoving v. IRS ruling last year invalidating the IRS’s attempt to impose mandatory testing and continuing education of noncredentialed tax preparers, issued a ruling in the new case on Monday. Boasberg said the AICPA lacked standing and would not be harmed by a voluntary program.

“Arguing that AICPA and its members have suffered no harm from the program, defendants IRS and the IRS commissioner have now moved to dismiss the suit for lack of standing. Agreeing, the court will grant defendants’ motion,” wrote Boasberg, according to the article.

The judge disagreed with the AICPA’s contention that customers would use unenrolled tax preparers who participated in the Annual Filing Season Program instead of CPAs, noting, “AICPA has not demonstrated that permitting unenrolled preparers to distinguish themselves vis-à-vis other unenrolled preparers will result in competitive injury to CPAs and accounting firms who compete on the basis of more rigorous credentials.”

Cohn wrote that the AICPA has not decided yet whether to appeal the ruling. “We are surprised and disappointed by the ruling,” an AICPA spokesperson said, according to the article. “We are analyzing the decision in order to evaluate our options.”

[Some additional reading: Going Concern and Forbes also have articles about the judge’s ruling against the AICPA.]

2015 State Business Tax Climate Index
Wyoming ranks first as the state with the best business tax climate, according to a new study released on Tuesday by the Tax Foundation. Sorry, New Jersey, you were ranked last.

The 2015 State Business Tax Climate Index, now in its 11th edition, measures how well-structured each state’s code is by analyzing more than 100 tax variables in five different categories: corporate, individual income, sales, property, and unemployment insurance taxes.

According to the Tax Foundation, the 10 most competitive states are:

1. Wyoming
2. South Dakota
3. Nevada
4. Alaska
5. Florida
6. Montana
7. New Hampshire
8. Indiana
9. Utah
10. Texas

The study’s authors – Scott Drenkard, economist and manager of state projects at the Tax Foundation, and Joseph Henchman, the Tax Foundation’s vice president for state projects – noted that the absence of a major tax is a common factor among many of the top 10 states.

“Wyoming, Nevada, and South Dakota have no corporate or individual income tax, Alaska has no individual income or state-level sales tax, Florida has no individual income tax, and New Hampshire and Montana have no sales tax,” Drenkard and Henchman wrote. “But this does not mean that a state cannot rank in the top 10 while still levying all the major taxes. Indiana and Utah, for example, have all the major tax types, but levy them with low rates on broad bases.”

The 10 least competitive states are:

50. New Jersey
49. New York
48. California
47. Minnesota
46. Vermont
45. Rhode Island
44. Ohio
43. Wisconsin
42. Connecticut
41. Iowa

Drenkard and Henchman wrote that the states in the bottom 10 suffer from the same afflictions: complex, non-neutral taxes with comparatively high rates. “New Jersey, for example, suffers from some of the highest property tax burdens in the country, is one of just two states to levy both an inheritance and an estate tax, and maintains some of the worst-structured individual income taxes in the country,” they noted.

EU warns Hungary over Internet tax plan
Hungary’s plan to introduce a tax on Internet use from Jan. 1 is “a bad idea” that should be stopped before becoming a precedent for the rest of the European Union (EU), and could be a risk to the bloc’s economic growth, an EU spokesman said Tuesday, according to an article by Margit Feher of the Wall Street Journal.

“Any government that tries a tax like this is going to get it wrong. It is going to add up to a very big mess, and that is why Neelie Kroes and the [European] Commission want to make it clear before taxes like this come in that it’s the wrong direction to be heading in,” Ryan Heath, a spokesman for Kroes, the outgoing vice president of the European Commission and the commissioner in charge of the EU’s digital agenda, said at a news conference, according to the article.

Hungary’s governing party Fidesz partially backtracked on the planned tax on Monday after tens of thousands demonstrated on the streets in Budapest and other cities against the plan over the weekend.

Its earlier plan called for a limitless monthly charge of 150 forints ($0.62) per gigabyte of data. Fidesz now wants to limit the levy, which would be paid by the service providers, with a monthly cap per subscriber, Feher wrote.

Fellow EU countries shouldn’t follow Hungary’s lead, Heath said. “If Hungary becomes a precedent in this instance, it can become a problem in many other member states and become a problem for Europe’s wider economic growth.”

New tax rules won’t stop Pfizer from bidding US goodbye
Cynthia Koons of Bloombergwrote on Tuesday that the Obama administration’s attempt to block companies from leaving the country for tax reasons wouldn’t stop Pfizer Inc. from moving America’s biggest drugmaker overseas if it finds an attractive deal, CEO Ian Read said.

