A state’s taxing authority is based on specific state statute and case law, which can vary from state to state. However, for years states have been prohibited under federal law (Public Law 86-272) from imposing a net income tax on an out-of-state business when the only connection with the state is the solicitation of orders for sales of tangible personal property, if such orders are accepted and shipped or delivered from outside the state.

The principles of P.L. 86-272 are based on the concept of business nexus, which describes the amount and degree of business activity that must be present before a business becomes subject to a state’s net income tax. Under the general rules of nexus, a business with more than a de minimis degree of “physical presence” in a state, may be subject to that state’s net income tax. Physical presence is a factual determination, and can take the form of:

• Owning or leasing facilities or property in the state
• Installing equipment or supervising the installation of equipment
• Repairing or maintaining the company’s product
• Approving or accepting orders in the state
• Employees living and working in the state

It is important to note two elements of P.L. 86-272, 1) it only applies to tangible personal property, and so the solicitation for the sale of real property, intangible property, or services, may cause a business to have to pay income tax in a state where such solicitation occurs, even when the business does not have any physical presence in the state; and 2) it only applies to taxes on or measured by net income of the business.

More recently, many states have expanded their taxing grasp across state lines under the guidance of “doing business”. In these states, physical presence is no longer the controlling factor for collecting a business tax from remote sellers. “Doing business” simply means engaging in any activity that is conducted for, or results in gain or profit at any time during the year. For example, Ohio recently added a Commercial Activities Tax (CAT), Michigan added a Single Business Tax (SBT), while Oklahoma added a Business Activity Tax (BAT), all of which are taxed based on gross receipts, instead of net income.

These non-traditional, non-income tax based taxes have added complexity to complying with state tax filing requirements. No longer do states need to prove “physical presence” to assess a tax against a business, instead, businesses that merely sell product in the state, may be liable for filing a tax return and paying tax in that state.

Please contact us with any questions you may have about these rules and we can provide additional guidance.

Written by Kevin Hogan, CPA, CMA
Kevin specializes in tax consulting for businesses and individuals. His education includes a B.S. in accounting and business administration from the University of Kansas, a M.B.A. from the University of Kansas and a Master’s degree in Tax from Northern Illinois University.

This past February the voters approved the new ordinance which requires all licensed businesses, organizations, etc. (i.e. all employers) to use the E-Verify program to confirm that any new hires may legally work in the United States. This must be done within three days of their hire date. Springfield licensed businesses and non-profit organizations will need to enroll with US Citizenship and Immigration Service’s E-Verify Online program, if they haven’t already done so.

This ordinance was effective immediately and the City Manager has recently announced it will begin enforcement on June 4th. Once a business has been notified by the city of a complaint against it, they have three days to provide proof that they have verified the new employees’ are legal workers (proof of the use of E-Verify). Failure to do so requires the city of Springfield to close your business or organization.

These businesses and organizations will also be required to submit an annual affidavit stating they have enrolled in this program and are using it for every new hire. The affidavit must be signed and notarized and submitted in paper form. This form cannot be electronically submitted. For businesses, they will submit this affidavit by January 31st when they complete their occupational license. This first form is due 1/31/2013. For non-profit organizations and other employers who do not require a business license, they must submit their affidavit by July 1st each year. This first affidavit for these employers will be due 7/1/2012. Failure to submit this annual form may mean closure of your business or organization by the City.

Since it may take a few days to become registered, you are encouraged to register now and not wait until your next hire. Once hired, you will only have three employment days to E-Verify your new hire.

You should review this checklist before you begin the enrollment process. Enrollment Checklist

If you have multiple locations for your business, you should review this list of questions before you begin the enrollment process. List of Questions

To begin enrollment, click here: https://e-verify.uscis.gov/enroll/StartPage.aspx?JS=YES
For more information visit Springfield’s website: http://www.springfieldmo.gov/everify
For more information about the U.S. e-verify program you are required to enroll in: www.uscis.gov

If you have additional questions, please call one of our Small Business Services administrators.

Click here to read: The Biggest Security Vulnerability: The Wetware

To read a previous article about Patch Management click here: Improve Your Company’s Security with Patch Management.

By Chris Griesemer, IT Security Specialist, Partner

Income Tax Seminar for Mary Kay Consultants

Due to the 52 weeks of employment requirement, the first taxable year the deduction can be calculated is for the tax year 2012. This deduction is equal to $10,000 for each new job created or $20,000 for each new job created by a small business that paid at least 50 percent of all employees’ health insurance premiums. The small business has to be taxed as a sole proprietor, C Corporation or LLC treated as a Corporation to qualify for this deduction; any other small business does not qualify.

The qualifications to be considered a small business are listed below:

1. must employ fewer than 50 full-time or part-time employees
2. must be subject to income taxes
3. must ensure all new employees have completed at least 52 weeks of full-time employment prior to including the employee in the deduction calculation
4. must pay wages of at least the county average wage, which is calculated by the Department of Economic Development

 The deduction cannot be claimed until the employee completes at least 52 consecutive weeks of employment and works an average of at least 35 hours per week. In addition, the employee may not have been previously employed in Missouri by the small business or business affiliate for a period of 12 months prior to the creation of the new job. The deduction is claimed on the Missouri Form MO-NJD.

Please contact us for further information on this credit.

Written by Melinda Thurman, Staff Accountant.

(Actually, Tom didn’t send this to me. Josh Beaird, one of our top auditors, sent this to me. I just like to mention Tom’s name so he feels important. Tom’s copy of this article will have everything you see, minus this section in parentheses. Thanks again Josh.)

