Sunday, May 29, 2016

2014 Statistics of Income

The IRS regularly releases information garnered from tax filings. For those with an interest in this sort of information, based on individual income tax returns for 2014:

  • Taxpayers filed 148.7 million U.S. individual income tax returns, an increase of 0.6% from 2013;
  • There were significant increases in adjusted gross income (AGI), which rose to $9.7 trillion (an increase of 6.1% compared to 2013);
  • Taxable income increased to $6.9 trillion (an increase of 8% compared to 2013); and
  • Total income tax rose to $1.4 trillion (an increase of 10% compared to 2013).

Thursday, May 26, 2016

Florida Sales Taxes on Internet Sales Outside of Florida [Florida]

Question: A Florida corporation, with a physical location and principal address in Florida, sells flowers, gift baskets, and other items of tangible personal property over the Internet. The company does not maintain any inventory and instead uses the inventory of florists in the delivery location to deliver purchased products. Are deliveries outside of Florida subject to Florida sales tax?

Answer: Reversing the lower appeals court, the Florida Supreme Court says yes.

The florist mounted two challenges. First was a Due Process argument. The Due Process Clause requires some type of physical presence within the taxing State. Quill Corp. v. North Dakota, 504 U.S. 298 (1992). That presence existed here.

The second challenge was a dormant Commerce Clause claim. Such claims are based on State activity that impairs interstate commerce. To survive a dormant Commerce Clause claim, a tax must meet the four requirements of Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977). These four requirements are that the tax is applied to an [1] activity with a substantial nexus with the taxing State, [2] is fairly apportioned, [3] does not discriminate against interstate commerce, and [4] is fairly related to the services provided by the State.

The Court reviewed all four requirements and found them to be met, in large part due to the physical presence and formation in Florida. While not directly relevant, the Court also noted that Florida would not tax an out-of-state Florida that delivers through a Florida florist.

In regard to being “fairly apportioned,” an internal consistency test applies the legal fiction of all States having the same law as Florida and asks if more than one state could then impose tax. In this case, there would be no such double tax. This test has always been bothersome to me since it doesn’t ask whether the same transaction is actually being taxed in two jurisdictions due to the taxing regime in the other jurisdiction.

Implications: Sellers situated in Florida conducting Internet sales will not be able to raise constitutional objections to Florida sales taxes on sales out-of-state, even if the goods come from non-Florida sources or suppliers.

Florida Department of Revenue v. American Business USA Corp., 41 Fla.L.Weekly S237a (Florida Supreme Court, May 26, 2016)

Saturday, May 21, 2016

Tax Treaty Savings Clause Question

Facts: A U.S. citizen and permanent resident of Israel incurs capital gains from the sale of stock of a U.S. corporation.

U.S. - Israel Income Tax Treaty Provisions:

Article 15, Paragraph 1: “[a] resident of one of the Contracting States shall be exempt from tax by the other Contracting State on gains from the sale, exchange, or other disposition of capital assets.”

Article 6, Paragraph 3: ““[n]otwithstanding any provisions of this Convention except paragraph (4), a Contracting State may tax its residents and its citizens as if this Convention had not come into effect.”

Question: Can the U.S. subject the taxpayer’s gain to U.S. income tax?

Answer: Yes. The Article 6 savings clause overrides the exclusion from tax in Article 15.

One has to wonder why the taxpayer took this all the way to the Tax Court. Nonetheless, the case is illustrative of a basic principle for U.S. citizens and residents - treaty provisions will often provide benefits for them vis-a-vis the taxes of the OTHER country, but not as to their U.S. taxes. Still, each treaty and fact pattern must be looked at, since sometimes the applicable savings clause that allows the U.S. to tax its citizens and residents without regard to the treaty will not always apply to all provisions of the treaty.

Cole, TC Summary Opinion 2016-22