Pub. 3 2021 Issue 2

M A R C H / A P R I L 2 0 2 1 12 nebraska cpas What to Do: If a trust’s only contact with Nebraska was the residence of a grantor, the trust may not be subject to Nebraska income tax. This is best handled when the trust is set up or results in a legal analysis upon audit or appeal. Issue: Qual i ficat ion for Nebraska’s Capi tal Gain Exclusion Problem: The Nebraska Department of Revenue has challenged the qualification for this exclusion in a number of situations, including when corporate stock is first placed into an LLC, partnership, or trust or when stock is sold in a deemed asset sale under Sec. 338(h)(10) of the federal tax code. What to Do: The selling owner needs to meet the statutory requirements at the time of sale. If an owner wants to transfer stock into anLLC, partnership, or trust, the potential disqualificationneeds to be addressed before the stock is transferred. The case law provides debatable positions for audit or appeal when the ownership isn’t clean. Issue: Optimizing ImagiNE Nebraska Incentives Problem: Most state tax incent ive programs, including Nebraska’s, have cer tain requi rements to qual i fy for and optimize the available incentives. These can relate to the level of new investment and jobs, the type of business, the level of compensation, the locations, the corporate structure, and the type of property being acquired. We typically review more than 25 factors in preparing ImagiNE Nebraska Applications. What to Do: Under the ImagiNE Nebraska Act, the project application needs to occur ahead of project commencement to optimize results. There are 20 main critical legal criteria that need to be addressed in the planning stage for these projects. Ideally, potential issues are dealt with in advance with the Nebraska Department of EconomicDevelopment or theNebraskaDepartment of Revenue before the project commitments are in place. Under this Act, a project agreement is entered into with the state of Nebraska. This is a contract. The project application is part of this contract. So, both the application and the agreement need to be addressedwith the same level of legal review and care as with all contracts. Options for appeal exist for issues that are not resolved, either during the project application process or during the project’s audits. Issue: Wayfair Changes the Rules on Sales Tax Collection Problem: In the recent Wayfair decision, the U.S. Supreme Court eliminated the traditional physical presence rule, which held that a company must have physical presence in a state to be required to collect tax in that state. This means that companies may need to collect sales tax in a state even if they are not physically located in that state. What to Do: Wayfair is a game changer. This reversal of the physical presence rule means that all companies selling products or services in multiple states need to determine whether they now have a sales tax collection requirement. Failure to determine this accurately can result in under collection (with tax due upon audit) or over collection (with in effect a noncompetitive overcharge). Companies must also align their purchasing practices to be sure they are not inadvertently paying a use tax on purchases where the seller has stepped up its tax collections. Issue: A Business Buyer’s Liability for the Seller’s Unpaid Taxes Problem: Nebraska tax law can, in certain cases, require the purchaser of a business to pay the unpaid taxes of the predecessor owner. What to Do: This can be largely addressed in the drafting of the purchase agreement, along with the due diligence process. In addition, if a company properly plans and requests clearance from the Nebraska Department of Revenue, it may avoid taxes of a predecessor. If an owner wants to transfer stock into an LLC, partnership, or trust, the potential disqualification needs to be addressed before the stock is transferred. The case law provides debatable positions for audit or appeal when the ownership isn’t clean.