State And Local Taxes.Part II: More requirements in place Don't make the mistake of believing that your federal income tax exemption tax exemption, immunity from the requirement of paying taxes. Federal, state, and usually local law provide exemption from taxation for a wide variety of organizations, usually not-for-profit, such as churches, colleges, universities, health care providers, various prevents state and local jurisdictions from imposing their filing requirements and their taxes on your nonprofit organization Nonprofit Organization An association that is given tax-free status. Donations to a non-profit organization are often tax deductible as well. Notes: Examples of non-profit organizations are charities, hospitals and schools. . Many organizations learn about state filing requirements the hard way. The first part of this two-part article appeared in the Feb. 1 issue. In Part I, the imposition of state income taxes and sales and use taxes Sales and use tax refers to:
This article focuses on other taxes and filing requirements for nonprofit organizations. Specifically, personal property taxes, employee withholding taxes The amount legally deducted from an employee's wages or salary by the employer, who uses it to prepay the charges imposed by the government on the employee's yearly earnings. , state franchise fees, and the escheat The power of a state to acquire title to property for which there is no owner. The most common reason that an escheat takes place is that an individual dies intestate, meaning without a valid will indicating who is to inherit his or her property, and without relatives who rules can become big problems for your organization. If you want to avoid costly back taxes, interest and penalties, you should address the issues before a state auditor State auditors are executive officers of U.S. states. The office usually is created by the state constitution.
Personal property tax Many jurisdictions impose a tax on the value of an organization's personal property. Your computers, furniture, and supplies constitute taxable personal property in many states. This tax is payable unless your organization has a specific exemption from this tax. Normally, you must file an annual property tax return and report the cost of your tangible personal property. Most jurisdictions allow you to reduce the cost of property by depreciation. However, the allowance for depreciation is set by the taxing jurisdiction and may or may not follow the depreciation schedule you use for book purposes. Therefore, it is common to maintain a separate depreciation schedule for personal property tax purposes. Nonprofit organizations may have multi-state exposure because of employees who work from their homes or from shared office space in other states or jurisdictions. This opens the door to the imposition of local property taxes if you furnish fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. these employees with computers and other office equipment. Since your organization owns this equipment, you are subject to the obligation to pay another jurisdiction's personal property tax. Jurisdictions differ on whether an exemption is available to organizations other than those exempt from income tax under Section 501(c)(3). Some only grant the exemption on personal property used in the direct accomplishment of certain specified tax-exempt purposes, (e.g., education or health care). In almost all cases, your organization will face this tax unless you apply for this specific exemption by following the specified procedures. Withholding tax on wages Organizations that have employees usually must withhold with·hold v. with·held , with·hold·ing, with·holds v.tr. 1. To keep in check; restrain. 2. To refrain from giving, granting, or permitting. See Synonyms at keep. 3. state income taxes from wages paid to those employees. Many nonprofit organizations have employees working throughout the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . Some work from their homes while others may work in shared office locations in multiple states. While there are exceptions, the duty to withhold state income taxes is controlled by where the employee is working. Therefore, a nonprofit organization located in Washington, D.C. that has an employee working from home in California, is required to withhold California income tax from the employee. Another special complication complication /com·pli·ca·tion/ (kom?pli-ka´shun) 1. disease(s) concurrent with another disease. 2. occurrence of several diseases in the same patient. com·pli·ca·tion n. exists when the city in which the employee works imposes an income or earnings tax; in these increasingly common situations, organizations are required to withhold and remit To transmit or send. To relinquish or surrender, such as in the case of a fine, punishment, or sentence. An individual, for example, might remit money to pay bills. TO REMIT. To annul a fine or forfeiture. 2. these taxes, too. These local wage tax liabilities are independent of state personal income tax and are frequently at a higher rate than that tax. Thus, you can easily see how inadvertent local wage tax omissions can result in significant liabilities. Your failure to withhold and remit the required state or local employee taxes can be particularly harsh because these taxes, together with penalties and interest, can be imposed directly on those individual employees and officers who failed to withhold and remit the taxes. Sometimes, directors and officers can be held jointly and severally Jointly and Severally 1. A legal term describing a partnership in which individual decisions are bound to all parties involved and thus undivided. 2. A term used in underwriting syndicates to refer to the distinct responsibility of individual companies to sell a certain liable for these taxes. Ignorance does not usually matter and in this case, experience could be a very tough teacher. Escheat/unclaimed property Currently, every state requires holders of escheatable/unclaimed property to file reports and remit unclaimed property to the state's unclaimed property division. The state holds the property as trustee for the true owner. Upon receipt of the property by the state, you are discharged of any liability to the owner. This particular state filing requirement has traditionally had relatively low rates of compliance. However, because of the amount of unclaimed property, together with interest and penalties that can be imposed for noncompliance noncompliance failure of the owner to follow instructions, particularly in administering medication as prescribed; a cause of a less than expected response to treatment. noncompliance , this area is becoming one of the fastest growing audit areas for state governments. Many organizations are unaware that if they are holders of unclaimed property, they may have to remit funds to the unclaimed property divisions of state governments. Most states have annual reporting requirements for unclaimed property, and, if you fail to file and remit unclaimed property, you may face penalties. Unclaimed property generally includes uncashed checks, unidentified remittances
