What’s the difference between preparing and manufacturing something? For Missouri restaurants, the difference amounts to tens of thousands of dollars.

The Missouri Supreme Court ruled Tuesday that restaurants cannot claim a tax exemption for the purchase of tables, chairs, plates and kitchen equipment.

The decision hinged on a determination that restaurants prepare – not manufacture – food for their customers. Consequently, the court said, they cannot get the same tax breaks available to manufacturing plants or to processing companies that turn live hogs and into ham ready for human consumption.

“In lay terminology, one does not speak of a restaurant as manufacturing or producing food or drink; instead, restaurants prepare, cook and serve food and drink to their customers,” the court said in a 6-1 decision written by Judge Laura Denvir Stith.

Missouri has about 10,500 restaurants that employ more than 200,000 people, according to Department of Economic Development statistics.

Although it could affect all restaurants, Tuesday’s ruling dealt specifically with 23 restaurants owned by Dallas-based Brinker Missouri Inc. The company operates businesses under the chain names of Chili’s Grill & Bar, Romano’s Macaroni Grill, On the Border, and Maggiano’s Little Italy.

The company originally sought a tax refund of about $54,000 for restaurant equipment bought between Oct. 1, 2003, and Dec. 31, 2004. The state denied nearly $49,000 of that claim, and the restaurant company appealed about $44,000 of that denial.

An attorney for Brinker Missouri did not immediately return a telephone message Tuesday.

Department of Revenue spokesman Ted Farnen said the agency had been confident its interpretation of tax law was correct. He said there are 28 other pending tax refund claims also involving restaurant equipment.

Attorneys for Brinker Missouri had argued their purchase of tables, chairs, dishes, cups and eating utensils should be tax-exempt because customers later buy the right to use them when they purchase their food.

“This argument proves too much,” Stith wrote in the court’s decision. “The plates, tables and chairs are not in any real sense transferred to customers any more than a piece of the restaurant floor is transferred to a customer when he or she walks on it, or a bottle of ketchup is transferred when a customer picks it up to use or inspect it, or a menu is transferred to a customer who reads it.”

Chief Justice William Ray Price Jr. was the lone dissenter. He said the court in previous cases had applied a broad interpretation of manufacturing plants to allow tax exemptions on equipment bought by telephone companies and newspaper publishers. He also said there was no distinction between facilities that prepare food for wholesale consumption, which receive tax exemptions, and restaurants that similarly use raw ingredients to make a more valuable food product.

“By applying an unduly narrow construction to this exemption, the majority frustrates the legislative intent of creating jobs and nurturing small business in Missouri,” Price wrote.

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WASHINGTON — The Internal Revenue Service is encouraging business taxpayers, associations and other interested parties to submit to the Industry Issue Resolution (IIR) program tax issues for resolution involving a controversy, a dispute or an unnecessary burden on business taxpayers.

The objective of the IIR program is to resolve business tax issues common to significant numbers of taxpayers through new and improved guidance. In past years, issues have been submitted by associations and others representing both small and large business taxpayers, resulting in tax guidance that helps thousands of taxpayers.

Recent submissions accepted into the IIR program include:

• Network assets in the telecommunications industry (unit of property)
• Asset class determination under Revenue Procedure 87-56 for wireless telecommunication assets
• Vendor mark down allowances in calculation of inventory under the retail inventory method
• Network assets in the utilities industry (unit of property)

Guidance issued as a result of the IIR program includes:

• Technical terminations of publicly traded partnerships – procedures for requesting relief, delegation of authority for granting relief, and a sample closing agreement documenting the conditions under which relief is granted. (Industry Director Communication LMSB-04-0210-006)
• Auto Last In First Out – for automobile wholesalers, manufacturers and dealers regarding the proper treatment of the dollar-value, LIFO inventory method for pooling purposes of crossover vehicles, which have characteristics of trucks and cars. (Revenue Procedure 2008-33)

For each issue selected, an IIR team of IRS and Treasury personnel gather relevant facts from taxpayers or other interested parties affected by the issue.  The goal is to recommend guidance to resolve the issue.  This benefits both taxpayers and the IRS by saving time and expense that would otherwise be expended on resolving the issue through audits.

