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One of the wonderful things about dealing with state laws is finding the old laws still on the books that really no longer serve any purpose. For instance, Vermont has a tax clean-up bill (HB 888) that would repeal the property tax exemption for veterans of the Civil and Spanish-American wars. Nevermind that a Civil War veteran would have to be 165 years old to still be alive today (assuming that they entered the service at 18 in 1861) and Spanish-American War veterans would be 140 years old.

There are tons of little laws on the books that simply need to be cleaned up. Sometimes we’ll get those forwards (of dubious origin) that list the quirky laws that states still have, but it amazes me the the stuff that is still on the statute books.

Why? Because Cubs fans hopes for Kerry Wood are getting dashed again. Like Charlie Brown and that damned football, Cubs fans hoped this year would be different. This would be the year that Kerry Wood took his place among the immortal starting pitchers closers in baseball history. His fastball hit 98 in spring training. He was ready to pitch back-to-back days. He was ready to go.

Until he actually went to pitch back-to-back days and had back spasms. Now, he can’t pitch for a week because they don’t want him to ride the bus to an away game. It looks like the all time leader in simulated innings will continue to add to his record.

Ah, Cubs fans. You crack me up. I know, I know this was going to be the year. It was the hundredth year without a championship and the embarrassing streak would gloriously come to an end as Kerry Wood held the World Series trophy high on the mound of Wrigley Field. All the old players would be there and it would be like Field of Dreams. No black cats or billy goats or idiot fans would ruin the fun this year. No, siree. This was it.

Or maybe not. I can hear them from here “it’s just back spasms”. Uh huh. Here’s to 101.

Kevin,

I’ll put it in terms you’ll definitely understand. The Protestants have a bit of marketing problem. The Catholics offer copious amounts of booze and a good time. Protestants offer marching through Catholic neighborhoods and getting shot at. I think we definitely have the advantage on that one.

Not that I partake and I am truly annoyed at those that portray themselves as part Irish today, but I can see where the issue lies for your side.

If only you’d move back to your own country, we wouldn’t have an issue

I’ve avoided talking about the Spitzer fiasco in New York because in a lot of ways I think it’s silly. Yes, we all love watching holier-than-thou politicians being hoisted on their own petard, but really it’s a family issue masquerading as a political circus.

Though, I have to give credit to Virgin Mobile Canada for this ad that will be in Canadian newspapers this weekend (hmm… I wonder why they aren’t running them for Virgin US?). It’s timely and actually pretty funny. I doubt they’ll get many conversions but at least they’ll have a lot of free promotion as the news media picks up the story.

If you had told me two weeks ago that the Democrats would take Denny Hastert’s seat, I would have openly mocked you. Having grown up in that district, I knew that the likelihood that any Democrat would take the seat would be about the same as me being named King of Ireland.

Well, I’m booking my ticket now.

Bill Foster, a Democrat with zero political experience, defeated three four-time loser Jim Oberweis in the race for the seat, which encompasses the extreme western ex-urbs of Chicago and points west. Mr. Oberweis already lost bids for US Senate in 2002 and 2004 and Illinois Governor in 2006. His campaigns are nasty and he uses his wealth (from the greatest dairy in the known world) to run ads that do little but try to smear the competition. The Tribune runs down some of these ads on their Swamp blog.

I simply can’t believe it. The GOP is pointing the finger (and I do mean “the finger” at this point) at Oberweis and saying he’s the reason they lost. Of course, he’s their nominee in November when Foster and Oberweis will be running again for the same spot so they don’t want to say it too loudly. This could be a harbinger of things to come. I know that one result does not a trend make, but this is so out of left field and so unlikely that the GOP may need to just duck and cover in November and be thankful for whatever seats they do manage to keep.

It’s funny how quickly fingers begin pointing when a campaign is imploding. The LA Times has an article on the fussing and fighting in the Clinton camp over the weekend.

As the campaign faces a make-or-break moment, some high-level officials are trying to play down their role in the campaign. Penn said in an e-mail over the weekend that he had “no direct authority in the campaign,” describing himself as merely “an outside message advisor with no campaign staff reporting to me.”

“I have had no say or involvement in four key areas — the financial budget and resource allocation, political or organizational sides. Those were the responsibility of Patti Solis Doyle, Harold Ickes and Mike Henry, and they met separately on all matters relating to those areas.”

Howard Wolfson, the campaign’s communications chief, answered that it was Penn who had top responsibility for both its strategy and message. Another aide said Penn spoke to Clinton routinely about the campaign’s message and ran daily meetings on the topic.

