Mergers & Acquisitions: Who Gets the Employee Compensation Deduction?

What is more precious than the workforce that you have trained and nurtured over the years? Quite often, human capital-related tax issues stemming from ill-advised structuring and planning strategies create employee resentment.  This resentment can jeopardize employee goodwill and loyalty, affecting the overall long-term stability of your business model. As the saying goes, “you are only as good as your people.”  When planning and negotiating a business transaction, you must carefully monitor how employee compensation taxation matters will affect the disposition of the whipsaw effect, which can adversely affect Continue reading »

Important Tax Considerations When Selling Your Business

Ready to negotiate the sale of your business?  First you should sit down with your tax advisor to gain a general understanding of the major tax considerations and constraints that should be evaluated. Partnerships, LLCs, C Corps, and S Corps all have various entity-specific tax consequences that should be evaluated before making any decisions.

The decision analysis process, however, is now more complicated because the top long-term capital gain rate was raised to 20% versus 15%, and there is an additional 3.8% Medicare tax applicable to certain passive investors. In the case of LLC sale transactions, your choices are limited and the transaction will generally be accounted for tax reporting purposes as an asset sale. In the case of a corporation, depending on whether the entity is an S Corporation or you are selling one of the subsidiaries within a consolidated group, it can qualify as Continue reading »

Under the Affordable Care Act, Many Plans Subject to PCORI Fee

Under the Patient Protection and Affordable Care Act “PPACA,” certain types of health insurance arrangements will be required to pay a new fee by July 31, 2013. The fee is called the Comparative Effectiveness Research Fee or the PCORI fee because the monies will be used to help fund the Patient-Centered Outcomes Research Institute. The types of arrangements subject to the fee are:

• Fully insured medical plans
• Self-insured medical plans
• Plans sponsored by private, government, nonprofit and church employers
• Individuals on a temporary U.S. visa who reside in the U.S.
• Retiree-only plans
• Health Reimbursement Accounts (HRAs)
• Certain Flexible Spending Accounts (FSAs) if the employer contribution is greater than $500 and it is more than the employee contribution

The fee will be reported to the IRS via Form 720, but the revised Form 720 has not yet been made available.

In general, plans with year-ends between October 1, 2012 and December 31, 2012 must file Continue reading »

Maryland Cybersecurity Investment Tax Credit Signed Into Law

On May 2, 2013, Governor Martin O’Malley signed into law the Cybersecurity Investment Incentive Tax Credit.  The Governor proposed the credit earlier this year as part of his proposed FY 2014 budget.   The credit takes effect July 1, 2013, and applies to tax year 2014 through 2018.

Based on Maryland’s biotechnology investment credit, the new cybersecurity credit allows an investor who invests at least $25,000 in a qualified Maryland cybersecurity company to claim a credit in the amount of 33% of investments made in a Maryland cybersecurity company.  An investor can receive a refund if the credit exceeds tax otherwise payable for the taxable year.   An eligible investment is a contribution to a qualified cybersecurity company in exchange for stock or ownership interest as long as the investor does not acquire an ownership interest in a company that exceeds 25%. Continue reading »

Sale for Resale – An Easy Concept That’s Costly if Missed

A recent Virginia sales and use tax ruling illustrates how ignoring basic sales and use principles can be costly for businesses. The concept is simple – a sales tax is a consumption tax imposed on the end user of a product. Thus, if your company purchases tangible personal property with the intent of reselling the property (i.e., not consuming it), it generally should not pay sales tax on that purchase. This concept holds true for leases as well. However, a purchaser must notify a seller of this intent by providing a certificate to the seller indicating that the purchased product will be resold. Otherwise, the seller is obligated to collect sales tax.

The failure to apply this foundational sales and use tax concept had a costly result for Continue reading »

Maryland Bolsters R&D and Biotechnology Investment Tax Credits

Maryland Governor Martin O’Malley has signed into law legislation enhancing both the research and development tax credit and the biotechnology investment tax credit. The research and development tax credit will become a refundable credit and some companies that have been in business for more than 10 years will now be eligible for the biotechnology investment tax credit. Additional details on these changes are outlined below.

Research and Development Tax Credit

The research and development tax credit has been modified to allow a Continue reading »

Your Sales Tax Collection Obligations May Soon be Expanding

Federal courts have consistently ruled that retailers must have a physical presence in a state to be required to collect sales taxes. That has allowed online retailers to offer many customers tax-free shopping.  Equally important, the physical presence requirement has allowed smaller businesses using common carriers to expand their customer base without the administrative burden of collecting sales tax.  But, with Congress making headway on federal legislation that would eliminate the physical presence rule for many retailers and a recent New York State Court of Appeals decision going against Amazon and Overstock.com, the sales tax collection obligations for retailers may soon become more burdensome.