IIR project selections are based on the criteria set forth in Revenue Procedure 2003-36. For each issue selected, a multi-functional team of IRS, Chief Counsel, and Treasury personnel will be assembled. The teams will gather and analyze the relevant facts from industry groups and taxpayers for each issue and recommend guidance.

Requests for guidance on tax issues under the IIR program can be submitted at any time to IIR@irs.gov.  Submissions received are reviewed semi-annually with selections next being made from issues submitted by September 30, 2010.

NEW DELHI: The Union Cabinet on Thursday approved a new set of direct tax rules that proposes to raise income tax exemption limit from 1.6 lakh to 2 lakh, leaving more money in the hands of individuals, and a lower tax rate for companies.

The much-awaited Direct Taxes Code, or DTC, Bill, which seeks to replace the nearly 50-year-old income tax law, is likely to be introduced in Parliament on Monday and may then be referred to a select committee of members of both houses of Parliament.

The basic exemption limit is proposed to be raised to 2 lakh from the current 1.6 lakh and corporate tax rate for both domestic and foreign companies proposed is at 30%, finance minister Pranab Mukherjee said after the meeting of the Union Cabinet.

Senior citizens and women will enjoy a higher exemption of up to 2.5 lakh. There will be no surcharge or cess on companies, thereby bringing the corporate tax rate to 30% from present 34%.

The new code proposes three income tax slabs—income of up to 2-5 lakh will face 10%, 5-10 lakh will attract 20% and income over 10 lakh will face tax at the rate of 30%. The housing loan exemption of 1.5 lakh would also be available to individual taxpayers on the interest component.

“The whole objective is that a plethora of exemptions will be limited. Income tax slabs will be three. Rate of taxes will be taken in the schedule so that they need not be changed every year,” Mr Mukherjee said.

“Once the tax rates are part of the code itself, it would provide guidance and stability as to short to mid-term tax rates vis-a-vis current situation wherein tax rates could undergo a change on a year-on-year basis,” said Vikas Vasal, executive director, KPMG.

The new changes in the tax rates, expected to come into effect from April 1, 2011, could lead to some loss in revenue and raise the government’s deficit.

However, the government proposes to raise the minimum alternate tax (MAT) on book profits to 20% from current 18%. The move will be a big blow for Reliance and a host of IT and infrastructure companies that pay MAT.

Ficci general secretary Amit Mitra welcomed the proposal. “We are assuming that this rate of tax is a proposed cap and corporate tax would not exceed 30%. Any cess or surcharge should be subsumed within this 30%,” he said. He further added that at this rate, the Indian corporate tax is moving closer to the rate prevailing in Asean countries, which is again a positive direction for direct taxes.

However, some industry honchos were not happy as they expected much lower rates if exemptions are being withdrawn.
Jindal Stainless vice-chairman & MD Ratan Jindal said the proposed rate of 30% is good, but the industry was looking for lower rates of around 25%.

“Hopefully the government will consider bringing down corporate tax at about 20-25 % in the coming years. If more money is put in the hands of the industry, it can be ploughed back for further investment and expansion purposes.”

Under the current regime, the effective tax rate for corporates is 22.78%, including MAT companies.

The government has given a go-by to original proposal of MAT on gross assets after drawing strong criticism from the industry. It had also proposed to tax long-term savings like provident fund at the time of withdrawal. The revised draft that was made public some time ago exempted them.

“Concerns were expressed for shifting from EEE (exempt, exempt, exempt) to EET (exempt , exempt, tax),” Mr Mukherjee said.

Securitities transaction tax will remain as the current regime is being continued for the capital market transactions, said a senior cabinet minister who attended the meeting. Dividend distribution tax rate of 15% remains unchanged .

The finance minister, who seeks to phase out profit-linked incentives for corporate sector, has given relief to the developers of special economic zones and units located in them by dropping the original proposal of withdrawing all tax benefits once the code comes into effect. SEZs may be able to enjoy tax sops for two more years.

Rahul Garg, Leader, Direct Tax practice, PwC said: “The specific provisions for grandfathering the tax exemptions as proposed in the revised draft would help companies in transition”.

The government had announced its intention to introduce a revised and simplified Income-Tax Bill while presenting the Union Budget for 2005-06. Subsequently, work was undertaken on drafting the code to replace the current Income-tax Act, 1961 and the Wealthtax Act, 1957.

