On Thursday, June 21, 2018, the U.S. Supreme Court overturned its previous 1967 and 1992 rulings on two cases, National Bellas Hess vs. Illinois and Quill vs. North Dakota, that had upheld physical presence being required in a state before it could impose sales tax on purchases made by residents in their state. In a 5 – 4 decision in Wayfair vs. South Dakota, the Supreme Court ruled in favor of the state authority to require online retailers to collect sales taxes without regard to physical presence in the state.
With this decision, states stand to gain much-needed tax revenues for their budget deficits. In addition, there may be even more significant cost consequences for small online retailers that do business in multiple states.
As part of the ruling in the 1992 Quill vs. North Dakota case, Congress was given ultimate power to resolve sales tax issues pertaining to interstate commerce. Discussions surrounding the concept of an “internet sales tax” is not new. Each year, since 2010, legislation has been introduced that proposed a federal tax bill; however, to date, Congress has failed to pass any such legislation that would lend a sense of uniformity to sales tax regulations.
Now that states are being given the authority to pass their own legislation to impose sales tax on purchases from out-of-state retailers regardless of physical presence, and with the inevitable increased complexity that retailers will be forced to comply with, it is possible that Congress will be spurred to provide federal guidance surrounding applicability and compliance as a result of the ruling.
In our previous post, Authenticated Financial Information, we explored the need for a private company clearinghouse that can be used to protect and deliver trustworthy financial information. One of the ways firms and their business clients are utilizing a clearinghouse is for SOC report distribution – a process that is becoming more challenging to manage as an increased focus on third-party controls has led to a rise in requests for reports.
If you consider the way most service organizations distribute SOC reports today, you might think of basic methods like email and mail, often with no standardized process or central group managing it. Requests are often sent to various individuals at a service organization from different types of requestors. While convenient, these methods offer little in their ability to track where reports have been sent to and in verifying that the person requesting the report is qualified to receive it. What happens when there is a change or updated report available? How would the previous recipients be notified? What is the approval process? Are NDAs appropriately collected?
Aside from internal challenges, what about the customer experience? Providing customers with an easy, quick way to receive reports is important, but one should also consider if their distribution methods reflect a level of security and control that one would expect from an organization that has already undergone a SOC engagement.
RIVIO solves all these challenges and boasts a high level of user-friendliness for all parties. It puts a service organization in control over the distribution of their SOC reports while also keeping everything confidential and secure.
How does it work?
RIVIO Clearinghouse is a platform designed for three different users: CPA firms, businesses, and third-party users. It provides one location for each party to request, share, and verify information – all through a secure, accessible environment that has undergone all three SOC examinations, has received an ISO 27001 Certification for Service, TRUSTe Privacy Policy Certified, and EU-US Privacy Shield certified.
- Request: The platform offers a way for organizations to request SOC reports from their CPA firms and provides a way for customers to request reports from their service providers. When requests are issued, a notification is generated through the system and produces a link for the appropriate party to respond by uploading the SOC report.
- Share: SOC reports can be shared with individual customers or with groups through defined distribution lists. The platform tracks recipients of reports and also provides a way to recall information, should a report be updated.
- Verify: The platform has a validation process to confirm information came from an authentic source and has been unaltered.
Are you ready to take control of SOC report requests? Visit RIVIO.com to learn more.
There is a growing demand today for accurate, source-verified financial information. But, what is driving this demand? Users of audited financial statements, such as investors and lenders, have increased their focus on the authenticity of the information they receive. While technology has positively impacted the speed and accessibility of information, it has also had some negative impacts – creating new ways to alter and compromise information.
Unfortunately, there are plenty of instances of fraud occurring, either by altering information after it’s been reviewed by a CPA firm, completely falsifying an audited financial statement, or even creating a fictitious firm. Those committing these types of fraud have put the information that others provide under great scrutiny. How can those receiving the information be sure of its validity?
For public companies, this is avoided by use of EDGAR. However, for private companies, there hasn’t been a similar Clearinghouse until recently. CPA.com, an AICPA company, collaborated with Confirmation.com to develop RIVIO Clearinghouse to not only ensure that financial information provided by a CPA firm is protected, but also to provide a more efficient way for all parties to exchange information.
RIVIO provides an online platform that enables CPA firms to exchange information with their private business clients who can then share it out to any third parties that may need this information. It streamlines and controls the process while also ensuring that third parties receive authenticated financial information. For private businesses, it brings more trust to the information provided to third parties and facilitates a more efficient manner for exchanging information.
