An overview of current developments in DC, Florida and Maryland

District of Columbia

Property sales that result in a business termination may become taxable.

The District of Columbia passed the Budget Support Act of 2020 (BSA) (L. 2020, Act 23-404) on October 1, 2020, which changed the definition of “taxable income” to include gains on the sale of assets or other assets. dispose of all assets, including real estate, tangible assets and intangible assets in the district, even when such a sale would result in the termination of an unregistered business. This amendment entered into force on 1 January 2021.

In response to the adopted BSA, the DC Office of Tax and Revenue (OTR) has issued a proposed amendment to their franchise tax rule under Regulation 117, which requires unincorporated companies to impose franchise taxation on gains from property dispositions that result in termination of their business. .

Any unregistered company which considers that it is exempt from tax is required to request a decision from the District CFO if

  • the trade or business provides personal services; and
  • the trade or business is not specifically exempt from the law or tax law of the incorporated business.

Such request for a decision shall be in writing and shall contain the following information:

  • Taxpayer Name, Address and Federal Employer Identification Number (FEIN)
  • Facts and circumstances regarding the specific tax matters for which they request guidance;
  • The statutory or judicial authority they trust;
  • The coveted relief; and
  • A “penalty for perjury” declaration signed and dated by the taxpayers.

Any public comments on the proposed regulation amendment must be received by November 14, 2021, when the OTR will take the final regulatory action to complete the amendment.

This proposed regulation should be communicated to all DC Unincorporated Business Tax clients who have reviewed or expect to have a property disposition before the end of the 2021 calendar year for tax planning purposes by the end of the year. Needless to say, CPAs need to be aware of this proposed regulation in order to advise taxpayers properly.

Florida

Companies required to report new hires by independent contractors.

Florida businesses are now required to submit information on new hires for independent contractors to the Florida Department of Revenue. This requirement came into force on October 1, 2021. Existing law required previous reporting of new employees, and this new law extends reporting to independent contractors.

By law, employers and now “service recipients” are required to do the following:

  • Report new hires of employees and independent contractors to the State Directory of New Hires, Florida Child Support Services Program;
  • Reflect payments of $ 600 or more per month calendar year for services rendered in connection with a trade or business;
  • The report must include the name, address and CPR number (or other identification number) and dates of services of the independent contractor together with the name, address and federal employer identification number of the service recipient;
  • Submit the report within 20 days of the earlier of either the date of the first payment or the date the contract was entered into.

There is a limited exception to this new reporting requirement for employees and independent contractors working for or under contract with a federal or state intelligence or counterintelligence agency, where reporting this information would jeopardize worker safety or compromise an ongoing one. study. The report can be submitted by mail, fax or via an online reporting tool.

As CPAs are aware, the issue of proper employee classification is a growing problem among both state and federal tax and labor enforcement authorities. Florida companies hiring independent contractors should first examine their use of independent contractors to determine if they will meet the $ 600 threshold to comply with the new law. Second, firms should evaluate their workforce to ensure proper employee classification status in order to reduce potential audit risks as well as to strengthen documentation that supports worker classification determination.

Maryland

Extension of sales and usage tax for digital products. Effective March 14, 2021, the recently enacted Maryland House Bill (HB) 932 has expanded the application of sales and usage fees to digital codes and products. Tax liability includes certain digital codes and products when the customer’s tax address is located in the state. The application includes foreign suppliers who sell to customers in the state under certain circumstances; some exceptions to this extended tax liability are available.

Sales and usage tax liability under HB 932 is extended to include the sale of digital codes and products made to a “customer tax address” in the state. The application extends various digital products including education, entertainment, information sources, photography and video and software. The application applies to out-of-state suppliers who sell to customers in the state of Maryland and will only connect if the gross revenue from the sale of digital products exceeds $ 100,000 or if there are 200 or more separate transactions involving digital products in the state.

“Digital code” is defined as a code that can be obtained in any way, including in tangible form, such as a card, or via email. This code must entitle the buyer to receive one or more digital products. This definition does not include a gift card or gift card with a monetary value that can be redeemed for an item other than a specified digital product.

“Digital products” are defined as products obtained electronically by the buyer or supplied by means other than material storage media using technology with electrical, digital, magnetic, wireless, optical, electromagnetic or similar capabilities. This definition includes pre-recorded or live music delivered digitally, newspapers, magazines or other publications, books / e-books, digital download or stream of movies, music, live events, digitized sounds used to warn users about communication (e.g. ringtones), subscription or license to access content online, or subscription or license to use a software program. Digital products also include pre-recorded or live music, performances, audiobooks or speeches, access to or use of video or online games, online courses or instructions or access to chat rooms, discussions or weblogs among many others.

The state’s extension of sales and usage fees also includes Software as a Service (SaaS), as mentioned above under digital products, because it includes a subscription or license to use a software application. The law revised the list of taxable services to indicate “manufacture, printing or production of tangible personal property or a digital product” [emphasis added]. A taxable service is subject to VAT, regardless of how the service is provided.

Sales tax on digital products, including SaaS, does not apply to custom software or sales to the federal government or exempt organizations. Other goods that are exempt from VAT under HB 932 include resale of a digital product, property intended for use in another state and research and development.

“customer’s tax address” includes the following considerations, which should be used in the following order:

  • The seller’s place of business when the digital product is received by the buyer at such place;
  • The location of the product’s primary use;
  • The place where the digital product is received by the buyer, or by a recipient of the buyer, identified by the buyer, if known by the seller and maintained in the ordinary course of business of the buyer;
  • The location indicated by an address of the buyer, which is accessible from the seller’s business registers, which is kept in the ordinary course of business;
  • The place indicated by an address of the buyer obtained during the completion of the sale, including the address of the buyer’s payment instrument; or
  • If none of the above is present, then the US location is the supplier’s headquarters, the location where the supplier has the largest number of employees, or the location where the supplier makes the digital products available for electronic transfer.

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