Tuesday, August 25, 2015

Nexus State Sales and Income Taxes - Taxation Without Representation?

Recently my small business (which is located only in Minnesota) was audited by the state of Wisconsin to see if my company has "nexus" in their state.

What is "nexus"?  No, not a mobile device from Google...

According to the Supreme Court of the United States (SCOTUS) it is that a company has a "significant presence" in that state.  In other words, an office, a warehouse, employees traveling to the state to make sales, etc.

You may have heard of the "Amazon Tax".... yep, there is a relation here.

This definition of nexus is being overridden and redefined by some states.  Texas, New Mexico, and even before that Wisconsin which seems to have implemented their own rules and laws referencing nexus.


Wisconsin in particular states that because you simply sold something, anything, to a customer in Wisconsin you have nexus.  This means any tangible or intangible good or service.  Even a software license key, as in my case.

In my research I've found it virtually impossible to find a list of states and their nexus definitions.  According to one state I've spoken with any competent tax accountant should already know this information.

Well, if the information isn't easily available, how are they to know?

How Did This Happen?
From what I can tell it's because it's easier to chase down one company that sells to thousands of people or companies than those thousands of people or companies who should be reporting and paying the "sales and use" tax on their own.

An individual or a company buys something from out of state.  They are not charged sales tax.  By law, this purchase is supposed to be reported on the purchaser's taxes and sales and use tax paid on the item(s).

Of course, not many do this.  So when an individual or company gets audited by the state they reside in these issues are found.  The state sees that the purchase was made from a company that is not located in their state so they immediately go after them, usually starting off with a "friendly" looking nexus questionnaire.

If that state's definition of nexus is like that of the state of Wisconsin, you'll be on the hook.  Not only for that year or the sales they found, but for every sale in every year previous to the current back to when the state decided to define nexus in a way that benefits them. 


Why Does Nexus Matter?
For most, it doesn't.  But, for small businesses, mainly web-based, we are being targeted by states we have no physical presence in and being told we have to:

  1. Collect, report and remit sales taxes for sales made to customers in that state
  2. Pay individual income tax on the sales made in that state (this is very grey area, and each state uses some very odd calculations on state sales vs. percentage of all sales to figure this... in other words, what ever is in their favor)
  3. If you haven't been doing this, pay late fees, interest, penalties and not to mention fees that your accountant will charge to do all this paperwork
So not only should you be prepared to spend a lot of money on this issue, but time as well.  And if you're a small business owner you know how precious time is.

Collecting sales tax alone for each state (which remember is divided into counties that have their own tax rates, special assessments, etc) alone is a daunting task.  Anyone who uses Quick Books knows that setting up tax rates and tax groups for one state alone is a formidable task... now imagine doing that for 3 states... or 50.

In addition you must monthly, quarterly or yearly (depending on how the state sets you up) report and remit the sales tax for each state.

Ugh.

My Personal Story
My personal story dealing with nexus taxes, while still ongoing, has caused much hair loss and alcoholism (well, maybe that was already there... let's just say you may want to invest in Johnny Walker stocks if this keeps up.)
 
 First I received a nexus questionnaire from the state of Wisconsin.    I consulted with my accountant and he said to fill it out and send it back.  So I did.

I then received a letter that said "yep, you have nexus in Wisconsin...  here are the tax forms for sales taxes for your business as well as personal income tax for 2009-2014... complete them." 

So, what I did was go back into my records and find all my Wisconsin sales back to 2009.  I gave that to my accountant and he was able to figure out the Wisconsin state income tax due as well as file ammended returns for the state of Minnesota (where I reside).

In other words, what I got to do was pay Wisconsin $xxx.xx amount and get that same amount as a refund on my Minnesota state taxes.  (Minus fees to file state tax forms for 6 years for 2 different states...)

Next I had to contact each customer I sold products to that resided in Wisconsin to find out if they paid the sales and use tax on the purchase.  Thank goodness most did. 

