2019 Year-End Webinar - Maillie...2019/12/03 · 2019 Year-End Webinar Office Locations Mont Clare, PA West Chester, PA New Castle, DE Richard A. Flanagan, CPA Partner [email protected]

2019 Year-End WebinarDecember 3, 2019

Office LocationsMont Clare, PA

West Chester, PANew Castle, DEmaillie.com

2019 Year-End Webinar


West Chester, PANew Castle, DE

Richard A. Flanagan, [email protected]

maillie.com

http://Maillie.com


Mary Malazita, CPATax [email protected]

Tax Implications of Cryptocurrency Transactions &

IRS Enforcement



http://Maillie.com

What is Cryptocurrency?

§ The IRS uses the term Virtual Currency to define cryptocurrency§ Virtual Currency is a digital representation of value that functions as a medium of

exchange, a unit of account, and/or a store of value. In some environments, it operates like “real” currency (i.e., the coin and paper money of the United States or of any other country that is designated as legal tender, circulates, and is customarily used and accepted as a medium of exchange in the country of issuance), but it does not have legal tender status in the U.S. Cryptocurrency is a type of virtual currency that utilizes cryptography to secure transactions that are digitally recorded on a distributed ledger, such as a blockchain, DAG, or Tempo.

§ Currently over 1600 Cryptocurrencies§ Most popularly traded coin is Bitcoin

4

Timeline of Cryptocurrency

5

What triggers a taxable event?

§ Coin to fiat sale§ Coin to coin exchanges§ Purchases made with coin§ Coin income for goods/services

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Common Taxable Event Questions

§ Will I recognize a gain or loss when virtual currency is sold for real currency?

§ Do I have income if I provide someone with a service and that person pays me with virtual currency?

§ Will I recognize a gain or loss if I sell or exchange property (other than U.S. Dollars) for virtual currency?

7

Taxation of Cryptocurrency

§ Federal Income Tax Characterization § Treated as property§ Gain or loss recognized when exchanged for fiat currency, other

property, or used in the purchase of goods or services § Character of gain or loss

§ Held by taxpayer as a capital asset§ Gain or loss is capital gain/loss§ Preferred tax rates apply on capital gain for individuals and trusts

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Non-taxable events

§ Purchases of coin with fiat§ Transferring fiat out of an exchange§ Moving coin: exchange to exchange§ Moving coin: exchange to wallet

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Determining Basis

§ How to determine basis? § FMV at time and date when constructively received

§ Calculating a gain or loss when selling your virtual currencyExample 1On Jan. 1, 2018, one BTC was purchased for $5,000. On July 25, 2018, it was sold for $8,000. The gain of $3,000 ($8,000 - $5,000) is short-term and will be taxed at the taxpayer's ordinary income tax rateExample 2Assume the same facts as Example 1, except that the BTC was sold for $10,000 on Feb. 15, 2019. In this case, the gain of $5,000 ($10,000 - $5,000) is long-term and will be taxed at preferential rates

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IRS Enforcement Areas

§ July 2019: IRS began sending letters to taxpayers they believe had virtual currency transactions

§ Over 10,000 letters sent as of August 2019§ IRS Notice 6174 § IRS Notice 6174-A § IRS Notice 6173§ IRS Notice CP2000

§ 1099-K triggers a CP2000 notice, although information only contains proceeds, not basis

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Certified Public Accountants and Business Consultants

IRS Frequently Asked Questions

1. I received virtual currency as a bona fide gift. Do I have income?

2. Will I have to recognize income, gain, or loss if I own multiple digital wallets, accounts, or addresses capable of holding virtual currency and transfer my virtual currency from one to another?

3. If I engage in a transaction involving virtual currency but do not receive a payee statement or information return such as a Form W-2 or Form 1099, when must I report my income, gain, or loss on my Federal income tax return?

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IRS Frequently Asked Questions (Cont.)

