Monday, August 22, 2011


If you run a business with a physical storefront, collecting sale tax is straightforward.You charge your customers the sales tax required by the jurisdiction where your business is located. For example, if you operate a retail store in Detroit, MI you collect sales taxes from customers buying merchandise at your store.

But suppose you start selling your products online. Does that mean you charge customers the same sales taxes that you do to those who are coming into your store? It depends.

If your business has a physical presence in a state, such as a store, office or warehouse, you must collect applicable state and local sales tax from your customers. If you do not have a presence in a particular state, you are not required to collect sales taxes. In legal terms this physical presence is known as a nexus. Each state defines nexus differently, but all agree that if you have a store or office of some sort, a nexus exists. If you are uncertain whether or not your business qualifies as a physical presence, contact your states revenue agency. If you do not have a physical presence in s state, you are not required to collect sales taxes from customers in that state.

This rule is based on a 1992 Supreme Court ruling (Quill v. North Dakota, 504 U.S. 298) in which the justices ruled that states cannot require mail-order businesses, and by extension, online retailers to collect sales tax unless they have a physical presence in the state. The Court reasoned that forcing sellers to comply with more than 7,500 tax jurisdictions was too complex for sellers to manage, and would put a strain on interstate commerce.

Keep in mind that not every state and locality has a sales tax. Alaska, Delaware, HawaiiMontana, New Hampshire and Oregon do not have a sales tax. In addition, most states have tax exemptions on certain items, such as food or clothing. If you are charging sales tax, you need be familiar with applicable rates.

Determining which sales tax to charge can be a challenge. Many online retailers use online shopping-cart software services to handle their sales transactions. Several of these services are programmed to calculate sales tax rates for you.

You should always consult your tax advisor to determine where you should be paying sales taxes.

Tuesday, August 16, 2011

Portability... New Estate Tax Concept

New tax legislation signed December 17, 2010 created a new concept in estate tax planning for married couples that actually makes sense. The new concept is called “portability” of unused estate tax exemption, and it has never existed before. It has enormous, positive estate planning implications.

Everyone has an estate tax exemption that allows them to pass on a certain amount of property to a non-spouse estate tax free. Bequests to spouses, in any amount, are not taxed. If a married person left everything to the survivor, then upon the second spouses’ death only one estate tax exemption was used. A primary goal in many estate plans was to set up trusts that could, by the use of an irrevocable trust, utilize both spouses’ exemptions. This was often difficult and complicated.

Under the new “portability” law, many wealthy couples can choose the simpler route, leaving everything to the surviving spouse and still enjoy two estate tax exemptions.

Three important rules apply for this “portability” to exist:

1. First, the executor of the first spouse to die must file a timely filed estate tax return to transfer the “deceased spouse’s unused exclusion amount” (DSUEA) to the surviving spouse.
2. Second, remarriage by the surviving spouse may cut off this “portability” right. (That is beyond this post.)
3. Third, and most importantly, we simply do not know how long this “portability” law will stay on the books, as this new (2010) law was passed to last for two years only. In 2013, the estate tax laws revert back to the 2001 $1,000,000 estate tax exemption “pre-Bush Tax Cuts.”

Many in Congress want to reduce the estate tax exemption from $5.0 million to $3.5 million dollars, but retain the new “portability” concept. Only time will tell what the estate tax laws will be after 2012. It is prudent for married couples to review their estate plans, wills, and trusts to ensure that the proper clauses exist as to the death of the first spouse to die. Each case is different. For many couples, there may be compelling reasons to utilize an irrevocable trust upon the death of the first spouse.

Tuesday, August 9, 2011

IRS Increases Mileage Rate to 55.5 Cents per Mile

In June 2011, the Internal Revenue Service announced an increase in the optional standard mileage rates for the final six months of 2011. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business and other purposes.

The rate will increase to 55.5 cents a mile for all business miles driven from July 1, 2011, through Dec. 31, 2011. This is an increase of 4.5 cents from the 51 cent rate in effect for the first six months of 2011. In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2011. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by 4.5 cents to 23.5 cents a mile, up from 19 cents for the first six months of 2011. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

IRS Gives Tax Tips to Newlyweds

This might be the first time I have seen the IRS show a little humor. Truthfully, when getting married there are numerous decisions that have to be made. Remember to add taxes to the list.

The IRS informs newlyweds what they need to do tax wise after saying “I do” in this YouTube video.

New Rule for Innocent Spouse Relief

On July 26, 20110 the Internal Revenue Service announced that it will extend help to more innocent spouses by eliminating the two-year time limit that now applies to certain relief requests. After a thorough review:
• The IRS will no longer apply the two-year limit to new equitable relief requests or requests currently being considered by the agency.
• A taxpayer, whose equitable relief request was previously denied solely due to the two-year limit, may reapply using IRS Form 8857, Request for Innocent Spouse Relief, if the collection statute of limitations for the tax years involved has not expired.
The IRS will not apply the two-year limit in any pending litigation involving equitable relief, and where litigation is final, the agency will suspend collection action under certain circumstances.

The change to the two-year limit is effective immediately, and details are in Notice 2011-70, posted on This policy change will become operational in the fall and more guidance will be forthcoming