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To help businesses and individuals rebound from the destruction caused by severe weather and tornados on April 16, 2011, the Department of Revenue will waive late filing and late payment penalties for taxpayers who are unable to file their return or pay their tax because of the storm.

The penalties will be waived on state taxes and returns that are due between April 18th and May 1, 2011.  State law prevents the Department from waiving any interest.

To make sure they aren’t assessed a penalty, taxpayers should include Form NC-5500 with the late payment or return.  The form is available at all Department of Revenue offices and at www.dornc.com/downloads/penalty.html.  On the form, taxpayers should check the block for ‘natural disaster’ and fill in all the required information.  If a form is not sent with the payment or return, it can be completed later if the taxpayer is assessed a penalty.  A taxpayer that does not have this form can attach a letter explaining why the payment or return is late.

The extension for filing late taxes as a result of this storm may be extended as circumstances of the disaster are better known or if a federal disaster is declared.

If taxpayers have any questions they should call the Department’s Taxpayer Assistance Division at 1-877-252-3052, or visit our website.

Twenty-two people were killed and more than 130 injured by tornadoes and severe storms that struck at least 20 counties in North Carolina Saturday, state officials said Sunday. The fatalities occurred in Wake, Johnston, Cumberland, Harnett, Lee, Bertie and Bladen counties, said Julia Jarema, a spokeswoman for the state Department of Crime Control and Public Safety.

The North Carolina Department of Justice has some guidelines to help victims avoid being taken by home-repair and disaster assistance scammers.  WRAL has a great compliation of how you can help, and the Durham Bulls are a collection center for storm donations. 

Related articles

• Pain Amid the Progress As Tiny Victim Mourned(newsobserver.com)
• Why North Carolina, far from Tornado Alley, took brunt of big outbreak – Christian Science Monitor (news.google.com)
• Photos: Tornado Rips NC Houses “To Pieces”(patspapers.com)

The rhetoric has been fast and furious, claiming both that extending the tax cuts will increase our record-setting national deficit  and that ending them will cost jobs.   

Now that the tax cuts have been extended for two years, will you hire new employees?  Why or why not?

Until recently, the North Carolina Mortgage Licensing Act made it a criminal act for a non-licensed individual to loan money to someone else for the purchase of a property to be used for “personal, family or household use.” In English, much to the dismay of the real property bar, this means, it was illegal for parents to lend money to their children for the purpose of buying a home.

This law was modified about this time last year, and now specifically allows an individual to provide a residential mortgage loan to an immediate family member. “Immediate family member” means a spouse, child, sibling, parent, grandparent, or grandchild, or the spouse of an immediate family member. This term includes stepparents, stepchildren, stepsiblings, and adoptive relationships.

It is still illegal for an aunt and uncle to loan money to a niece or nephew, or a good family friend to loan you money to buy a house. A lot of real estate attorneys think an individual should be permitted to make a few loans to friends or family over the course of his lifetime, without having to register as a mortage lender, broker or originator.

John Vandenhoff

In the last post, we cited the two main provisions of the recently signed “Hiring Incentives to Restore Employment Act of 2010″ (the HIRE Act, P.L. 111-147 ). Some additional features of the new payroll tax hiring incentive include:

• The tax benefit of the new incentive is immediate. It puts money into a business’ cash flow immediately, since the tax is simply not collected in the first place.
• The tax benefit generally applies only to private-sector employment, including nonprofit organizations&emdash;public sector jobs are generally not eligible for either benefit. However, employment by a public higher education institution qualifies.
• There is no minimum weekly number of hours that the new employee must work for the employer to be eligible, and there is no limit on the dollar amount of payroll taxes per employer that may be forgiven.
• For workers that would otherwise be eligible for the Work Opportunity Tax Credit (i.e., another type of employment tax credit), the employer must select one benefit or the other for 2010. There is no double dipping.
• An employer can’t claim the new tax breaks for hiring family members.
• A worker who replaces another employee who performed the same job for the employer isn’t eligible for the benefit, unless the prior employee left the job voluntarily or for cause.
• For the hiring to qualify, the new hire must sign an affidavit, under penalties of perjury, stating that he or she hasn’t been employed for more than 40 hours during the 60-day period ending on the date the employment begins.
• The incentive isn’t biased towards either low-wage or high-wage workers. Under the measure, a business saves 6.2% on both a $40,000 worker and a $90,000 worker.
• The payroll tax holiday doesn’t apply with respect to wages paid during the first calendar quarter of 2010, but the amount by which the Social Security payroll tax would have been reduced under the payroll tax holiday provision during the fist calendar quarter is applied against the tax imposed on the employer for the second calendar quarter of 2010.
• The Act creates a similar new set of rules allowing a payroll tax holiday for railroad retirement tax purposes.
• The credit for retaining qualifying new hires is the lesser of $1,000 or 6.2% of the wages paid by the taxpayer to the retained worker during the 52-consecutive-week period. Thus, the credit for a retained worker will be $1,000 if, disregarding rounding, the retained worker’s wages during the 52-consecutive-week period exceed $16,129.03. However, the credit isn’t available for pay not treated as wages under the Code (e.g., remuneration paid to domestic workers).