“If we believe the value is still there and we believe, under our interpretation of these rules, there is still value, I see no reason why we wouldn’t be able to do an inversion,” Read said yesterday in a telephone interview, according to the article.

Pfizer has been on the hunt for a multibillion-dollar deal that would add to the New York-based drugmaker’s pipeline, cut costs, and help it escape the United States’s 35 percent corporate tax rate, Koons wrote. The ideal transaction has all three components, Read said, though US Treasury Department rules announced last month could lower the value Pfizer assigns to the tax advantages. A tax inversion isn’t required for a deal, Read has said.

“Certainly I feel a sense of urgency on utilizing our balance sheet and our capital to do deals that are incremental, add incremental value, and certainly add revenue growth in the innovative space,” Read said on a conference call with analysts on Tuesday. “We are aggressively looking at all alternatives.”

The drugmaker walked away from a $114 billion attempt to buy London-based AstraZeneca, a purchase that would have boosted the company’s roster of medicines and moved its legal address overseas, according to the article.

Big-money untaxed gifts quadrupled as rich raced Congress
Richard Rubin and Margaret Collins of Bloombergreported on Tuesday that the wealthiest Americans poured $335 billion into tax-free gifts amid worries in 2012 that Congress would clamp down on the practice, according to new data released by the IRS.

The data cover tax returns filed in 2013 and thus mostly include gifts made in 2012. That’s more than four times the amount reported on returns filed in 2012. The gifts were made when Congress was approaching the so-called fiscal cliff and debating whether to extend rules that let married couples pass about $10 million onto their heirs without paying estate or gift taxes.

Congress eventually extended the rules indefinitely, though that didn’t happen until January 2013, Rubin and Collins wrote. In the meantime, wealth advisers were urging their clients to take advantage of what they portrayed as a once-in-a-lifetime opportunity to move assets to children without giving the IRS a cut.

“It was all hands on deck,” said Bobbi Bierhals, an estate-planning attorney and partner at McDermott Will & Emery in Chicago, according to the article. “We were working around the clock.”

After Democrats lost the majority in the House of Representatives in the 2010 election, Republicans and President Obama reached a deal that put the combined estate and gift tax exemption at $5 million per person and set it to expire at the end of 2012.

Report: IRS leaves out 500k ID theft victims
According to a report released on Tuesday by the Treasury Inspector General for Tax Administration (TIGTA), the IRS didn’t give more than half a million taxpayers that were victims of identity theft an identification number to smooth their filing process in 2013, wrote Bernie Becker of The Hill.

The IRS gives identity protection personal identification numbers (IP PINs) to identity theft victims, allowing the agency to verify a taxpayer and more quickly process their return. The IRS issued 1.2 million of those identification numbers in 2014, up from 770,000 the year before and roughly 250,000 in the 2012 filing season.

But TIGTA found that 532,637 taxpayers eligible for an identification number in 2013 didn’t receive one, because the IRS wasn’t wholly confident that the agency had the taxpayers’ correct address, Becker wrote. Almost 25,000 other taxpayers who had their personal information lost or stolen from the IRS didn’t get the opportunity to get an identification number, the report said.

Quick Links:

  • PwC ups its disruption; gets on Gmail (Going Concern)
  • The latest CPA exam pass rates are FAR from bad (Going Concern)
  • Accounting educators honored by AICPA for developing innovative curriculum (AICPA)
  • Sikich LLP names Curt J. Vorachek as managing director and partner of wealth management services (Sikich)
  • Will QuickBooks be your accounting software next year? (Forbes)
  • Newly-released business tax climate rankings give Scott Walker and Thom Tillis plenty to tout (Forbes)
  • EU transaction tax bid falters on revenue disagreement (Bloomberg)
  • A tax Obama and Republicans can agree on (Bloomberg View)
  • Corporate inversions a symptom of dysfunctional tax system (The Hill)
  • Millionaire tax on the ballot in Illinois (CNN Money)
  • Blame Congress? Your tax refund could be delayed in 2015 (Fox Business)
  • Nevada voters to consider economically damaging gross-receipts-style tax, a type of tax only five other states have (Tax Foundation)
  • White House claims US effective corporate tax rate is competitive (Tax Foundation)
  • Is there any chance Congress will pass business tax reform next year? (TaxVox)
  • Desert island bipartisanship, sort of, on new reality TV show (Don’t Mess With Taxes)
  • Dems urge better SEC whistleblower protection (Due Diligence)
  • Swiss banks balk at IRS, DOJ tax amnesty deal (Due Diligence)
  • How non-residents or part-year residents report federal refunds on Iowa tax returns (Dinesen Tax Times)
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