4. What Records do I need to maintain regarding my transactions in virtual currency?

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_____________________________________________________If you have any questions regarding Cryptocurrency transactions,

please contact your Maillie representative.

Thank you,


Richard A. Flanagan, [email protected]

State Taxes after “Wayfair”

Marjorie Belliotti, CPA, CGMATax Manager

[email protected]



http://Maillie.com

http://Maillie.com

Wayfair – How Big a Deal is it Really?

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StateTime Period

In EffectRevenues

Collected/Estimated

Newly Registered Business

Revenues from New

Permits

Average per New Permit

California (B) 4/1/2019 $1,000 - $1,735 Billion (D) (D) (D)

Iowa (C ) 1 Year $79.5 million 1,800 $20.4 million $11,333

Massachusetts (C ) 2 Months $60.0 Million (D) (D) (D)

New Jersey (B) 11/1/2018 $216 - $351 million (D) (D) (D)

New York (B) 1/15/2019 $510 - $880 million (D) (D) (D)

Pennsylvania (B) 7/1/2019 $219 - $373 million (D) (D) (D)

South Carolina (C ) 8 Months $46.8 million 3,089 (D) (D)

(A) As of October 2019; sample listing; not all-inclusive(B) Estimated annual from Government Accountability Office Report Nov 2017(C ) See TaxConnex, LLC Nov 2019 Report(D) Amounts were not quantified(E ) State tax revenues only - does NOT factor in local sales/use taxes

State "Wayfair" Revenues Collected or Estimated (A), (E )

How Did We Get Here?

§ Wayfair is a sales and use tax US Supreme Court Ruling§ Handed down June 2018§ Changed the landscape for sales and use tax § Wayfair, Overstock, Newegg all sued South Dakota

§ The decision opened the door for what is being termed § Economic nexus§ No longer need physical presence!

§ Wayfair is more of an enforcement tool than a true change in the actual underlying tax laws

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§ Historically, on a taxable sale§ Sales tax applied to the purchaser § Use tax applied IF sales tax was not paid

§ Sales tax is collected by seller on behalf of a tax jurisdiction§ Then paid over to them

§ Use tax is paid directly to the tax jurisdiction by the purchaser

§ Sales tax relies on a business knowing it should collect and pay it

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§ Use tax relies on being self reported§ Revenues depended on business and individuals self

reporting the use tax on purchases§ When sales tax was applicable but not charged by the seller

§ Decrease in revenues from sales/use tax was not noticeable until internet sales escalated

§ Created a competitive advantage to internet sellers§ Put brick and mortar business at disadvantage

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§ Approximately 10,000 taxing jurisdictions impacted§ Rules vary by state by item§ Example: clothing

§ PA exempt (exception: formal and sports wear)§ NY – taxable IF cost is $110 or more

§ Counties, municipalities and other taxing jurisdictions§ Some will follow state laws automatically§ Some will need to be approved§ Possible different effective date for state than local enforcement

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§ Sales and Use Taxes have been around for a long time§ Out of the 5 states shown on this chart, only NY and SC

enacted a personal income tax before a sales/use tax

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State First Sales Tax YearFirst Personal Income

Tax Year

California 1933 1935

New Jersey 1966 1976

New York 1965 1919

Pennsylvania 1953 1971

South Carolina 1951 1922


§ Broader base of taxable transactions than income taxes§ Business income taxes are on net income§ Personal income taxes are generally

§ Passed-through net income§ After losses and itemized deduction amounts§ Not applicable for PA!