A draft direct taxes code was placed in the public domain in August, 2009. It was revised and substantially diluted after a large number of proposals faced sharp criticism.

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The Supreme Court’s decision this year in Citizens United, which lifted campaign spending restrictions for companies and interest groups, has indirectly thrust the Internal Revenue Service into the more prominent role of overseeing those expenditures.

The ruling largely tied the hands of the Federal Election Commission to force companies or groups that are funding political or advocacy advertisements to disclose their donors. And although Democrats in Congress had pushed legislation that would have mandated more disclosure, the measure failed in the Senate this summer.

Long-standing IRS regulations require some groups to reveal their donors, and that is why the agency suddenly finds itself with what some might see as a more crucial watchdog role, stepping in to monitor disclosure in the absence of the FEC. But the IRS rules also have long-standing loopholes and, with limited resources and enforcement tools, the nation’s tax collector is not set up to be a campaign regulator.

“The chances of the IRS being able to catch a violation of the tax law around campaigns is virtually nil,” said Marcus S. Owens, a lawyer with Caplin & Drysdale who directed the agency’s tax-exempt organizations division for 10 years. “Certainly if it happens, it’s going to be well after the election has already ended.”

Since the court’s ruling, some prominent Democrats and others have argued that, with much more freedom to spend on campaign ads, corporations, unions and advocacy organizations ought to be forced to disclose who is paying for the ads and, in the case of groups, where the money is coming from.

The IRS, which declined to comment, requires groups whose “primary purpose” is political activity to name their donors. But that requirement is open to wide interpretation.

The conservative group Americans for Job Security, for example, founded in 1997 as a business association, spends the vast majority of its budget on television and radio ads before elections.

At the end of July, it disclosed spending $585,000 on an ad attacking Colorado Republican Senate candidate Jane Norton, who recently lost her primary contest against Ken Buck, a county district attorney with “tea party” backing. The ad, running just ahead of the primary, said, “Norton passed the largest tax hike in Colorado history” and “Jane Norton’s real record has cost us plenty.”

The ad is similar to most run by Americans for Job Security — criticizing politicians before an election. That fits under the definition of lobbying and not election activity, according to the group, which has declared itself in the advocacy category and therefore is not required to disclose its donors to the IRS.

“What we do is grass-roots lobbying and issue advocacy,” Executive Director Steve DeMaura said. “Elections are when the American people are most engaged in educating themselves about public policy issues.”

Ideological groups taking the form of nonprofit “social welfare” organizations — which also are not required to disclose — include FreedomWorks, the anti-tax group fueling the tea party movement, and American Crossroads GPS, a new organization associated with Karl Rove, an adviser in the George W. Bush administration.

Since the court’s ruling, some groups have opted to disclose donor information to the FEC. But others, including some of the largest, have protected donors’ identities by registering with the IRS as nonprofits whose primary purpose is advocacy rather than politics.

Full Story.

The Ugandan government is planning to amend its Income Tax law to enable it to tax profits from oil production slated to start in the next couple of years, government officials said Wednesday.

Uganda’s minister of state for finance, Fred Omach, tabled the 2010 Income Tax Amendment Bill in parliament Tuesday, and the new bill requires oil exploration and production companies to provide the Uganda Revenue Authority with details of their returns to enable the tax body to audit them in order to recover taxes due.

The bill also proposes that a company intending to transfer its interest in a petroleum agreement must pay the taxes in full before the interest is taken over.

According to officials with the Ugandan parliament, the speaker has now referred the bill to the parliamentary finance committee for further scrutiny before it can be sent for approval.

The new tax proposals come at a time when the Ugandan government is embroiled in a capital gains tax dispute with London-listed Heritage Oil PLC (HOIL.LN) over the sale of interests in two exploration blocks in the Lake Albert Basin to Tullow Oil PLC (TLW.LN).

Heritage said in June it had been advised that the sale of its half stakes in the two blocks doesn’t attract capital gains tax. However, the Ugandan government says Heritage must pay a 30% capital gains tax on the deal, worth as much as $1.5 billion.

According to Omach, the bill is expected to be passed before the end of the third quarter, ahead of Tullow’s oil production trial in Block 2.

