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A few weeks ago, I discussed the apportionment of NFL Players’ income for state tax purposes in the article “Saturday’s Challenge to Cleveland Income Tax for NFL Players.” The Supreme Court of Ohio determined that the proper allocation of an NFL Player’s salary is to take the number of work days in a state divided by the number of overall work days. For example, if a player spends 7 days in a state for work (more specifically, preparation for a game) and has 206 overall workdays, then the relative percentage of the allocated income to the state is 3.39%. As a result, each state can get their fair share of the NFL Player’s income.

Forbes Business published an interesting article claiming that if the Carolina Panthers were to win in Sunday’s Super Bowl, then Cam Newton’s effective tax rate would be 99.6%. Compare this to the outrageous effective tax rate of 198.8%. This does not even include the 40.5% Cam Newton would owe the IRS.

Taking a step back and looking a Cam Newton’s “incentivized” earnings, if (or “when” for all those optimistic sports fans out there) the Carolina Panthers win the Super Bowl, Cam Newton will earn Super Bowl winning bonuses of $102,000, add this to the mere $58,800 earned for Week 17 of the Regular Season and $71,000 of playoff bonuses to date. If Cam Newton and his Carolina Panthers lose, he will “only” earn a Super Bowl bonus of $51,000. This totals to $231,800 in earnings if Cam Newton were to win the Super Bowl compared to $180,800 if he were to lose. All of this is on top of Cam’s salary of about $10 million per season.

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Over the past few years, we have been intricately involved in ongoing litigation with the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco (“ABT”). There still remains ongoing litigation in connection with the Micjo issue. Micjo dealt with whether non-tobacco charges, such as federal excise tax and shipping charges, are subject to Florida Other Tobacco Products Tax and the Surcharge on Other Tobacco Products (“OTP Tax”). Down another path there is current litigation in Brandy’s, which deals with cigar wraps, or blunt wraps, which are subject to Florida’s OTP Tax. Recently, however, another case was filed in late 2014 that has a far broader reach than any other case filed to date.
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Over the past few years, taxpayers throughout Florida have been in a never ending battle with the Department of Business and Professional Regulation, Division of Alcoholic Beverages and Tobacco (“ABT”). At the forefront is the Micjo issue. Micjo was a case that determined that Florida wholesale tobacco tax should not apply to the full invoice. Rather, the 85% should only apply to the tobacco while charges and items such as federal excise tax and shipping should not be included in the taxable base. There are 8 pending cases throughout Florida being litigated on this issue. In addition, there are two cases in which the taxpayer has argued that blunt wraps, or cigar wraps, are not included in the tobacco products definition and, are therefore, not taxable. In Brandy’s, a taxpayer received a favorable ALJ opinion spelling out the same.

In response, ABT has attempted to change Florida law. Specifically in Senate Bill 7074, ABT is attempting to fix the Micjo opinion and change the taxable base to include the full price paid by the distributor, including the federal excise tax. The amended law will read as follows:

“Wholesale sales price” means the sum of paragraphs (a) and (b): (a) The full price paid by the distributor to acquire the tobacco products, including charges by the seller for the cost of materials, cost of labor and service, charge for transportation and delivery, the federal excise tax, and any other charges, even if the charge is listed as a separate item on the invoice paid by the established price for which a manufacturer sells a tobacco product to a distributor, exclusive of any diminution by volume or other discounts, including discount provided to a distributor by an affiliate. (b) The federal excise tax paid by the distributor on the tobacco products, if the tax is not included in the full price under paragraph (a).

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Most states attempt to encourage manufacturers to set up a business in their state. Manufacturers typically provide numerous benefits to a state’s economy such as job creation. One of the carrots typically used by a state is to offer sales and use tax incentive for a manufacturing company. In almost every state with a sales and use tax, machinery and equipment purchased for use in the manufacturing process is exempt from tax. What if a glass manufacturer purchased chemicals, such as nitrogen and hydrogen for use in its glass manufacturing process? Would that be a tax exempt purchase of equipment?
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In order to limit liability, many tax professionals and attorneys offer simple advice to their business clients who also own real estate. In order to avoid exposure to valuable real estate, many business owners are advised to segregate the risky business operations into its own legal entity separate from the real estate. While it may be worthwhile from a business liability standpoint, it is often a recipe for disaster for Florida sales tax purposes.