Everyone is blaming everyone else for the performance at a time that is critical for the campaign. I’d love to see the internal polling at the Clinton campaign on Friday. I don’t imagine the campaign will last beyond tomorrow, but I’ve been surprised before.

I have a confession to make. Even though I do taxes every day (and passed the CPA exam in October!) I’ve used Turbo Tax for the past three years to do my taxes. The reason? It’s so darn simple. They’ve really made the software just about idiot-proof for those of us that don’t have overly complicated returns. And if you do have a complicated return? Well, look at the benefits that Turbo Tax has.

For me, I can import my W-2 directly into the software, which not only saves a lot of time but keeps me from making mistakes. I don’t have any clue what the codes mean, but I don’t have to because Turbo Tax does. I also import my information (address, dependants, etc…) automatically. Plus, with free Federal E-File, I got my refund in 2 weeks rather than 6-8.

I’ve started running an ad for Turbo Tax on the right hand side. For me to run an ad for a company, I really have to believe in the product. And in the case of Turbo Tax, I doubt you’ll find an easier to use solution for completing your taxes.

The muckracking professor whose research lead to the whole stock option backdating scandal (albeit, a decade later) is back at it again. Apparently, he’s now looking to see whether insiders backdated stock donations to their charitable foundations to “maximize tax benefits”.

As Portfolio points out, there are two ways that insiders could get this lucky: one legal and one not. The legal way is that donations to family foundations are exempt from insider trading rules as the stock isn’t really being sold. The stock could be donated the day before an earnings announcement reporting a big drop in earnings and the executive would get the higher value of the stock as a tax writeoff.

The not so legal way is to backdate the donation to a high point in the stock during the period in which insider donations have to be reported, which is much longer than the time to report sales. This would take some collusion between the foundation and the executive, but most foundations are run by either the executive or his family, so it is not exactly difficult to pull this off.

The professor did not find definitive proof of backdating, but the longer the time between the donation and the report of the donation, the better timed the donation seemed to be. He estimated that, at most, 20% of the donations seemed suspicious.

All this for people that are already wealthy beyond belief. It’s amazing what people will do for money. As King Solomon reminds us “Whoever loves money never has money enough; whoever loves wealth is never satisfied with his income“. It doesn’t seem to matter to some people what they have to do to gain wealth they could never possibly spend, whether it’s cheating investors or the IRS.

Hopefully, this will lead to convictions. Unchecked greed will only lead us down a dark and dangerous path and we seem to be stuck in the eternal downward spiral that Gordon Gekko thrived on.

The State of New Jersey has a certain, shall we say, reputation with tax folks. Not only are they one of the most taxpayer-unfriendly states, but the bureaucracy to fix one of their many mistakes makes you want to jump out the window.

New Jersey is one of the states (along with West Virginia) leading the charge to change (read: expand) the kinds of companies that the state can legally tax. I won’t bore you with the details, but the US Supreme Court ruled twenty years ago that a business had to have a physical presence in a state (employees, buildings, etc…) before a state could make the business remit sales taxes. This is why you don’t pay sales taxes when you make purchases at Amazon.com, though you should be paying what’s called a use tax to the state. This case was generally seen as mandating a physical presence standard for all state taxes until about five years ago when several states decided that they didn’t really like the ruling and were going to begin ignoring it for everything but sales taxes.

Part of the pushback was due to companies setting up various tax structures to generate deductions in states and shift income to states like Delaware and Nevada, which either don’t tax corporate income or make it easy to avoid corporate income taxes. This idea that states can tax companies that are “exploiting local markets” without a physical presence started out attacking these structures, but some states have gotten a lot more aggressive.

In this case, under sworn testimony in Congress, the State of New Jersey threatened to impound a truck from a company that it claimed owed taxes under this economic nexus theory. The company was delivering boats into the state both via common carrier and via its own fleet of trucks. The company thought that it was protected under Federal law (ed: they probably aren’t due to the deliveries from their own trucks) from having to file returns in states other than South Carolina, where all manufacturing and back office functions are performed. The State of New Jersey believed otherwise and seized the vehicle and driver. I’ll let Mr. Godwin pick up the story from there (warning: pdf link).

