Archive July 2018

Employee or Independent Contractor?

Although this case involves a worker who lived on-site, this factor had no effect on the ruling. In other words, this decision may affect your company or client. SDLL, an LLC that owned an apartment complex, took on a property manager for the apartments as an IC. He lived in a unit in the complex and was paid a fixed monthly amount, performing a range of work, including repairs and maintenance, interviewing applicants, and accepting rental applications. The IRS audited SDLL and determined the property manager should be treated as an employee. Held: For the IRS. The court found 8 factors that made the property manager an employee rather than an IC:

  1. The owner exerted significant control.
  2. The owner determined which tasks the manager performed, the amount of expenses he could incur, the rent for each unit, which rental applicants to accept, and more.
  3. The manager made no investment in the facilities—the owner provided an office and much of the equipment.
  4. The manager provided only a few of the tools he used for repairs.
  5. The manager had no opportunity for profit or loss since he was paid a fixed rate by the owner.
  6. The owner had the right to fire the manager at will.
  7. The manager was an integral part of the owner’s business and had worked there for a number of years.
  8. The few outside jobs the manager took on evenings and weekends did not affect the first 7 factors. The manger was an employee, not an IC. [Hampton Software Development LLC v. Commissioner, T.C. Memo. 2018-87]

Article from AIPB Aug 2018 Newsletter

Most small business owners who are expanding and is in need to add workers often times consider the part time or temp worker as Independent contractor, when the worker should really be an employee.  While having employees will incur additional cost such as payroll tax, payroll expense and the responsibility to withhold, report and remit federal taxes, the cost of misclassify employee as a contractor may cost a small business even more.  If your growing business is at the point to add employees, use a reputable payroll provider.  At EZ Bookkeep, we are partnered with Patriot full service payroll and will provide you with a turnkey solution from direct deposit for paychecks, withholding, all filings and reporting as well as year end W2s and W3.  If you are uncertain whether a worker is classified as employee or independent contractor.  Check out this IRS publication 1779 brochure, Instruction for form SS8 and Form SS8 for the IRS to confirm the correct classification.

 

Sales Tax Compliance July 2018

The Supreme Court’s sales tax decision: What to do. As reported here in July, the U.S. Supreme Court ruled that South Dakota (SD) could require out-of-state businesses to collect and pay sales tax to SD on sales in SD. This decision expanded its long-standing ruling that there must be a physical nexus in the state to include a virtual nexus with the state. But the decision does not open the way for all states to tax all out-of-state retailers on all online sales into that state. The court emphasized the importance of SD’s exemption for small sellers—under $100,000 in sales or 200 transactions into the state during the year—so that the SD law is not overly burdensome on small out of-state retailers, and the fact that the sales tax is not retroactive because such taxes become effective only after sales exceed one of the minimum thresholds. Finally, the court noted that SD is one of 23 states that belong to the Streamlined Sales Tax agreement that makes tax collection more uniform and simple, allowing retailers to avoid registering and filing returns with each state. Still to be determined: Does a state, such as California, need a much higher threshold to trigger the sales tax collection requirement than lightly populated SD? Must a state belong to the Streamlined Sales Tax agreement? What about localities with sales taxes in addition to state taxes? What to do: If your sales in a state meet SD minimums, check that state’s website regularly for new regs. For example, North Dakota, which has a law similar to SD’s, issued new rules immediately for out-of-state sellers who do not meet the small-seller exemption to register and collect sales taxes either by Oct. 1 or within 60 days after exceeding the small-seller exemption. Minnesota, however, is taking longer and will issue rules within 60 days. Check the 2018 Sales and Date compliance Guide by Avalara. See if you have sales into some of the 23 states that belong to the agreement. While some will adopt the SD mode, others plan narrower laws. One widely discussed alternative requires aggregation sites, such as Amazon, to collect and remit sales on behalf of small business sellers on their sites. Keep an eye on Congress, which had temporarily exempted online sales from state sales taxes but let that law expire. There is pressure for a law that sets uniform rules for sales tax collection.
If you are a small ecommerce seller, it is time to look into a complete solution and end the sale tax headache. With Avalara, sales tax can be done in just a few clicks.

Article resource: AIPB.org July 2018 newsletter