§ Sales tax generally applies to gross selling price§ As of mid-1970’s sales tax has accounted for > 50% of

most states revenues

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StateLast Year Sales/Use Tax

Rate ChangedCurrent rate- Average

State + Local

Last Year Personal Income Taxe Rate

Changed

Top Current rate

Sales Rate vs PIT Rate

California 2017 8.440% 2013 12.30% -3.860%

New Jersey 2018 6.625% 2010 8.97% -2.345%

New York 2010 8.87500% 2012 8.82% 0.055%

Pennsylvania 1968 6.340% 2004 3.07% 3.270%

South Carolina 2007 7.130% 2002 7.00% 0.130%

Select State Sales and Use Tax Rates vs Income Tax Rates


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StateGross Taxable

Sales

SUT Rate - Average State and

LocalSUT Due

Net Taxable Income

Top Current ratePersonal Income

Tax DueSales Rate vs PIT

Rate

California 1,000,000 8.440% 84,400 500,000 12.300% 61,500 22,900

New Jersey 1,000,000 6.625% 66,250 500,000 8.970% 44,850 21,400

New York 1,000,000 8.875% 88,750 500,000 8.820% 44,100 44,650

Pennsylvania 1,000,000 6.340% 63,400 500,000 3.070% 15,350 48,050

South Carolina 1,000,000 7.130% 71,300 500,000 7.000% 35,000 36,300

Select State Sales and Use Tax Rates vs Income Tax Revenue Generated

Does Wayfair Impact Me?


§ What is nexus?§ A legal term meaning a connection or link that creates a tax

obligation within a tax jurisdiction§ Do you have nexus as it is now defined? § Nexus for sales tax is a much easier test to end up meeting

than income tax§ Could have sales tax nexus but NOT have income tax nexus§ If you have income tax nexus – probably have sales tax nexus

§ Prior to Wayfair might not have had a filing requirement because no physical presence

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§ Do you sell anything that is taxable in a specific tax jurisdiction?

§ Have you relied on no physical presence to support no compliance requirement?

§ Do you provide any services?§ Either stand alone or§ In relation to your product(s)

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Does Wayfair Impact Me?Physical Presence Nexus – Sales Tax

§ Sales Tax historically based on requirement to have physical presence

§ PA defines physical presence under 7 different situations including – but not limited to:§ Hosting a web based link that encourages purchasers to place

orders with remote sellers IF the link is from a PA location AND PA connection receives any type of payment/discount for hosting

§ Using independent contractors to set up furniture delivered to a PA address

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§ Two major US Supreme Court Cases established the need for physical presence§ National Bells Hess vs Illinois (1967)

§ Mail order; no physical presence = no SUT obligation§ Quill Corp vs North Dakota (1992)

§ Retail seller; no physical presence = no SUT obligation

§ Was much easier to identify§ Where a sale takes place and/or§ Where the product is used at

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§ Both National Belles Hess and Quill were based on § Dormant Commerce Clause§ Prevents states from interfering with interstate commerce unless

authorized by US Congress§ Wayfair decision in June 2018 changed that§ First time acknowledge that the antiquated sales/use tax

laws no longer reflect how business is actually transacted§ Along came Economic presence nexus

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Does Wayfair Impact Me?Economic Presence Nexus – Sales Tax

§ What is economic presence and how do I know if I have it?§ Legal term indicating that a benefit has been derived by making

sales into a tax jurisdiction§ No physical presence needed§ Not all states have adopted

§ States generally have a fiscal year end of June § Watch for changes to occur for 2020 based on 2019 impact

§ Changes are being made monthly

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§ Reminder other federal laws that provide protection against INCOME taxes for tangible personal property § P.L. 86-272 protection does not apply to SUT

§ Most adopting some version of Wayfair vs South Dakota§ Many have put in “bright-line” tests

§ Based on a set dollar amount and/or§ Based on a set number of transactions

§ Tax jurisdictions historically weak on guidance§ Bright-line tests remove a lot of the guess work

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34

StateEffective

YearProspective v. Retrospective

Receipts Threshold

And/Or Sales #

ThresholdThreshold Measuring

Period

California 4/1/2019 Prospective $500,000 OR NonePrevious or current

calendar year

Iowa 01/01/19 Prospective $100,000 OR 200Previous or current

calendar year

Massachusetts 10/01/17 Prospective $500,000 AND 100 Previous calendar year

New Jersey 11/1/2018 Prospective $100,000 OR 200Previous or current

calendar year

New York 1/15/2019 Prospective $500,000 OR 100Immediately

predeeding 4 quarters

PA Marketplace seller (B) 7/1/2019 Prospective $10,000 N/A N/A Previous calendar year