Florida is the only state that taxes commercial rent. In fact, many tax professionals take it a step further. Man times, for federal tax and cash flow purposes, attorneys set up a lease between the real estate entity and the business entity, often equal to the mortgage, insurance, and property tax costs. In other situations, and often with no formal lease in place, the corporate attorney will just have the business entity pay the mortgage, property insurance, and real estate taxes directly on behalf of the real estate company. Whether there is a lease, or if the tenant company pays the expenses directly, or even if the companies are related then Florida sales tax still applies. Below are 4 simple rules to keep in mind when it comes to Florida sales tax on commercial rent Continue reading

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In early 2014 I wrote an article that explores a way in which many state and local tax “SALT” professionals advise their clients to save on state and local tax. The issue is a common one for real property improvement contractors. Specifically companies that sell real property improvements to governments or other tax exempt entities, there is a real incentive to save on high sales tax rates. What if instead of selling a real property improvement, the company separated itself into two separate legal entities. Company 1 could sell tangible personal property, tax free, to the tax exempt entity/governmental entity. Company 2 could install the tangible personal property tax free because they are only providing a service. Assuming both companies had separate contracts, the entire transaction would escape sales and use tax in most states. Conversely, if a single company purchased materials and used them in a real property improvement, then it would owe tax on all of its purchases. This savings is often substantial.
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Many state and local tax (“SALT”) practitioners often refer to state and local transaction taxes as “gotcha” taxes. Over ambitious state agencies seek to extort money from businesses all the time by using fire first, ask question later type tactics. SALT auditors write up whatever they can as taxable and force businesses to prove them wrong. Similar to state and local sales and use taxes, motor fuel tax can often be a mine field for the unsuspecting business. In a 2014 decision, a Pennsylvania court agreed with the revenue agency’s “gotcha” mentality in Luther P Miller Inc v. Pennsylvania, 88 A. 3d 304 (Pa. Comm’w Ct 2014).
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Anytime I need a gift for just about any reason, 1-800 Flowers or Flowers.com, is where I turn to first. The online retailers make it incredibly easy for someone who needs as much help as I normally do to send gifts to others. I can just go online, pick one of their pre-packaged gifts, give them my credit card, and then the recipient magically receives the gift as quickly as I need it. Recently, the Florida Department of Revenue decided that it is entitled to sales tax whether the flowers are delivered in Florida or outside of its borders. Being that this is contrary to normal sales tax destination rules, the taxpayer decided to fight back.
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Anytime a state agency, such as the Florida Department of Revenue (“FL DOR”) gets their hands on third party reporting, you can rest assured they will be coming after that industry in full force. In 2011, the FL DOR passed a law that required wholesalers of alcohol and tobacco to report all of their sales to retailers directly to the FL DOR. Being that the FL DOR knew what each convenience store, liquor store, restaurant, and bar bought by way of beer and cigarettes, they could easily compare them to the same retailer’s sales tax returns. For those that the FL DOR suspected of underreporting or just pocketing the sales tax, the investigation letters started in late 2011 followed by some 200 audit notices per quarter in early 2012. Now about three years later, one can only suspect that the next FL DOR “campaign” will be focused on the next industry in which the FL DOR could most easily get it hands on. So who’s next?

For years the Department of Revenue had access to DMV reports that could show the cars being sold by a retailer with a Florida dealer license. In late 2013 through early 2014, our friends in Tallahassee formulated a methodology that more quickly, efficiently, and accurately compared the DMV reports and warned us the notices were coming. With that in mind, we knew the auto industry was next on the FL DOR’s hit list.
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