On March 19^th, 75 U.S. Senators supported a non-binding vote of approval for the Marketplace Fairness Act of 2013, a heavily-debated bill that is backed by a coalition of brick-and-mortar retailers such as Wal-Mart and Best Buy and vehemently opposed by certain online retailers such as eBay.  Although the vote was only a preliminary approval of a vague summary of the bill that was an amendment to a budget bill, the bipartisan nature of the vote suggests that remote seller legislation could be voted into law this year.

If enacted as is, the bill would allow states to require remote sellers with over Continue reading »

Obama’s FY14 Budget Proposal NOT Retirement Plan Friendly!

The Obama Administration’s recently released fiscal year 2014 budget contains several provisions that are less than advantageous as they relate to retirement plans. These provisions are by no means final, however, as Congress has yet to work its way through them.

The proposed budget contains two specific provisions that would greatly reduce the attractiveness of retirement plans to small businesses: Continue reading »

D.C. QHTC Incentives: Subtle Changes Could Have Big Impact

Companies that previously have or have not applied for Qualified High Technology Company (“QHTC”) status in the District of Columbia should reassess their operations to see if they can take advantage of QHTC incentives for tax year 2013 and beyond.  Legislation has passed in the District that changes the definition of QHTC and also modifies the eligibility for some of the benefits [Technology Sector Enhancement Act of 1012, L. 2013, Act 19-513 (Law 19-211), effective 03/05/2013].  Aronson is urging taxpayers to evaluate and take advantage of these incentives before they change even further.  We expect that these incentives will be significantly reduced for coming tax years, both in amount of the incentive and number of companies eligible.

For tax year 2013, the principal change in the law pertains to the gross revenue that is required to be from one or more qualifying activities (i.e., internet related services, information and communication technology, advanced materials technologies, or engineering, biotechnology, or defense technology).  The old law required that a company must derive at least 51% of its gross revenue from qualifying activities.  The new rule requires that at least 51% of its gross revenue earned in the District be from qualifying activities.  Therefore, under the new law, taxpayers need to examine their District gross revenue and determine if at least 51% of such revenue is derived from qualifying activities.  Depending on the particular makeup of a company’s revenue, this change could result in a previously ineligible company now meeting the definition of a QHTC or could cause a business to no longer qualify as a QHTC.

The Act also changes the application of the five-year corporate franchise tax exemption.  First, the exemption will no longer be dependent on whether a QHTC conducts business in a high technology development zone.  Thus, any corporation that is a QHTC will have a five-year corporate franchise tax exemption.  Further, for QHTCs certified on or after 1/1/2012, the five-year exemption period will no longer begin when the company commenced business in the District.  Instead, the five-year exemption will not commence until the company has taxable income.

Generally, the credits and incentives available to companies meeting the definition of a QHTC will not change as a result of the Act.  The following benefits will still be available to QHTCs:

• Reduced franchise tax rate of 6%, as opposed to 9.975%;
• Five-year corporate franchise tax exemption;
• Exemption from the entity-level unincorporated business tax
• Certain tax credits, including:
  • Cost of retraining qualified disadvantaged employees;
  • Wages paid by a corporation to qualified disadvantaged employees;
  • Wages paid by a corporation to qualified employees for first 2 years; and
  • Reimbursement payments made by corporations for employee relocation costs;
• Other tax benefits, including:
  • Reduction in real property tax;
  • Sales tax exemption on purchases of certain computer equipment and sales by a QHTC of certain services; and
  • Leasehold improvement deductions.

However, the legislation does repeal the provision that excludes from District gross income qualified capital gains from the sale of assets held for more than five years.  Such assets include stock in a QHTC, a capital or profits interest in a QHTC partnership, or tangible property used in the business of a QHTC.

Taxpayers should considered the potential impact of the new rules now, as the changes could influence 2013 estimated payments as well as filing methodology.

For further information, please contact your Aronson tax advisor or Michael Colavito, State and Local Tax Services Group at 301.231.6200.

Plan Ahead for the Proposed Maryland Cybersecurity Tax Credit

On January 16, 2013, Governor Martin O’Malley unveiled the CyberMaryland Investment Incentive Tax Credit Program as part his proposed FY 2014 budget.  The proposed program will provide a refundable tax credit in the amount of 33% of investments made in a Maryland cybersecurity company.  The proposed budget allocates $3,000,000 in tax credits for the “first come first served” program.  The appropriation of the funds for the program is contingent upon the enactment of legislation that authorizes the credit.  Such legislation was proposed in the General Assembly on February 6^th as House Bill 803 and is scheduled for hearing on February 26th.

The new credit will require Continue reading »