I attribute that to the fact that these are real people that don't mean harm, mean to follow the laws, and are still good people  They are not politicians just looking for a quick buck, even if it means spending ten to get that one.

So, all the paperwork gets sent into the state of WI.  All the payments and penalties are paid.  Whew... thank God that's over... or is it?

A few weeks later I get a letter regarding the sales tax.  It was another bill for penalties and late fees (that I thought I had already paid).  Nope, these were separate mainly because of the late filing.

A couple weeks after that I get one regarding my personal income tax.  Again, late fees, penalties and a couple years where they changed some of the income reportings that my accountant had done (which will require MORE ammended returns to MN).

For both of these last situations I was given one week (yes, 7 days) to pay the balance on these fees.  If that isn't bullying I don't know what is.  A week is not nearly enough time for me to consult with my accountant.  But that's probably what they're counting on.

The Bright Side?
The bright side to this may be that the income tax you pay to a state that claims you have nexus in can be deducted from the income you will pay for the state you live in.  That means you're not paying taxes twice to two different states on the same income.

This also means much more paperwork, so you're still spending more on your accounting fees. 

For this entire fiasco (which is still ongoing) I haven't received my accountant's bill yet.  And I dread it.


Guess what, Scott Walker... you'll never get my vote.  Then again, even though I'm paying income tax in Wisconsin that won't matter unless you manage to make it to the presidency... since I can't vote locally in your state.

How is that not taxation without representation? 

The Bigger Picture
This is just another example of how the tax code, federal, state and local, has gotten so out of hand that it's impossible to comply with (much less be aware) all the rules.

I really hope a fair or flat tax happens, but why would it?  It would only be of  benefit to us, the people, not the "political class" that has grown too comfortable spending our money.

11/16/2015 Update:
I have received letters from the state of Wisconsin regarding the appeal letters my accountant wrote up.  They were basically pleas to ask that the 2nd round of interest and penalties be waived since we were unaware of this law.

Of course, the request was denied and I was only given 30 days to pay from that point.   Of course, again not enough time to consult with my accountant.

I am mailing the checks for payment today speaking with my accountant and deciding going to court won't be worth it.  But, I assume I'll be assessed more late payments since it's past their 30 day limit.  (Remember, the original time frame was 10 days... 10 days to get support from a tax accountant for something like this... that's insane...)

When any government entity starts looking for ways to tie the hands of small business and rob them with outrageous fees and penalties because they pass laws that suit THEM, not their constituents (or in this case, neither.. just a small business from  a neighboring state) we know that something must be up with their own finances.

I've visited Wisconsin many times, and love the state.  The people are wonderful.  I've always called in "Minnesota, but prettier!"

But this whole event has left a terrible taste in my mouth (even worse than the one that was already there dealing with the Federal Tax Codes).

I hate to think what may be coming down the pipeline if Wisconsin (or any other state) is truely successful in this type of new age thievery.

Monday, July 27, 2015

Internet Sales Tax Bills, Nexus, and Everything else Wrong with the World.

Rarely to I get "pollitical"... and I hope this isn't taken as such.

But myself and my company were recently affected by these nexus/interent sales and use tax laws in a very negative way.  And we don't see it getting better.

I've been doing a lot of reading and this one hits home, so I thought I would share.

This was in response to this post:
http://dailysignal.com/2015/06/23/whats-wrong-with-the-latest-internet-sales-tax-bill/

My reply (on Google Plus only because to reply on the website to post you have to have a Facebook account, which I destroyed over 3 years ago at the same time I smoked my last cigarette after 30 plus years...  guess which was easier...)

States are already forcing small out of state businesses without a "real nexus" to collect and pay sales tax on their sales.   Can we find a list of these states... nope.  We just wait for the letter from the state with a questionnaire and let them decide if they feel we have nexus in their state or not.

For some states, that simply means the very fact that someone from their state purchased something from you, you have nexus.  Pretty convenient... for the state, but not for the small business owner.

If a federal law is passed that makes this process "easy" it may be a better thing.

Or it may be moot as it seems state laws override federal laws.