Tullow estimates proven and probable reserves in the Lake Albert basin at 950 million barrels of oil equivalent. Heritage has previously said that 2 billion barrels of oil equivalent could eventually be discovered in the area. Uganda is expected to reach commercial oil production output levels in the next couple of years.

The bill also proposes guidelines on the filing of tax returns by oil companies and provides for penalties for companies that file returns late or file false or inaccurate documents.

A company that fails to file returns in time is liable to a fine not less than $50,000 but not exceeding $500,000, the bill states.

Jimmy Kiberu, spokesman for Tullow Oil Uganda, told Dow Jones Newswires separately that the new bill hadn’t caught the company by surprise because it has been working closely with the government in the formulation of new legislation ahead of the commencement of oil production in the country.

“Recently officials from Uganda Revenue Authority visited our operations in Ghana, they have also been keeping abreast of how Ghana is formulating new oil legislations,” he said.

Finance Minister Syda Bumba has said the new law won’t be applied retrospectively and that the government is trying to ensure that it puts in place a progressive taxation taxation regime ahead of oil production.

“It is necessary that we reform our tax laws as we move into the oil production phase,” she said. Taxation levels vary with oil production sharing agreements but companies will be required to file tax returns on a quarterly basis.

According to company officials, Uganda’s daily oil output could reach 350,000 barrels by 2018 if the right production plan is adopted. Currently Uganda is expected to produce at least 200,000 barrels of oil a day by 2015.

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More than 150 local nonprofits, including popular charities, volunteer fire departments, Knights of Columbus and American Legion groups, will have their tax-exempt status revoked in October if they don’t file a tax form with the Internal Revenue Service.

That’s because the Pension Protection Act of 2006 requires even the smallest nonprofit groups to have filed a basic form by May 15, a deadline that’s now been extended to Oct. 15.

Organizations with budgets less than $25,000 were previously exempt from filing the form, but now are being asked to fill out a 990-N. The form is online at www.irs.gov.

Many small nonprofits don’t know about the requirement, and attempts to reach them through outdated addresses have in many cases been unsuccessful.

Bob Ottenhoff, president and CEO of Guidestar, a group that promotes public access to nonprofit information, estimates that a few hundred thousand inactive organizations are still in IRS records. But another several hundred thousand are still working but haven’t complied with the requirement.

“This has put pressure on both small nonprofits who are filing for the first time and some bigger ones that should have been filling all along,” Ottenhoff said. “There’s now for the first time a sense of urgency about this.”

The aim of the new rules is to keep nonprofits accountable to their donors, make sure money is being used properly and to ensure a baseline of financial record-keeping.

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he state’s nonpartisan budget analyst testified Wednesday that a revenue-raising plan proposed by legislative Democrats would result in a net tax increase for most taxpayers with incomes from $20,000 to $200,000 a year, but joined other experts in praising the idea of changing state tax policy to take better advantage of federal tax law.

The plan proposes to increase state taxes that can be deducted from federal taxable income — the state income tax and the vehicle license fee — while slicing the state portion of the sales tax nearly by half, from 6 percent to 3.5 percent. The money consumers pay in sales taxes cannot be deducted from federal income taxes.

Senate President Pro Tem Darrell Steinberg, D-Sacramento, said Democrats believe their proposal would result in lower combined state and federal taxes for Californians across all income brackets.

Jason Sisney, a budget expert with the Legislative Analyst’s Office, said his agency’s analysis concludes the proposal would result in a $1.2 billion net tax increase on Californians once the plan is fully implemented.

“The effects will vary markedly based on the assumptions used,” Sisney said. “Reasonable people can differ.”

Democrats proposed the plan last week as a means to help close a $19 billion budget shortfall by generating $1.8 billion in additional revenue without, they believe, raising taxes on anybody.

“It’s actually fairly simple,” Steinberg said. “It raises state taxes that are deductible and it lowers substantially the state tax that is not deductible.”

Tax experts testifying at a hearing of the Senate Revenue and Taxation Committee praised the concept. Stanford law professor Joe Bankman called the idea “a no-brainer.”

Others, including business leaders and a Republican senator, said a sharp reduction in the state sales tax would provide a boost to California businesses and the economy overall.