Pennsylvania 7/1/2019 Prospective $100,000 OR None Previous 12 months

South Carolina 11/01/18 Prospective $100,000 OR nonePrevious or current

calendar year

South Dakota 11/01/18 Prospective $100,000 OR 200Previous or current

calendar year

(A) As of October 2019; sample listing; not all-inclusive(B) Marketplace seller with no physical presence and no economic nexus; suspended 9/30/2019

State "Wayfair" Economic Nexus Sales and Use Tax (A)


§ Do you sell items that are taxable but have not been required to register/collect/pay sales tax in the past?§ Because no physical presence

§ Do you offer any services with your product?§ Installation, testing, warranties, repairs

§ Do you contract out services on your products?§ Has the tax jurisdiction you sell into adopted a Wayfair

approach?§ Do you know what those thresholds are?

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§ Defining an economic benefit§ Where benefit of service is received by customer§ Where services are actually performed§ Where the intangible is used§ Where the customer is located

§ Sales where benefit can not be determined§ Approximate§ Any reasonable method§ Must be applied consistently from year to year

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Does Wayfair Impact Me?Marketplace Facilitator Nexus – Sales Tax

§ Wayfair also pushed the concept of Marketplace Facilitator Nexus

§ Marketplace seller - AKA marketplace facilitator§ Acts as facilitator for intranet sales§ Offers an e-commerce platform§ Provides customer service§ Has any part in the payment processing services

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Does Wayfair Impact Me?Marketplace Facilitator Nexus – Sales Tax

§ Marketplace seller - AKA marketplace facilitator§ Engages in activities as defined by state laws§ Example: Amazon, Ebay§ Websites that merely advertise goods for sale but do not handle

any part of the transaction § Do not meet the definition of marketplace facilitator

§ Does your business fall within the definition of a Marketplace facilitator?§ What activities are available through your website?§ Do you hold inventory on consignment?

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The Changing Landscape of NexusMarketplace Facilitator Nexus – Sales Tax

§ Marketplace seller – Examples

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StateEffective Year (D)

Receipts Threshold Compliance And/OR Reporting

Alabama 1/1/2019 $250,000 Collect/remit SUT OR Report & provide customer notifications

California (B) 10/1/2019 $500,000 Collect/remit SUT ORMake reasonable effort to identify

taxable sales by third partiesColorado 10/1/2019 $100,000 Collect/remit SUT OR NoneHawaii Marketplace facilitator 1/1/2020 $100,000 Collect/remit SUT OR NoneHawaii non-marketplace facilitator providing forum sellers list 1/1/2020 $100,000

Elect to be deemed the seller and collect/remit OR

Notice on forum; written notice to each purchaser at time of sale; report to Dept

of TaxationNew Jersey 11/1/2018 $100,000 Collect/remit SUT AND Provide receipt showing tax paidNew York 1/15/2019 $500,000 OR OR 100PA Marketplace seller (C ) 7/1/2019 $10,000 Collect/remit SUT OR Report & provide customer notificationsPennsylvania 7/1/2019 $100,000 OR OR None

(A) As of October 2019; sample listing; not all-inclusive(B) California's marketplace rules are multi-layered. Possible penalty/interest relief built in.(C ) Marketplace seller with no physical presence and no economic nexus; suspended 9/30/2019(D) All Wayfair rules are prospective only - no retroactive enforcement.