There are too many pundits making comments on these things vs those of us that are being affected by the already outrageous state laws that override the rulings of the SCOTUS and defining "nexus" in a way that suits them best.  Not in a way that encourages small business.

When a state such a Wisconsin sees that individuals and companies in their state are not claiming sales and use tax on items they purchase from out of state, they then go after the companies that sold it to them.

Ask me how I know.  Ask me if it's fair.  Ask me after paying thousands of dollars in income and sales taxes to Wisconsin, not to mention the penalties and accountant fees how I really feel.   Then ask me if I get to vote in Wisconsin.  Nope.  How is that not Taxation Without Representation?

Which brings me to a bigger point.  The entire tax code itself has turned into a 10000 headed monster that is just too complex.

Something needs to change.  And pundits, politicians, organizers and lawyers on either side of the fence that have never worked a real job or ran a real business are NOT the people we should be electing.

Wednesday, March 11, 2015

Please! No More QDLS!

Change is hard.  Some more than others.

But, I really don't understand why we as IBM i programmers, users, and administrators still are using the QDLS file system for anything.

I do understand that years ago it was easy to map a drive to QDLS, but we should be past that now and using NetServer to be able to treat our IBM i file system, including the IFS, as a network share in it's entirety.

QDLS has a few limitations that don't allow it to work with today's more complex applications.  The main two are:

8.3 File naming (yep, just like Windows 3.x).  
This means the maximum size of a file name can be 8 characters with a 3 character extension (unless IBM "fixed" this, which would have been as useful as fixing an old wooden wagon wheel to put on your Bently)

It doesn't allow multi-threading.  
This is important for any application that uses a file in the IFS (such as a Java application).  It just doesn't work.
With the rest of the IFS available without these limitdates why some stick to using QDLS, especially for new applications, is beyond me.  

We in the IBM i community do have that popular saying "if it isn't broke, why fix it".  To a point I agree with this.

But, I propose that anything using the QDLS file system these days IS broken.

Monday, March 9, 2015

The Power of the IBM i

Is the power of the IBM i based upon the features we can port to it...

 or the power of what is already there?

Friday, February 20, 2015

My Thoughts on Open Source and the IBM i (AS/400)

Open Source.   It's one of those things that seems to be synonymous with "free".

The topic of open source for our IBM i community comes up now and then.  While the open source offerings are few and far between, what is out there can be very high quality (ie, Scott Klement's offerings come to mind immediately).

While open source may be free (and thus making it easier to convince the boss to use it since you don't have to fill out a requisition form or PO) does it also mean quality?

I've been developing software on the IBM i for over 20 years now.  I started out with open source, went back to closed source, tried open source again, and finally decided that open source just wasn't for me.  Why?

I Needed to Make a Living
In the days where I was trying open source vs closed source I also worked a full time job.  But, there came a time where my extra curricular activities and my full time job left me almost no time for family and friends.  That is when I decided to go out on my own.

Now, with that full time job out of the way I could really focus on what I loved, and that was creating utilities for the IBM i (back then the AS/400).

Many had no problems using the utilities I created, but very few clicked on the PayPal button to pay the suggested few bucks.  Even less (virtually none) assisted in making the product better, or providing support for it (unless you count improvement and enhancement suggestions, which I now view as one of the most valuable resources I get from customers).

So, I decided then and there that I would go closed source with license keys.  It was really the only way that I could make a living and earn money from my software as well as provide a product I was confident with.  And it's not like I was (or still am) charging an arm and a leg either.

I Wanted Time Away from the Computer
When I was in my "open source mode" I noticed that my time for anything extracurricular was limited (I am an avid motorcyclist).

This was because I was spending hours upon hours helping users of my software with basic support.

This was back when only a few hundred were using the software.  What would happen if thousands or more started using it.  I couldn't bear the thought!

Now, some support I didn't mind (and that's how FAQs are born and documentation is enhanced).

But, when it came to supporting open source that had been modified by the user, or the user before them?  It was like finding a needle in a haystack.