Remittances are transfers of money by foreign workers to their home countries. , credit balances in accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , and unpaid liabilities that you have restored to cash or taken into income. Unclaimed employee benefit plan distributions may also constitute unclaimed property. State reporting requirements vary, and a review of specific state rules is necessary to determine whether or not you have a reporting requirement for unclaimed property. States have become more aggressive in pursuing unclaimed property, and audits now routinely include nonprofit organizations. States are either conducting the audits themselves or hiring contract auditors. Contract auditors usually work under contingency arrangements and tend to take aggressive positions. Since many states have no statute of limitations A type of federal or state law that restricts the time within which legal proceedings may be brought. Statutes of limitations, which date back to early Roman Law, are a fundamental part of European and U.S. law. for unclaimed property if you never filed a report, there are few limits on how far back states can go to demand the remittance Money sent from one individual to another in the form of cash, check, or some other manner. Financial statements sent by a creditor to a debtor frequently refer to the process of submitting a monthly remittance. REMITTANCE, comm. law. of unclaimed property. Now is a good time to examine your policy and practices regarding unclaimed property. Several states offer programs for organizations that have failed to report and remit unclaimed property in prior years if you come forward before the state contacts you. These programs generally limit the look-back period and may provide relief from penalties and interest. Registration filings Many nonprofit organizations assume that filing a registration application with the state revenue department (and even receiving an identification number) satisfies their duty to obtain a certificate of authority and file annual corporate reports. Most states impose a separate filing requirement on nonprofit A corporation or an association that conducts business for the benefit of the general public without shareholders and without a profit motive. Nonprofits are also called not-for-profit corporations. Nonprofit corporations are created according to state law. corporate organizations that are "doing business" in a state other than their state of incorporation. These organizations are foreign corporations with respect to these states. As such, they must register to do business as a foreign corporation and pay initial registration fees. To remain in good standing, foreign corporations must file annual reports and pay state franchise fees. In general, while state revenue departments administer corporate income taxes, sales and use taxes and employee withholding taxes, certificates of corporate authority and annual franchise reports are filed with and administered by the state's Secretary of State. Some of the information contained in these filings is available to the public, such as the corporation's business location, the list of officers, and the corporation's registered agent. Failure to comply with these rules can result in serious problems. For example, your organization may lose the authority to transact An earlier e-commerce system for the Web from Open Market that included order capture and secure order fulfillment using credit cards, ecash and other payment systems. It included customer service and subscription administration capabilities as well as an integrated database for reporting business as a corporation within that state, the Secretary of State may impose fines and penalties and, in extreme cases, members, officers and directors may become personally liable for the corporation's obligations. Charitable registrations No discussion of state filing requirements for nonprofits is complete without mentioning state charitable registrations. These rules apply to you if you solicit contributions. Approximately 40 states regulate charitable solicitations, and their statutes are written broadly to cover virtually any type of solicitation solicitation In criminal law, the act of asking, inducing, or directing someone to commit a crime. The person soliciting another becomes an accomplice to the crime. The term also refers to the act of obtaining bribes, as well as to the crime of a prostitute who offers sexual to any person or entity. Physical presence within a state is irrelevant. The registration requirement is based on whether you solicit contributions there. Therefore, soliciting donations by direct mail, telemarketing telemarketing, the practice of selling goods or services to customers by means of the telephone or of surveying consumer preferences in telephone conversations. , newspaper, television, or radio ads directed to individuals, businesses, or even foundations located within a particular state normally triggers the requirement to register under these rules. Once registered, annual reports are required to remain in good standing, and many states impose filing fees and require audits of your financial statements. If you discover that you have a problem with a particular jurisdiction, you should consider all issues with that jurisdiction before registering. If you want to avoid costly back taxes, interest and penalties, you should address the issues before a state auditor does it for you. Don't wait for a nexus questionnaire or a letter of inquiry. If you get one, it's often too late for you to make the first move. Many states have voluntary disclosure programs, and, if possible, you should work through a experienced state and local tax specialist who is familiar with the special issues of nonprofit Organizations to make an agreement before revealing your identity. Successful representation and negotiation may result in a settlement agreement that limits the look-back period for tax assessments and interest and reduces or eliminates penalties. D. Greg Goller, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. is a tax partner in Grant Thornton, LLP's Washington, D.C. office where he specializes in tax issues for nonprofit organizations. Jeffrey M Rhines, CPA, MT is a senior tax manager and Marc Grossman Marc Grossman was the United States Under Secretary of State for Political Affairs from 2001 to 2005. He was confirmed by the U.S. Senate on March 23, 2001 and sworn in as Under Secretary for Political Affairs on March 26, 2001. , JD, LLM LLM abbr. Latin Legum Magister (Master of Laws) LLM Master of Laws [Latin Legum Magister] Noun 1. is a tax manager; both are located in Grant Thornton's Philadelphia office and specialize in state and local tax issues. |
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