Peter Welch, president of the California Motor Car Dealers Association, said the plan when fully implemented would reduce the bottom-line price on a $20,000 car by $660 for most buyers. “These are real numbers that would stimulate vehicle purchases,” he said.

Sen. Roy Ashburn, R-Bakersfield, noted that businesses would benefit because 40 percent of all taxable sales involve business-to-business transactions. He called the Democrats’ plan, while still in need of work, “the beginning of a solid proposal for tax reform.”

Gov. Arnold Schwarzenegger and GOP legislative leaders have criticized the plan as a tax increase on middle-income Californians and say they will not support any budget agreement that includes a tax increase.

Steinberg argued the plan would essentially redirect to state and local governments billions of dollars that Californians now send to Washington, D.C., and do not get back in services from the federal government.

He noted that California is a donor state to the federal treasury, receiving back only about 80 cents on the dollar in what its residents pay in federal taxes.

“We can change that, at least to some degree, on our own by being smarter about what we do tax and what we don’t tax,” he said.

The plan’s effect on individuals would vary wildly, depending on such factors as whether they itemize deductions on federal tax returns, whether they are subject to the federal alternative minimum tax, the value of the vehicles they own and how much of their incomes they spend on taxable goods in a given year.

UCLA law professor Kirk Stark testified that taxpayers with incomes from $50,000 to $200,000 are most likely to benefit because they have a high rate of itemizing deductions and few are subject to the alternative minimum tax.

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WASHINGTON — The Internal Revenue Service today announced that starting with next year’s tax filing season it will no longer provide tax preparers and associated financial institutions with the “debt indicator,” which is used to facilitate refund anticipation loans (RALs).

“As we prepare for tax season every year, we look at past practices and consider whether they still make sense. We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days,” IRS Commissioner Doug Shulman said. “We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days.”

So far this year, more than 95 million tax returns have been e-filed, representing more than 70 percent of tax returns.

“Refund Anticipation Loans are often targeted at lower-income taxpayers,” Shulman said. “With e-file and direct deposit, these taxpayers now have other ways to quickly access their cash.”

The IRS has been reviewing refund settlement products, such as RALs and Refund Anticipation Checks (RACs), as part of the Return Preparer Review released in January. Specifically, the IRS announced that it would study refund settlement products.

RALs are loans secured by a taxpayer’s anticipated tax refund. Currently, tax preparers who electronically submit a client’s tax return receive in the acknowledgment file an indication of whether an individual taxpayer will have any portion of the refund offset for delinquent tax or other debts, such as unpaid child support or delinquent federally funded student loans. This acknowledgment is known as the debt indicator, and is used as an underwriting tool for RALs.

The IRS announcement would remove the debt indicator starting with the upcoming 2011 tax filing season. The IRS noted that taxpayers will continue to have access to information about their tax refunds and any offsets through the “Where’s My Refund?” service on IRS.gov.

RACs are temporary bank accounts established on behalf of a taxpayer into which a direct deposit refund can be received and out of which a bank typically issues a payment to the taxpayer.

With both RALs and RACs, tax preparation and product fees are subtracted directly from the refund, and the taxpayer does not make any “out-of-pocket” payments. They are frequently marketed to taxpayers who do not have cash to pay for professional tax preparation services.

In a related effort, the IRS plans to explore the possibility of providing a new tool for the 2012 tax filing season to give taxpayers a mechanism to use an appropriate portion of their tax refund to pay for the services of a professional tax return preparer. The IRS plans to engage with taxpayers, consumer advocates and the tax return preparer community to consider whether providing this option would be a cost-effective way for consumers to pay for tax return preparation services.

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Aug 05, 2010 (The Sedalia Democrat – McClatchy-Tribune Information Services via COMTEX) — Shoppers will be out in full force this weekend purchasing school related items as Pettis County participates in the statewide Back to School Sales Tax Holiday.

Beginning at 12:01 a.m. Friday, shoppers can stock up on school supplies, computers and clothing that will be exempt from the state and county sales tax.

According to the Missouri Department of Revenue’s Web site, dor.mo.gov, individual cities can choose not to participate in the tax holiday. In Sedalia, the city sales tax will still be in effect.

Russell Hall, operations manager at Staples in Sedalia, said he expected during the three-day weekend, the store will see an increase in the number of school supplies and computers being purchased.

“Yes, we are expecting it to be busy,” Hall said.