When you increase the complexity of the application you increase the possibility of these type of "user induced" errors on a exponential scale.

Eventually when things get so complex it scares most away from making changes to it, but then in that case, why use open source in the first place?  If the sole purpose is providing a solution, open source or not shouldn't make a difference.  What should matter is that it's a solid product that does what it says and comes with attentive support.

So, this was another reason I decided to go closed source, objects only.  Only I would be touching the source so I knew that it wasn't being modified outside of my own updates and changes.

No One Else Was Involved
Well, that's a little harsh.  Sure, there were small tools out there people have developed, but even they were hard to find and were very unique to specific situations.

Most of them were also part of magazine articles just to fill that month's column (trust me, I've been there too).  So in a way it was open source, but the author was paid, and the subscriber paid for the magazine.

I had a few people contacting me asking if they could put their software on my site (and still do).  When I ask them to write up documentation, examples, and let me try it that's usually where it stops.  Why?  I don't know that either.

Maybe they don't realize (or haven't experienced) how much work actually goes into putting together a stable and useful application as well as providing support and documentation.  And I'm not talking about throwing some code on how to convert upper to lower case on a forum or mailing list, I'm talking about an application that people need, want and use every day.

So Why Open Source?
There were plenty of people (and still are) screaming for open source, yet for what reason?

So they could get something for free?    Probably.

So they can see how things are done inside the code, possibly reusing portions in their own applications?  Probably.

To make a living (ie, money!)?  Probably not.  At least not realistically.

Any ISV with functional, long lived products that customers depend on will tell you that you don't only end up supporting the product, but also related issues (such as helping them set up TCPIP).


Think of it this way.

You're selling car stereos but you'll also be expected to help the user of the stereo make sure they have gas in their tank, their alternator works, and their battery can hold a charge.

If any of these cases isn't true and your stereo doesn't make noise, you'll be expected to walk through the troubleshooting steps and help them fix what is wrong, even if it isn't part of your product.

Open Source Movements are Grass Roots, not Astro-Turf
We shouldn't speculate viewing the world's open source triumphs as the norm, and not the reality, which is what these successes are... the exception to the rule.

 I can hear it now.

"But if everyone contributed, it WOULD be a success."

Yes, and I agree, but you can't force everyone to contribute to your ideas.  There will be always more "takers" than "makers" which is why the makers need to protect their intellectual property.

It may sound glamorous to have hundreds or thousands or even millions of companies using your application, whether it be open or closed source.

But, if you can't provide support for it, what good does it do anyone?  You really can't (and shouldn't) rely on someone (or some community) doing that for you just because you deem it "open source".  It is still your creation.  Once you plant the seed you can't just walk away, you need to work to produce fruit.

There are many reasons why people cry out for open source.  But you'll find quickly being an ISV and providing open source is an uphill battle that provides very little fruit in most cases.

But there will always be exceptions to every rule.  Hopefully your project will be the next Linux distro, Android, Firefox or Ruby.

But that can't be forced.

Saturday, January 17, 2015

What if Your Code Comes Full Circle?

I remember a consulting job I had a few years ago.  It was to help a company with some enhancement requests for the web applications in a company that the full time staff just couldn't keep up with.

That's understandable.  I've seen first hand when you show a company what you can do with web, email, or anything net related how the requests start flowing in without reserve.

Before I was hired for this job, I went through the whole process of the interview, providing examples of my work, providing references, a resume, etc.

Then I got on the job and realized most of the code that I was working with was copied as templates from one of my eRPG/CGIDEV2 training manuals.  I had to sit back and smile (and gloat to my wife).  I was happy to actually see and work with the fruits of my labor...

...and cringe at the code...

"I could do so much better these days!", I thought.  But, isn't that how things always work.  We're always improving.  We're always learning new things.   In hindsight, we can always do better.

We can all find faults in anything shared and posted.   But most likely we'll never have to deal with any "real world" code from anyone in these groups we join.

But if/when we do, be careful it's not your own.  :)