New York Tax Update

1. New York Tax Update Mark S. Klein, Esq. Hodgson Russ LLP 1540 Broadway, 24th Floor New York, NY 10036 Phone: (716) 848-1411 Fax: (716) 819-4624 mklein@hodgsonruss.com

2. New Legislation • A. StartUp New York • Beginning in 2014 • No corporate, personal, real estate or sales taxes • College and university related • For new businesses/new jobs • Not for retailers or personal service businesses

3. New Legislation (con’t.) • B. Family Tax Credit • $350 • Incomes of $40,000 to $300,000 • One or more dependent children under 17

4. New Legislation (con’t.) • C. Rates

5. New Legislation (con’t.) • Charitable contribution limitation extended • Small business tax reduction • 3.25% rate for Manufacturers • Royalty “loophole” closer • Credit for hiring vets • Minimum wage credit

6. New Legislation (con’t.) • New collections initiatives • NYC co-op/condo tax abatement • Marriage equality and DOMA • MCTMT update

7. Tax Reform And Fairness Commission • Hurricane Sandy residency relief • LLC responsible officer rules • Limiting a permanent place of abode to a dwelling located within 50 miles of work. • Resident trust exemption. • Like-Kind Exchanges • Reform and integration of corporate and bank taxes • NYC revenue raising options

8. Compliance and Enforcement • New compliance measures • New reporting obligations • New York wants a “CISS” • Whistleblowers • Increased criminal investigations

9. “Fish in a Barrel” • Hot Buttons • Corp v. sales tax revenue • Licensed professionals • NYC residents with Sch. C income • Visiting executives • Taxable percentage always the same • Data mismatches • Still looking at CPAs!

10. “Fish in a Barrel” (con’t.) • Investigations • Interviews • Doormen • Parking attendants • Return preparers • Cross References • U.S. Customs • Speeding and parking tickets • Ask, call, subpoena • Voluntary disclosure?

11. Administrative Update • BCMS • 7,000 cases • 75% agreement • 67% resolved within six months • ALJ • 11-month backlog • Judicial Court

12. Franchise Tax Update • Decombination initiative • NYC resident problem • Sourcing of income • Dormant businesses

13. Withholding Taxes • 14-day safe harbor – for employers • Look at nonresidents • Deferred compensation • Interest and penalties – even if all tax paid! • How do you prove a negative? SeeSuburban Restoration (3d Dep’t. 2002).

14. Investment Tax Credit • Even for a building • You don’t have to sell what you make • A “true” lease eliminates all credits

15. Personal Income Tax Update • Entities that own real property (50% threshold) • Anti-“Baum” legislation- retroactive to 2007 • Anti-PC or -PA legislation for nonresident partners • College Incentive – qualifies for “Double Dipping”

16. Residency • Why do we care? • Domicile or by statute • “Leave and Land” • When did you “move” or “change” your domicile? • Explain the “change” • Who proves what?

17. How Money Walks How Money Walks by Travis H. Brown Reprinted with permission.

18. Residency (con’t.) • Statutory Residence • 183 days and a permanent place of abode (PPA) • What is a “day”? • Proof • Exceptions • Travel • In-Patient

19. PPA • Physical Attributes • Suitable for year -round living • Not mere camp or cottage • Relationship • Ownership/property rights • Maintenance • Monetary contributions • Contributions in kind to the household (furniture, food, etc.) • Payment of bills • Relationship to co-inhabitants • Registration for governmental/business services (mail, voting, car, phone) • Personal items • Access Cases: Gaied BarkerKnight

20. Top Ten Errors • Nobody moves on January 1 • Statutory residence trumps domicile • Never amend a return under audit • The “Living Quarters” box • Consistency! • Credits for taxes paid elsewhere • Don’t let client “chat” with auditors • Correct W-2s, 1099s and K-1s with New York address • Don’t start an audit with an offer to settle • Understand the burden of proof

21. Domicile – Primary Factors • Home • Bigger, better, more valuable • Watch out for “STAR” and IRC § 121 issues • Business • Limited to active involvement • Location of business headquarters, your office, assistant, etc.

22. Domicile – Primary Factors (con’t.) • Time • Not 183-day rule! • Domicile day count • Near and Dear • Where is your teddy bear, • Safe deposit box, • And insured and other “valuables”? • Moving vans v. storage

23. Domicile • Family Factor • Most spouses share their domicile • Minor children can be critical • Other Factors • Checklist items – nice but not determinative • Parking tax exemption • 548- and 30-day rules

24. Taxation of Nonresidents • Wages (including “convenience” rule) • Business and flow-through income • Sales of NY property (Ittleson). Is New York location temporary? • Accrual rule (a cruel rule)

25. Top 101/2 Sales Tax Audit Issues • Cloud computing • Is it a license of software? • Is it a an information service? • Is it the electronic delivery of other tangible property? • Remember allocation and overlapping audit rules. • Catering rules • Interior decorating/design fees • Cheeseboard consultants • Bulk sales rules

26. Top 101/2 Sales Tax Audit issues (con’t.) • Cash businesses • Intra-business transactions • Delivery and storage fees • Sales to New Yorkers – delivered out of State • Contractors 10½. Pole dancing developments

27. Nuts and Bolts of a Sales Tax Audit • Expenses – recurring test or stat sample • Sales – guest checks - test? • Reconcile to corporate return and bank deposits • Capital – usually in detail • Reconcile to depreciation schedule

28. Audit questions • Where to hold audit • Responsible officer questionnaire (special statute of limitations) • Access to information • Consent to extend • Consent to test period • Exemption certificate issues

29. Thank You Mark S. Klein, Esq. Hodgson Russ LLP 1540 Broadway, 24th Floor New York, NY 10036 Phone: (716) 848-1411 Fax: (716) 819-4624 mklein@hodgsonruss.com