This cutting-edge solution is a gamechanger for CPA firms and their private business clients, and it is rapidly gaining market acceptance. In a time where it is becoming more challenging to control and protect information, RIVIO is positioned to meet the growing need for authenticated information.
Learn more at RIVIO.com
One of the most rapidly growing means that companies are using to increase their sales is by offering their products through Amazon. Many businesses are selling their products through the Amazon FBA program (Fulfillment by Amazon). When a seller uses the FBA program that Amazon offers, they are typically instructed to ship inventory to an Amazon warehouse with an agreement that, as the company sells their products through Amazon, Amazon will take ownership of product shipment and order fulfillment. The seller’s products are stored in Amazon fulfillment centers where Amazon picks, packs, ships, and in some cases, provides customer service for those products.
When using FBA, a company generally sends its inventory to one Amazon warehouse location; however, depending on how the product is listed for sale, Amazon may relocate the inventory across many states where they have fulfillment centers. Owning inventory in another state creates nexus in that state for sales and income tax. If Amazon is handling a company’s customer service and delivery for their products, there is also the potential for states to take the position that those services are creating an agent relationship, allowing the company to create or maintain a marketplace in those states.
The opportunities provided to businesses through FBA to expand their customer base without having to handle much of the back-end fulfillment responsibilities, especially for small and medium-sized businesses, has proven to be advantageous for many sellers. With the expansion of business through e-commerce also comes the potential for the expansion of a company’s nexus footprint for state and local taxes.
According to the Tax Foundation’s Fiscal Fact No. 572, forty-five states and the District of Columbia collect statewide sales tax in addition to having either income, gross receipts, franchise, or business privilege tax filing requirements once nexus is established in their respective states. For all states, owning inventory that is stored or warehoused in a particular state creates nexus for sales and income tax purposes and, in many states, third-party fulfillment arrangements will create nexus for sales tax purposes.
Whether you are using FBA or other avenues of e-commerce, the challenges of state and local tax compliance requirements can be extremely daunting and challenging. Contact us to see how we can help you determine where you have left or are looking to create a nexus footprint.
We receive regular checkups to monitor, maintain, and improve our health. But did you know that you should do the same for your company? Financial statements provide the vital statistics necessary to track a company’s health. Investors use financial statements to research potential investments, bankers base lending decisions on a company’s financial statements, and valuation experts utilize financial statements to determine a company’s worth. By routinely scrutinizing your financial statements, you can monitor and improve your company’s performance and, ultimately, its value.
A comprehensive financial analysis employs ratios to measure a company’s past and current operations, allowing you to compare its results to others in its industry. This type of review offers insight into the historical growth, profitability, debt capacity, and overall liquidity of the subject company in the context of its industry. All such factors can be important indicators of a company’s ultimate value and provide useful information to business owners and managers who want to more effectively and efficiently manage their operations.
You can perform your own financial checkup for your business. To begin, obtain a history of your company’s financial statements; five years’ worth is usually a good base. Next, convert the financial statements to common size. Common size financial statements are simply your company’s financials expressed in the form of percentages rather than dollars. A common size format readily identifies trends and growth patterns. Additionally, since industry benchmark data is often produced in this format, it makes it easier to compare your results with the competition. Industry benchmark information can be obtained from a commercial vendor, your accountant, or, depending upon the industry, from trade associations.
Next, financial ratios are calculated. There are a number of ratios to choose from – some of the more common ratios measure liquidity, debt coverage, leverage, and operating and profit performance. Their relevance is dependent upon your company, its operating characteristics, and the industry. Bankers and accountants can be especially useful in identifying the more pertinent ratios.
The information gathered thus far is analyzed and compiled on a trended, composite, and industry basis. The results of this analysis, when performed regularly, help you to monitor and recognize the vital statistics necessary to maintain the success and growth of your business. The benefits of this assessment include:
Competitive Advantages & Disadvantages
An industry assessment enables you to identify your company’s strengths and weaknesses and acquire valuable information on the competition.
Budgeting & Forecasting
Studying trends and growth patterns is a very effective preliminary step in preparing internal budgets and forecasts.
Strategic Planning
Recognizing specific performance measurements (company and industry) will help to set goals and objectives for the future (e.g. increasing sales, gross profit margins, and net income).
Acquisition Opportunities
Knowledge of key performance measurements assists in the evaluation of a proposed sale, merger, or acquisition.
Focus
Greater awareness of the interrelationship of the financial statements and a complete understanding of financial operations allows you to focus on the areas important to the growth and success of your business.