He said Staples has been busy for the past few weeks, but many shopper may be waiting for the tax holiday to purchase bigger items such as computers.

“A lot of people have been asking about it,” Hall said.

The sales tax exemption is limited to clothing having a taxable value of $100 or less, school supplies that do not exceed $50 per purchase, computer software with a taxable value of $350 or less, personal computers that do not exceed $3,500 and computer peripheral devices that do not exceed $3,500.

Missouri has a sales tax of 4.225 percent, which is used to finance portions of the state government for general revenue, education and parks and soils.

Pettis County Presiding Commissioner Rusty Kahrs said the tax holiday encourages people to shop locally for their back to school needs.

“It’s been our experience in the last couple of years that it doesn’t have an impact positively or negatively on the county revenue,” Kahrs said. “We’re definitely interested in doing everything we can to help the taxpayers.” The Pettis County sales tax is 5.225 percent.

Shoppers have until midnight Sunday to take advantage of the tax holiday.

Qualifying items: “Clothing” — any article of wearing apparel, including footwear, intended to be worn on or about the human body. The term shall include but not be limited to cloth and other material used to make school uniforms or other school clothing. Items normally sold in pairs shall not be separated to qualify for the exemption. The term shall not include watches, watchbands, jewelry, handbags, handkerchiefs, umbrellas, scarves, ties, headbands, or belt buckles.

“School supplies” — any item normally used by students in a standard classroom for educational purposes, including but not limited to, textbooks, notebooks, paper, writing instruments, crayons, art supplies, rulers, book bags, backpacks, handheld calculators, chalk, maps, and globes. The term shall not include watches, radios, CD players, headphones, sporting equipment, portable or desktop telephones, copiers or other office equipment, furniture, or fixtures. School supplies shall also include computer software having a taxable value of $350 or less.

“Personal computers” — a laptop, desktop, or tower computer system which consists of a central processing unit, random access memory, a storage drive, a display monitor, and a keyboard and devices designed for use in conjunction with a personal computer, such as a disk drive, memory module, compact disk drive, daughterboard, digitalizer, microphone, modem, motherboard, mouse, multimedia speaker, printer, scanner, single-user hardware, single-user operating system, soundcard, or video card.

chudson@sedaliademocrat.com To see more of The Sedalia Democrat or to subscribe to the newspaper, go to http://www.sedaliademocrat.com. Copyright (c) 2010, The Sedalia Democrat, Sedalia, Mo. Distributed by McClatchy-Tribune Information Services. For more information about the content services offered by McClatchy-Tribune Information Services (MCT), visit www.mctinfoservices.com, e-mail services@mctinfoservices.com, or call 866-280-5210 (outside the United States, call +1 312-222-4544).

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WASHINGTON — The Internal Revenue Service today released proposed regulations that would establish a fee for individuals who apply for a preparer tax identification number (PTIN). Proposed regulations that were issued in March would require certain tax return preparers to obtain a PTIN. The IRS is working to finalize those proposed regulations, which are the first of a series of steps planned to increase oversight of federal tax return preparation.

The proposed regulations (REG-139343-08) would establish a fee of $50, payable to the IRS, to cover technology costs, as well as compliance and outreach efforts associated with the new PTIN program. The proposed regulations would also provide for an additional fee (expected to be substantially lower than $50) to be charged by the third-party vendor chosen to operate the new online system. That fee amount is expected to be announced soon, as well as additional details about the launch of a new online application system. These fees could change in future years as program costs are reevaluated.

Agencies are directed by the Office of Management and Budget (OMB) to charge user fees to recover the cost of services that convey special benefits beyond those available to the general public, such as the authority to prepare federal tax returns for compensation.

Tax professionals and other interested parties have until Aug. 23, 2010, to submit comments regarding the proposed regulations. The official publication date of these proposed regulations is July 23.

In January, IRS Commissioner Doug Shulman announced the results of a comprehensive six-month study of the tax return preparer industry, which proposed new registration, testing, and continuing education of tax return preparers. With more than 80 percent of American households using a tax preparer or tax software to help them prepare and file their taxes, higher standards for the tax return preparer community will significantly enhance protections and service for taxpayers, increase confidence in the tax system and result in greater compliance with tax laws over the long term.

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