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Volume 6, Issue 7, July 2008

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Inquiring States Want to Know…

By Josie Henneke, CPA, CMI
Greenfield, Indiana

Have you received a questionnaire from another state that asks a list of questions regarding your business activities in their state? State revenue departments continually send out questionnaires to gather facts surrounding the business activities of non-filers in their state. The state wants to determine if you have sufficient nexus so it can require you to file returns and pay taxes to the state. “Nexus” in the tax world means “a connection.” The states are trying to find enough connection with your activities to allow them to impose their tax laws on your company. The most common questionnaires concern income tax or collecting sales tax for the state.

Exercise caution when completing these questionnaires. Last year, a client received a questionnaire from California, answered it, and got a $56,000 sales tax bill in the mail a few weeks later. Fortunately, when we became involved, we realized the client met an exception in the California rules. When California was given the correct facts, the bill was voided – a happy ending to what might have been, at the least, expensive, and at the worst, disastrous.

It’s also important to know whether the questionnaire is focused on sales tax, income tax, or both. Different standards regarding the activities that create sufficient nexus apply for each tax. For example, if you have roaming sales personnel who travel throughout various states soliciting sales, you likely have established nexus for sales tax. However, due to Public Law 86-272 and a US Supreme Court case involving the Wrigley chewing gum people, mere solicitation does not create nexus for income tax.

Understanding your multi-state activities and how those activities affect nexus and your taxes is critical. States who find you first, through a questionnaire or other means, can be ruthless. States have been known to “look back” as many as ten years for unfiled returns and taxes due.

If an internal, self-study for nexus determines you have liability with a state in which you have never filed, hope is not lost. Most states have a Voluntary Compliance Program (VCP). A VCP allows a company to “fess-up” to its liability anonymously through a third person. A plea is put forward to reduce or eliminate the look-back period along with reduced penalties and interest in return for registration and future compliance with that state. If the state declines the plea, the company has not revealed itself.

Kemper CPA Group LLP has state and local tax professionals that will be happy to help you with inquiring states. Even better, we can help you proactively understand how your company’s multi-state activities impact tax filing and collection responsibilities. Contact us today.

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IRS Raises Standard Mileage Rate

Because of the increasing cost of gas and the effect that it is having on individual and family budgets, the IRS has increased the optional standard mileage rate for use of a vehicle for business. For the last six months of 2008, the rate increases to 58.5 cents per mile, up from 50.5 cents earlier this year. The change went into effect on July 1.

The standard mileage rate for medical or moving expenses also increases for the remainder of the year, to 27 cents, up from 19 cents. The rate for mileage incurred while providing services for charitable organizations remains the same at 14 cents.

The standard mileage rate is used to calculate the deductible costs of operating a vehicle for business, charitable, medical, or moving purposes, and many businesses also use the standard rate for reimbursing employees for mileage.

Should you have any questions about the new standard mileage rate, or any other tax matter, contact Kemper CPA Group LLP.

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Illinois’ EDGE Program

The Economic Development for a Growing Economy (EDGE) tax credit program in Illinois provides tax incentives for businesses that choose to build a new location or expand operations in Illinois when consideration is also being given to competing locations in another state. The program allows for a reduction in the cost of doing business in Illinois, as compared to other states. Companies seeking the credits must show that the project would not occur in Illinois without the competitive credit.

To obtain the credit, a company must make a capital investment and create new jobs in Illinois – at least $5 million in capital improvements must be made, and 25 new jobs created. A new small business component of the program allows companies with 100 or fewer employees access to the program – smaller businesses must make $1 million in capital investments, and the project must create five new jobs. The amount of the credit, which is calculated on a case-by-case basis, can be as high as the amount of state income taxes withheld from the salaries of employees hired to fill the new positions.

Following are additional details about the program:

A written application must be submitted to the Illinois Department of Commerce and Economic Opportunity (DCEO) for consideration.

Relocation to another site within the state of Illinois may also be considered for the credit, provided that there is a substantial, documented business reason that the current location is inadequate.

Projects must add to the export potential of Illinois in order to qualify for the credit.

The credit is available to the company for up to 10 years total for each project.

The annual tax credit can’t be larger than the company’s state income tax liability, but it can be carried forward for up to five years.

Companies that receive the credit must maintain the capital investment and the jobs created or retained for the period during which the credit is claimed.

Additional eligibility requirements may apply. Contact your local Kemper CPA Group LLP office to discuss the EDGE program with one of our tax professionals. We have ten offices in Illinois to serve you better.

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Loose Change

The July/August 2008 issue of the “Loose Change” Newsletter includes the following articles:

Contact Kemper Capital Management LLC for all of your investing needs.

Investment advisory services offered by KCPAG Financial Advisors LLC, a registered investment advisor. Securities officered through Securities America, Inc., a registered broker/dealer. Member NASD/SIPC. Thomas A. Moore, John D.
Porter, Shawna D. Horne, Sheila Lautenbacher, Jessica Daugherty, Joseph M. Mendes, CA Insurance Lic. #0C62535, Gregory Meador, Marcia Elder, Registered Representatives. Insurance services offered through KCPAG Insurance Services LLC. Kemper Capital Management LLC and its subsidiaries are not affiliated with Securities America.

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Proactive Monitoring: A Watchful Eye on Your
Computer Systems

Children play in the park while their parents watch over them. Their parents watch out for any signs of trouble, constantly looking for outside dangers and making sure their children are not doing anything unsafe. They cannot guarantee that the children will not accidentally fall or hurt themselves playing, but they are there in case anything happens and are always on the lookout for safety concerns.

The Kemper Technology Consulting Proactive Monitoring Service does the same for your network, servers, and workstations. We keep an eye on your computer systems and are immediately notified when something is starting to get dangerous and is a threat to your business operations. We cannot guarantee that nothing will go wrong, but we are always on the lookout.

With services starting as low as $30.00 per month, you can have the peace of mind that comes with round the clock monitoring of your key systems. Contact Kemper Technology Consulting to find out what our Proactive Monitoring Service can do for you. Call (800) 887-4995.

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Kemper Technology Consulting
Robinson, IL
618-546-5633
www.kempertc.com

Evansville, IN  •  Indianapolis, IN  •  Paducah, KY  •  Effingham, IL

Please be advised that, based upon current Internal Revenue Service (IRS) rules and standards, the advice herein is not intended to be used, nor can it be used, as the sole basis for decisions. Additional issues may exist that could affect the treatment of the individual transactions, and this narrative does not provide a conclusion with respect to all such issues.

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