Is this going to help you?

John Vandenhoff

About two months ago, President Obama signed into law the “Hiring Incentives to Restore Employment Act of 2010″ (the HIRE Act, P.L. 111-147 ). The main thrust of this Act is a payroll tax holiday and up-to-$1,000 tax credit for businesses that hire unemployed workers. The Act also includes a one-year extension of the enhanced small business expensing option under Code Sec. 179 . Let’s look at some of the important details:

1. Payroll tax holiday and up-to-$1,000 credit for employers who hire unemployed workers.

• To stimulate hiring by the private sector, the new law exempts any private-sector employer that employs someone who had been unemployed for at least 60 days from having to pay the employer’s 6.2% share of the Social Security payroll tax on that employee for the remainder of 2010. Your company could save a maximum of $6,621 if it hired an unemployed worker and paid that worker at least $106,800&emdash;the maximum amount of wages subject to Social Security taxes&emdash;by the end of 2010.
• Additionally, any qualifying worker hired under this initiative that the employer keeps on payroll for a continuous 52 weeks, makes the employer eligible for an additional non-refundable tax credit of up to $1,000 after the 52-week threshold is reached, to be taken on their 2011 tax return. In order to be eligible, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.
• Workers hired after the date of introduction of the legislation (Feb. 3, 2010) are eligible for the payroll tax forgiveness and the retention bonus, but only wages paid after March 18 receive the exemption for payroll taxes.

2. Extension of enhanced small business expensing.

• The new law gives one year of extra time to enhanced expensing rules, allowing qualifying businesses the option to currently deduct the cost of business machinery and equipment, instead of recovering it via depreciation over a number of years.
• For tax years beginning in 2010, the maximum amount that a business may expense is $250,000, and the expensing election begins to phase out when a business buys more than $800,000 of expensing-eligible assets. These dollar limits are the same as those that were in effect for 2008 and 2009, but without the HIRE Recovery Act, would have dropped this year to $134,000 and $530,000 respectively.
• In our next post, we’ll break down some of the benefits of the payroll tax incentives.

Will these incentives change the way you approach your staffing needs for the rest of the year?

Amazon claims this request violates its customers’ First Amendment rights and is an invasion of privacy. North Carolina wants the information so that it can collect use tax on purchases made by its citizens. [The Department of Revenue indicated that it never asked for titles, and hopes attorneys for the parties can work things out.]

As I blogged previously, under current state law, if a retailer does not have a brick-and-mortar location, employees or another “nexus” with the State, it does not collect sales and use tax on an online transaction. Instead, the buyer is supposed to self-report the purchase and pay the sales and use tax when he files his income tax return. As you might imagine, few buyers actually self-report and pay this tax, and the state is losing sales tax revenues.

The NC General Assembly has two bills in the respective finance committees (House Bill 558 and Senate Bill 487) that would shift the collection burden to the retailer, who would collect the sales tax at the time of purchase and remit it to the state.

The legislation clarified, among other things, that an affiliate relationship is a “nexus” with the state that would allow Amazon to collect sales tax rather than have citizens self-report. Certain retailers, including Amazon, use “affiliates” who have various ads on their web sites (the web sites are unrelated to Amazon). If someone clicks through to Amazon from the affiliate web site, the affiliate earns a commission.

Amazon reacted by terminating its affiliate program in NC. Apparently, the Department of Revenue has sought records from Amazon so it can collect the use taxes directly, and Amazon takes exception.

My take is that there is a lot of posturing on both sides. Amazon is not as concerned with protecting customer data/First Amendment rights as it is with preventing other states from following suit. It will take additional personnel at Amazon to track, collect and remit sales tax, yet other retailers with a physical presence here do it (Borders or Wal-Mart for example). And the State of NC certainly does not need to know WHAT book you purchased, only the amount of purchases in any given year.

What do you think? How far should the state of NC go to collect its taxes?

1. Taxes are “voluntary”
2. Compensation is not income
3. Taxes in America aren’t for Americans
4. (Paper) Money isn’t legal tender
5. I am not a citizen
6. “The U.S.” only includes federal land
7. Individuals aren’t people
8. My religion doesn’t believe in taxes
9. I plead the Fifth
10. Taxes are slavery

Estate Tax and Possible Changes in 2010

Congress has done the unthinkable and now we are in a year with no estate tax. Everyone expects Congress will “patch” the current law by extending last year’s rules &endash; taxing estates exceeding $3,500,000 &endash; through the end of this year and making that change apply retroactively to January 1. But then, everyone expected Congress to extend last year’s rules before last year ended.

So, what does this mean for you?