Regardless of whether you perform, or your accountant performs, a financial analysis is akin to your annual physical examination…it is crucial to understanding your company’s health – past, present, and future.
Our partner, Leah Szlatenyi, directs the Bentley Consulting Group, LLC and has over 25 years of tax, financial advisory, and business consulting experience. As a former member of the American Institute of Certified Public Accountants’ (AICPA) National Business Valuation Committee, Leah has extensive knowledge in the evaluation of an organization’s financial health, business planning and forecasting, and strategic implementation.
Is your company future ready? We are living in an incredible time of rapid change around the world. Technology, regulation, global economics, political uncertainty, business transformations, generational shifts; and there is no end in sight.
Planning for Market Shifts
We have always dealt with change but never has change come so rapidly. Your smartphone is only 10 years old. How has it changed your life and your business? Artificial intelligence, virtual reality, augmented reality, online commerce, blockchain, Bitcoin, driverless cars, and more. Are you ready for those changes to your business or organization? Will your organization be disrupted by the likes of Uber, Air B&B, Amazon, and others – or will you be a disruptor by creating the next big thing?
Like so many of us, we go through our business day focusing on the present and dealing with the past, but what about the future? Is your organization properly positioned to seize new opportunities and navigate upcoming threats? Have you addressed succession in ownership, management, and on the shop floor? What will your organization look like in three, five, and ten years? These are difficult questions that many simply put off.
Strategic Planning Engagements
Your financial advisor can certainly assist in projecting financials like revenue, profits, taxes, cash flow, and future capital needs, but, in some cases, they can also help you dream about the future of your organization through a formal Strategic Planning Engagement.
The process of developing a future strategy can be daunting, especially for smaller family-owned businesses or organizations with limited resources. The best way to accomplish this goal is to use an outside facilitator who understands the process of long-term planning and the business challenges that all U.S. companies face, serving as a neutral voice in building consensus.
Our partner, Bill Pirolli, has decades of just such experience. Not only has he been on the front lines with his clients for over 40 years as their trusted business advisor (as well as serving in management positions in DiSanto, Priest & Co.), he has also led dozens of strategic planning retreats for accounting and law firms, private businesses, and non-profit organizations.
About Bill Pirolli
Bill has been a volunteer to the accounting profession and business community for over 20 years. He has been the President and Chairman of the Rhode Island Society of CPAs (RISCPA), the Central Rhode Island Chamber of Commerce, and the American Institute of Certified Public Accountants’ (AICPA) Private Company Practice Section. He has held many other committee positions and is currently appointed to the United States and International Board of Directors of the AICPA, an organization with over 650,000 members in 189 countries. Through these experiences, Bill has participated in many strategic organizational visioning projects and learned the best practices for developing a future-proofed strategy.
Get in Touch
Contact us to see how strategic planning can propel your business into the future.
As we continue to welcome in the first quarter of 2018 and the new tax bill, let’s take a quick look at what has changed and what remains the same.
Federal
Thanks to the Tax Cuts and Jobs Act, beginning in 2018, the exemption for Gift, Estate, and Generation Skipping Transfer (GST) tax has increased. The amount that can now be left to heirs, tax free, will be approximately $11.2 million per person and $22.4 million for married couples. Furthermore, the annual gift tax exclusion has been raised from $14,000 to $15,000 beginning in 2018. The 40% tax rate for estate, gift, and GST tax remains the same. In addition, the basis step-up rules, adjusting assets passing from a descendent to fair market value at date of death, does not change.
Rhode Island
For descendants dying on or after January 1, 2018, the estate tax threshold will be raised an additional $22,500, changing from $1,515,156 in 2017 to $1,537,656 in 2018.
What is happening in our neighboring states?
Connecticut
On October 31, 2017, Connecticut increased the individual exemption up from $2 million to $2.6 million in 2018. This will increase again to $3.6 million in 2019 and will match the federal Estate, Gift, and GST Tax Exemption in 2020.
Massachusetts
Massachusetts’ exemption remains unchanged at $1 million. In fact, Massachusetts and Oregon are now tied for the lowest estate tax exemptions in the nation.
On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act (TCJA) into law. Included in the law, which contains the most significant changes to the taxation of corporations, individuals and passthrough entities in 31 years, are several noteworthy provisions related to taxpayers in manufacturing, distribution and retail, as highlighted below. Unless otherwise noted, these changes are effective for tax years beginning after December 31, 2017.
• Elimination of the Section 199 deduction, also commonly referred to as the domestic production activities deduction or manufacturers’ deduction — effective for tax years beginning after December 31, 2017.