A simple description of Social Engineering is deceiving someone on the phone, in person or on a computer into divulging confidential information. This article sums up the dangers of social engineering and points out that the weakest link in most companies is their customer service department. I would suspect most companies don’t have any kind of social engineering testing done on an annual basis.

Banks are probably one of the few industries that are required to have some form of social engineering review or audit. Regardless of what industry you are in, at a minimum, companies should implement two important procedures:

1. Define a set of guidelines that customer service employee’s need to use when talking with a client.  The guidelines should explain exactly how a caller must prove they are who they say they are.  It might mean establishing a phone password or security questions but something that would identify that caller.  And remember, with Facebook, LinkedIn and the other social media out there, security questions should probably not entail address and phone number because that information can be found online.
2. Annually have Social Engineering training with staff.  Explain the procedures that have been implemented and make sure employees are updated with examples of Social Engineering techniques.

 Click here to view the article: Hackers Press the ‘Schmooze’ Button. If you have any questions about Social Engineering, please contact us today.

By Chris Griesemer, IT Security Specialist

The first Tax Workshop will be held on Thursday, November 3 from 9-11 a.m. at the Greene County MU Extension Center located at the Springfield Botanical Center on 2400 South Scenic Avenue.

The second Tax Workshop will be held on Monday, November 7 from 2-4pm at the Branson Chamber of Commerce located on 269 State Hwy 248 in Branson.

The 2-hour workshops are targeted toward small business owners, office managers, or entrepreneurs. Patti Stoner will be facilitating this information packed small business tax workshop and will touch on a broad range of small business tax issues.

Click on the following link to view the 11/03 event flyer and fill out a registration form. Small Business Tax Workshop flyer and registration form.

Click on the following link to view the 11/07 event flyer and fill out a registration form. Small Business Tax Workshop flyer and registration form.

As I have mentioned before, I perform Information Technology exams on banks to make sure they have proper controls in place to mitigate high risk areas. Patch management is the process a company uses to make sure all software is updated. Patch management is one area I get more questions on because of the difficulty businesses have keeping their software updated.

Most of the time, businesses have Microsoft applications patched well because of the automatic update feature built into most of Microsoft’s products. The problem businesses have is keeping those third party applications updated, specifically Adobe and Java.

We use a vulnerability scanning tool created by Rapid 7 called Nexpose. The software has a unique reporting feature. It doesn’t categorize a patch upgrade as fixing one vulnerability. Instead, it explains all of the vulnerabilities that are fixed by installing the patch. For example, in April I ran a scan that reported upgrading Adobe Reader 9.4.4 to the latest version would fix 68 vulnerabilities.

The problem that most companies run into is not having the ability to make sure users are upgraded or patching their software when the little bubble shows up. And why should they? Users get bombarded with all the things they are not supposed to do. “Don’t install tool bars”, “Don’t click on pop windows”, “don’t open emails you don’t recognize”, the list goes on. Then, we expect them to upgrade Adobe and Java.

The best way to keep computers upgrade to the latest software is by using a patch management application that also patches third party software. The two applications I am aware of are Shavlik (www.shavlik.com)and GFI’s LanGuard (www.gfi.com). I have never used Shavlik but know of clients that use it and are very happy with it. I have used LanGuard before. It also has a nice feature that allows you to specify software you do not want installed on computers. If this feature is active and a user installs a restricted software, LanGuard automatically uninstalls it.

Although utilizing one of these applications is an improvement, I still recommend having an internal vulnerability scan run once a year. Please contact me for more information.

By Chris Griesemer, IT Security Specialist

Background
Under the high-low method, the IRS provides optional per diem allowances that employers and employees are deemed to have substantiated. The method can be used in lieu of substantiating actual travel-related expenses. The per diem amounts also satisfy the requirement that employees provide the employer with an adequate accounting of meal and lodging expenses.

The IRS publishes a list of localities classified as high-cost areas under the high-low method. All other localities in the continental United States are classified as low-cost areas. The maximum per diem rate for high-cost areas is $233 for travel on or after October 1, 2010. This represents $168 for lodging and $65 for meals and incidental expenses (M&IE). The per diem rate for low-cost areas on or after October 1, 2010, is $160, which represents $108 for lodging and $52 for M&IE.

Waning interest
The IRS requested comments in 2010 on whether to continue the method and received no comments. The IRS interpreted such lack of interest as the deciding reason to discontinue the method. It also reportedly has found the collection of data, as well as the politics that went into designating an area as “high cost,” growing more difficult when compared to the value of continuing the method in an environment in which digitized travel receipts are now so easily available. Taxpayers currently using the high-low method, however, can anticipate continuing to use it through 2011.

More guidance to come
Later in 2011, the IRS promises to issue a new revenue procedure, without the high-low method, that will provide general rules and procedures for substantiating lodging, meals and incidental expenses incurred in business travel away from home. It is unlikely that the IRS will issue high-low rates for 2012.

Government employers use the per diem method widely, practitioners report. Private industry, however, generally prefers to reimburse employees based on actual receipts and, therefore, only a small percentage of private businesses will expected to miss using the high-low method to substantiate travel expenses.

The most recent update was posted on June 1st and discussed health savings accounts. Click here to view.

Patti Stoner and Kathy Hillenburg recently spoke at Evangel University to discuss, “What are the Responsibilities for Colleges and Universities Imposed by the Health Care Reform Act?”

To view the presentation, click here: Evangel Health Care Presentation

To view the handout from this presentation, click here: Evangel Handout