State Marketplace Nexus Sales and Use Tax (A)


§ Will Wayfair be overruled in the future?§ US Congress has taken steps to try to address interstate

and remote sales overall§ Relief in the neat future – don’t bank on it§ 2020 is an election year

§ If overruled – will I get my money back?§ Not likely§ Too devastating an impact on tax jurisdictions

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Does Wayfair Impact Me?Other Remote Sellers Nexus

§ Other types of remote sellers nexus§ Click-through nexus generally requires that remote seller hits a

minimum sales threshold from an in-state referral agent§ Affiliate nexus generally requires remote retailer to be owned by,

or hold a substantial interest in an in-state retailer§ Notice & reporting requirements relatively new requires that

buyers and/or state be notified of sales without sales tax charged§ May require notification to purchaser with or without tax

§ Factor Based – close to economic presence

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Does Wayfair Impact Me?Scenario 1

§ Facts: Your business is headquartered in Pennsylvania§ Employees physically go into New York and New Jersey § Sell office furniture directly to business users§ All orders are approved in Pennsylvania§ Product is shipped via common carrier§ Do you have sales tax nexus in each state?§ Yes, if you meet the threshold for NY and NJ; sales force

enters the states, sales are directly to end user; No for PA

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§ Facts: Your business is headquartered in Pennsylvania§ Employees physically go into New York and New Jersey§ Sell office furniture directly to business users via common

carrier and all orders are approved in Pennsylvania§ You hire a third party to assemble and set up furniture§ Do you have sales tax nexus in each state?§ Yes, if you meet the threshold for NY and NJ; sales force

enters the states, assembly and set up are arranged, sales are directly to end user; no for PA

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§ Facts: Your business is headquartered in Pennsylvania§ Employees physically go into New York and New Jersey § Sell office furniture directly to wholesalers§ All orders are approved in Pennsylvania§ Product is shipped via company owned vehicles

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Does Wayfair Impact Me?Scenario 3 – Analysis

§ Do you have sales tax nexus in each state?§ Yes, if you meet the threshold for NY and NJ

§ Sales force enters the states§ Sold to wholesalers so do not need to collect sale tax§ Need to collect and retain resale exemption certificate(s)§ Need to file sales tax returns even if zero amount due

§ No for PA if all items are sold outside PA

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§ Facts: Your business is headquartered in New York§ Sell clothing and accessories into Pennsylvania§ No physical presence in Pennsylvania§ Sales are made up of:

§ $75,000 in clothing for everyday wear§ $35,000 in accessories§ $20,000 in jewelry

§ Do you have sales tax nexus in each state?

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Does Wayfair Impact Me?Scenario 4 - Analysis

§ Pennsylvania Before Wayfair:§ No physical presence in Pennsylvania = no sales tax obligation§ Purchaser to pay use tax on accessories and jewelry

§ Pennsylvania Post Wayfair:§ Total taxable + non-taxable sales = $130,000§ Exceeds PA Wayfair threshold of $100,000§ Sales tax obligation in PA on taxable sales ONLY

§ New York Before and After:§ Sales not delivered in nor used in New York = no sales tax

obligation

47


§ Facts: Your business is headquartered in New Jersey§ Provide access via the internet to various sellers of items

taxable and non-taxable into Pennsylvania§ No physical presence in Pennsylvania§ Sales are made up of:

§ $75,000 in direct sales of household goods§ $35,000 in third party sales (consist of taxable and non-taxable

items)§ Do you have sales tax nexus in each state?

48

Does Wayfair Impact Me?Scenario 5 - Analysis

§ Pennsylvania Before Wayfair:§ No physical presence in Pennsylvania = no sales tax obligation§ Purchaser to pay use tax on accessories and jewelry

§ Pennsylvania Post Wayfair:§ Total taxable + non-taxable sales = $110,000§ Exceeds PA Wayfair threshold of $100,000§ Sales tax obligation in PA on taxable sales ONLY

§ New Jersey Before and After:§ Sales not delivered in nor used in New Jersey = no sales tax

obligation

49

What Are My Next Steps?


§ Review your revenue streams§ Identify if they create nexus under one of the Wayfair methods§ Economic, Marketplace

§ Any new customers?§ If yes where is your product being delivered to?

§ Any new products?§ Any new services?§ Do you make internet sales?