On July 23rd, 2007 I received a call transferred over from our truck fleet dispatcher at 10:15 am. The person on the other end was Ms. Kostak, a revenue agent for the State of New Jersey. I was immediately told that our truck had been pulled over at the weigh station on the interstate highway and could not move until we paid New Jersey for jeopardy assessment taxes. I asked Ms. Kostak why they were doing this. I was told that we had a dealer in the state of New Jersey. This incident was becoming unbelievable, so I asked her to fax me proof that she was who she said she was. I asked what I could do to let the driver go and I was told to pay the New Jersey Division of Revenue money. I asked how much and I was told it depended upon our sales into New Jersey. I looked up the sales for the past seven years as requested and Ms. Kostak quoted me a price of $46,200 to release the truck. I then told her I would need to discuss the issue with our company president. Ms. Kostak told me I had until 1pm that day to get them the money or the truck would be impounded and we would need to make arrangements to retrieve the driver. I asked her, “Can I not send you a check or work something out to let the truck pass through New Jersey?” and I was told to wire them the money.

I first talked to our truck driver and asked him what had happened. Our driver was passing through the State of New Jersey carrying a load of boats for delivery into Massachusetts. Our driver told me that the agent pulled his rig over at the weigh station and asked him if we had a boat dealer in New Jersey. The driver had
never delivered into New Jersey and told the agent, Ms. Kostak, that he did not know. (Our driver told me that there were ten other trucks stopped at the weigh station for the same interrogation.) Because he did not know whether we have a New Jersey dealer, he gave Ms. Kostak our home office number and the dispatcher’s name. Ms. Kostak called our dispatcher and found out that we have a dealer in New Jersey, asked more probing questions and then was passed over to me.

After talking to Ms. Kostak, I discussed the situation with our company president. We decided to call another boat manufacturer who also had been stopped by a New Jersey revenue agent while transporting boats through New Jersey. Their company president of told us that his boat company had spent over $140,000 in legal fees and the issue was not yet resolved after two years. We were also given contact information for the company’s attorney. I contacted the attorney to find out our options. The attorney was not encouraging and did not feel we could win against the State of New Jersey. The attorney told me that it was very likely that unless we paid the amount requested, our trucks would be stopped each time thereafter in New Jersey. The attorney suggested that we pay the amount demanded and then appeal in the tax courts of New Jersey. After consultation with our company’s president, we decided to pay what Ms. Kostak demanded so that we could free our load of boats to be delivered and let our driver go.

…

When our truck crossed the New Jersey state line, Stingray did not have an outstanding issue, warrant or any other legal matter or business activity with New Jersey. If fact, the State of New Jersey did not know we had an independent dealer in the state. Ms. Kostak gathered “evidence” along the way to invoke a jeopardy assessment against Stingray. The manner in which the State of New Jersey acted is commonly defined as extortion. Fortunately, I have never been the victim of a crime in my life. But, that day in July, I believe I was strong-armed by a state of the United States of America.

I know it’s long, but the story really is unbelievable. Instead of simply getting the information from the driver and sending an audit notification, the State believed that it could impound the truck without determining guilt or innocence first. While I don’t believe that the company was protected from filing in New Jersey, it doesn’t excuse the fact that the State of New Jersey threatened to break the company’s legs take the company’s property unless it paid a certain amount of money within several hours. It really does boil down to extortion and the State should be ashamed of itself (though I’d imagine the agent was probably promoted).

Aggressive tactics such as these is really the reason that the relationship between company tax departments and state auditors have gotten so strained.  Yes, there are companies that bend the rules beyond recognition, but auditors are making no distinction between them and the companies that believe they are doing right and assuming that all companies are cheaters. Pressure from politicians to find more money (especially from out of state companies) is only aggravating the problem.

Now, Congress wants to get involved in the whole mess after the US Supreme Court denied cert. to two tax cases that would have solved this whole mess. Unfortunately for Stingray, the fix from Congress wouldn’t help them (even though this testimony came out of a hearing for the bill).

I believe that requiring a physical presence is a nice bright line, but it ignores reality. In a digital world there is no reason that companies that have sales in states without physical presence shouldn’t be taxed on those sales. Is Amazon.com using the Missouri market to make money? Yes, so they should be paying taxes here. The physical presence requirement worked well in a manufacturing economy, but like so many things in the tax and law realms it has become a golden rule that simply no longer makes sense. Strongarm tactics from the states aren’t the answer either, we still have to follow Constitutional procedures. This wasn’t a coke dealer taking a shipment, it was a well known boat manufacturer trying to deliver something to Massachusetts.

I’m not sure of the answer. Maybe economic nexus is the way to go. Maybe we still need the physical presence standard to avoid situations where states resort to measures such as these to get money it thinks it is owed. Maybe we need to scrap Federalism in the tax concept and go the way of many foreign countries where the Federal government administers the tax programs for the states and allocates the money appropriately. Who knows, but there has to be a better way than this.

I apologize for the lack of content. The flu has ravaged our family, I’ve been travelling for work, and our home computer has been non-functional. More to come, hopefully next week!