• Doubling of bonus depreciation to 100% and expansion of qualified assets to include used assets — effective for assets acquired and placed in service after September 27, 2017, and before January 1, 2023. The 100% allowance is phased down by 20% per calendar year for property placed in service after December 31, 2022.
• Doubling of the Section 179 expensing limit to $1 million and an increase of the expensing phaseout threshold to $2.5 million.
• While the R&D tax credit was retained, for tax years beginning after December 31, 2021 amounts defined as specified research or experimental expenditures are required to be capitalized and amortized ratably over a five-year period beginning with the midpoint of the taxable year in which the expenditures were paid or incurred.
• Businesses would be exempt from the requirement to maintain inventories if annual average gross receipts for the three preceding tax-years do not exceed $25 million. This provision would allow businesses to: 1) treat inventories as non-incidental materials and supplies, or 2) follow the taxpayer’s method of accounting reflected in an “applicable financial statement” for the tax year, or if the taxpayer doesn’t have an applicable financial statement for the tax year, the taxpayer’s books and records prepared in accordance with the taxpayer’s accounting procedures.
• Taxpayers who meet the $25 million gross receipts test mentioned above would also be exempt from the uniform capitalization rules found in Code Section 263A.
Please note that this is just a brief overview of some of the most significant TCJA provisions. Contact your tax advisor to learn more about how these and the other provisions of the bill will affect you in 2018 and beyond.
Wage-paying small businesses with minimal taxable income can now take advantage of their research credits sooner than was allowed under the previous tax rules. The Protecting America from Tax Hikes Act of 2015 allows qualifying small businesses to apply research credits against the social security portion of its federal payroll tax bill. Key facts about the election follow:
Eligibility
A qualifying small business for purposes of this election must meet the following two requirements:
- Gross receipts for the election year must be less than $5 million, and
- Must have no gross receipts for the preceding five-taxable-year period ending with the current tax year.
Making the Election
The election is made on Form 6765, Credit for Increasing Research Activities. Under a special rule for 2016, the IRS will allow a qualifying small business that has already filed its 2016 tax return to file an amended return by December 31, 2017 to take advantage of the election. The qualified small business can then start reducing their federal payroll tax bills for the first calendar quarter beginning after the date on which it filed its tax return.
Limits on the Election
Research credits can only be used to offset the employer’s portion of Social Security taxes. They cannot be used to offset the employer’s Medicare taxes or any FICA taxes that are withheld from employees’ wages. The maximum amount that can be applied against payroll taxes cannot exceed $250,000 annually.
For More Information
These are just the basics with respect to the payroll tax election. Your tax advisor can assist in determining the benefits of the election to ensure that you are maximizing all available incentives.
The new FASB lease accounting standard will likely need to be addressed sooner than many private businesses realize. For privately held calendar-year-end companies it takes effect in January 2020. In a June 27, 2017 article in Accounting Today, Michael Cohn writes, “[A] survey, by PricewaterhouseCoopers and CBRE Group, found that 23 percent of companies have yet to begin the initial adoption process of the leasing standard, while 47 percent of organizations that started implementation of the leasing standard reported the effort is bigger than they had expected.”
Private companies affected by this standard must bear in mind that if they typically issue comparative financial statements, FASB requires that the standard be applied retroactively to the preceding year – that means 2019, just over one year from now. Early adoption, which is permitted, may be the most proactive approach to ensure your accounting department is prepared for the new reporting requirements.
FASB, in its continued mission to improve transparency in financial reporting, issued Accounting Standards Update (ASU) 2016-02 to bring off-balance sheet lease rights and obligations, previously relegated to the financial statement disclosures, front-and-center onto the face of the financials. The standard has re-characterized these arrangements whereby a lessee’s contractual access to leased property represents an asset, and the related future obligation to pay for that right is debt. The new treatment shines a stronger light on lease rights and obligations as they relate to the financial health of an entity, which may add new metrics in negotiating credit terms and meeting financial covenants. While all businesses with long-term leases will be required to implement the new standard to comply with GAAP, certain industries will feel the impact more acutely given how entrenched their operations are in leasing arrangements: retail, manufacturing and distribution, construction, and restaurants, to name several.
It is not too early to start preparing. Tackling the challenges of a smooth adoption must include instituting internal processes to accurately gather lease data, monitor lease arrangements on a timely basis, and appropriately report lessee assets and liabilities.
If you would like more details about the new lease accounting rules, or have questions about how ASU 2016-02 may affect your business, please contact your accounting professional at DiSanto, Priest & Co.