51


§ Review your compliance options§ Look into use of Certified Service Providers (CSP)

§ In states adopting the Streamlined Sales Tax Program§ CSP’s have been approved by some states§ Not all states approved the same CSP’s§ You can use a CSP in states that approve them if you do

not have a physical presence

52


§ Streamlined Sales & Use Tax Status – Examples:

53

State Member Since Member Status

California N/A Non-Member

New Jersey October 1, 2005 Full Member

New York N/A Non-Member

Pennsylvania N/A Non-Member

South Carolina N/A Non-Member

Select State Status with Streamlined Sales and Use Tax Program


§ PA’s CSP program allows the CSP to:§ Facilitate the registration process§ File tax returns§ Collect and forward tax payments on behalf of clients§ Provide a taxability matrix

§ Provides simplification for small remote sellers§ Sellers using a CSP are not required to

§ Obtain a sales tax license or§ File returns over and above (except in non CSP states)

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§ Review of accounts payable, account receivable systems, processes§ To identify where use tax has been paid in the past§ Make sure sales tax has not started to be charged by the vendor§ Identify each tax jurisdictions compliance thresholds§ Reprogramming requirements

§ Review point of sale systems§ Reprogramming might be required§ Lack of conformity of systems can complicate process

55


§ Contact Maillie if any of these apply:§ Did you receive any notices from taxing jurisdiction?

§ For any taxes§ Did you receive a nexus questionnaire from any tax

jurisdiction?§ Where did you make payments to for:

§ Sales tax, Use tax, payroll tax (state and/or local)§ Income taxes; annual registration fees§ Other “fees” – example: highway use excise tax

56

What Are MY Next Steps?

§ Ultimately a business decision to file or not to file§ Business must decide when to file, where to file and how

best to get compliant§ Penalties and Interest could apply to prior periods

§ Document the discussion§ Identify what was discussed, why (or why not) you might have

nexus in more tax jurisdictions§ Document the decision

§ Make sure the business leaders understand the business decision that was made

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What Are MY Next Steps?

§ Discuss possible tax planning options with Maillie§ Determine if additional reporting needs apply to your

business§ ASU 740 FIN 48 Undisclosed Tax Positions

§ Not filing is a tax position§ Non-income tax reserves

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Resources

Resources

§ PA Certified Service Providers:§ AccurateTax – www.accuratetax.com§ Avalara – www.avalara.com§ Sovos – https://sovos.com§ TaxCloud – https://TaxCloud.com

§ Maillie LLP§ Richard Flanagan – [email protected]§ Marjorie Belliotti – [email protected]

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http://www.accuratetax.com/

http://www.avalara.com/

https://sovos.com/

https://taxcloud.com/

http://Maillie.com

http://Maillie.com

_____________________________________________________

Thank YouRichard Flanagan - Partner

Marjorie Belliotti – Tax Manager


Matt HainesChief Information [email protected]

Information Security Tips



http://Maillie.com

Backup Your Data

§ What is important?

§ How much do I need?

§ How quickly do I need to recover?


Backup Destinations


Backup Software


Ransomware

§ How do I become a victim?

§ How does it work?

§ How do I protect against it?

§ https://www.nomoreransom.org


https://www.nomoreransom.org/

Popup Scam


Popup Scam


Telephone Scams

§ Microsoft calls§ Viruses§ Licensing§ System warranties

§ IRS calls

§ Local police calls


Hyperlink Scam


File Extensions Off


File Extensions On


Keep Systems and Software Updated


Consider a Password Manager


Wrap Up

§ Tax Implications of Cryptocurrency Transactions & IRS Enforcement

§ State Taxes After “Wayfair”§ Information Security Tips

For additional questions please contact your Maillie representative.

Thank you!

[email protected]

http://www.maillie.com/

http://Maillie.com

2019 Year-End Webinar - Maillie...2019/12/03 · 2019 Year-End Webinar Office Locations Mont Clare, PA West Chester, PA New Castle, DE Richard A. Flanagan, CPA Partner [email protected]

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