If you are single, it will probably make no difference to the way you have made your will and other estate documents unless you have a plan where you gave the exempt amount to your beneficiaries and the amount above the exempt amount to charities. In that case, you should review and may need to change your documents.

If you are married and you had a plan that would create, on the first death, a “Family Trust” for the surviving spouse, under the current rules (no estate tax) it is likely that your documents will give everything to your spouse. If your children are not children of your spouse and you had a “Family Trust” to provide for your spouse and then pass back to your children, you will need to review and may need to change your documents.

If your children are all children of your spouse, you have a choice:
a. Do nothing and hope your survivor will get prompt advice about whether he or she should disclaim any of your assets passing to the survivor so they will instead pass to the “Family Trust” for the survivor and not be taxed as part of the survivor’s estate (see “looming danger” below).

b. Consider amending your documents to provide a trust for the survivor even if you die in 2010 and there is no tax. (Such an amendment could be as simple as providing that if you die in a year when there is no estate tax, that the document will be interpreted as though the 2009 tax rules applied for the purpose of setting up the Family Trust for the survivor).

Why is this important? &emdash; The “Looming Danger.”

If Congress does nothing at all (or just extends last year’s rules through 2010 as a “patch” and then does nothing further) starting in 2011 (less than one year), the exemption from estate tax will automatically drop to $1,000,000.

That will mean that if you die this year and you and your spouse have $2,000,000 (for example) and your spouse inherits everything, there will be no tax. But if your spouse then dies with a $2,000,000 estate in 2011, the children will pay over $400,000 in estate taxes.

Everyone expects (yes, that crowd of everyone again) Congress will pass a more permanent extension of the estate tax law setting the tax-free amount at a higher level, but Congress is full of surprises and, with an election coming up, Congress could easily do nothing about further estate taxes (just as happened this year) and let the exemption drop back to $1,000,000.

Whether single or married, it may benefit you to start planning now for that possibility and to review your plan with an trust and estate lawyer to make sure that your documents will send your assets to the beneficiaries and in the way you expected.

How often do you check in with your estate planning specialist?

(This was posted earlier on the Virginia Business Lawyers blog.)

Affiliates are owners of private web pages who promote items for sale from Amazon.com in exchange for a share of the sales. If I put some Amazon book recommendations for business or business law books on the side of NCLawBlog, set up an affiliate account, and readers clicked through to buy those books, I would be an “affiliate.” I would receive a commission on each sale and I would pay state and federal income tax on those commissions.

Under current state law, if a retailer does not have a brick-and-mortar location, employees or another “nexus” with the State, it does not collect sales and use tax on an online transaction. Instead, the buyer is supposed to self-report the purchase and pay the sales and use tax when he files his income tax return.

House Bill 558 and Senate Bill 487 would shift the collection burden to the retailer, who would collect the sales tax at the time of purchase and remit it to the state. This law, if passed, would apply to other online retailers that don’t have employees or facilities in North Carolina, and not just Amazon.

Instead of collecting and paying sales tax, Amazon is threatening not to use NC affiliates at all. This is not a new tax on income received by the affiliate, but a change in who collects and remits the sales tax to the state. The General Assembly estimates it will generate $13.2 million from this change.

In 1992, the the U.S. Supreme Court ruled in Quill v. North Dakota that out-of-state retailers cannot be required to collect sales tax on purchases sent to states where they did not have a physical presence because compelling merchants to adhere to the complexities of the state and local tax codes would place an unreasonable burden on interstate commerce. This is a very relevant point.

North Carolina’s view, based on the statute is that online retailers hold a physical presence in North Carolina because they derive sales through its affiliates who live here. It is a controversial position that also has been proposed in New York, California, Hawaii, Illinois, Connecticut and Minnesota.

Reactions range from the outrage of entrepreneurs who are potentially losing a revenue stream based when online merchants end affiliate programs in North Carolina to the support of people who think online merchants are at a competitive advantage over local businesses because their sales are not subject to sales tax.

As a general business lawyer, and not a tax attorney or CPA, my common-sense reading of the existing statute is that a company that “purposely or systematically” exploits the market of NC through any media-assisted means, including computer-assisted shopping, direct mail advertising or other electronic media, is required to collect sales tax. My educated guess is that even without using affiliates, Amazon directly advertises, emails and sends direct mail to customers and potential customers in North Carolina. My best guess is that this provision has never been enforced, and the State would rather broaden its scope and then implement enforcement, than suddenly start enforcing a neglected provision. States are scrambling for funds wherever they can get them.

I can also see the unintended consequence of causing North Carolina taxpayers to lose income, and then pay less income tax, when they lose their affiliate commissions.

The solution is to simplify the multiple state taxes through federal legislation, but such a streamlined sales tax project is understandably mired in bureaucratic infighting and hesitation to impose a new federal tax.

I’m very interested in public response to this issue. Is it an unfair penalty to webpreneurs? Is it unfair to online retailers headquartered in other states with no facilities in North Carolina? Or does it take the burden off ordinary taxpayers and local businesses?