Tax News

CCH (cch.taxgroup.com) reports:

  Legislation has been enacted that increases the New York City sales tax rate from 4% to 4.5%, effective August 1, 2009. It also increases the tax rate on credit rating and reporting services, and on beauty, barbering, and certain other personal services from 4% to 4.5%, and provides that the taxes on these services can only be imposed through November 30, 2011, unless they are renewed. Previously, these taxes could only be imposed through December 31, 2011.

  In addition, the legislation repeals the New York City sales tax exemption for purchases of clothing items priced at $110 or more (the exemption for clothing and footwear costing under $110 is maintained) and applies the full New York City sales tax to the transmission and distribution of electric and natural gas service, even when the electricity or natural gas service is purchased separately from the transmission and distribution service.

Ch. 200 (A.B. 8866), Laws 2009, effective August 1, 2009
 

CCH (cch.taxgroup.com) reports:

  Hawaii Gov. Linda Lingle has vetoed a bill that would have conformed Hawaii general excise tax laws with the Streamlined Sales and Use Tax (SST) Agreement. The Senate voted 23-2 to override the veto, but the House of Representatives declined to override the veto. Therefore, the veto stands.

  If enacted, the legislation would have moved the 0.5% tax on wholesale transactions to a new chapter; added a new chapter on the taxation of imports of property, services, and contracting; moved the 0.15% tax on insurance producers to a new chapter; and eliminated the tax on businesses owned by disabled persons. The legislation also would have provided for destination-based sourcing and amnesty.

  Subscribers can view the bill

S.B. 1678, vetoed by Hawaii Gov. Linda Lingle on July 15, 2009; Telephone Conversation, Hawaii Legislative Reference Bureau, July 16, 2009

CCH (cch.taxgroup.com) reports:

  Requiring federal tax compliance to obtain a state business license can help boost tax collection, the Government Accountability Office (GAO) reported on July 16 ("Tax Compliance: Opportunities Exist to Improve Tax Compliance of Applicants for State Business Licenses (Reference Number: GAO-09-569)"). The GAO examined data-sharing arrangements between the IRS and several states at the request of the Senate Finance Committee.

State Requirements

  The GAO contacted all 50 states and the District of Columbia to inquire if they require tax compliance for business licenses. Twenty states responded that they require compliance with state taxes to obtain a state business license. These requirements exist for one or more industries. Another 20 states reported that they do not require tax compliance for state business licenses. Eight states had no business license requirement at the state level.

California

  The GAO examined in detail the data-sharing arrangement between the IRS and California. Applicants for California business licenses in three industries (farm labor contracting, garment manufacturing and car washing and polishing) must be compliant with federal employment tax obligations. Applicants submit a state business license application and IRS Form 8821, Tax Information Authorization. IRS examiners in Ogden, Utah, check the employment tax status of the applicant. The IRS informs California if the applicant is compliant or not.

  Between 2006 and 2008, the IRS told California that roughly 24 percent of applicants needed to take action to become compliant with their federal employment tax obligations. In some cases, individuals had to file employment tax returns. Collaboration between the IRS and California resulted in the collection of more than $7 million in additional federal revenues.

Compliance

  According to the GAO, the data-sharing arrangement between the IRS and California has been a valuable tool for improving compliance. "Requiring tax compliance makes the businesses think about the consequences of not being tax compliant." Additionally, the data-sharing arrangement can be viewed as a deterrent. "Individuals will learn that they cannot secure a state business license without being compliant in all their tax obligations."

  "This report confirms my initial thinking that we can improve tax compliance through better cooperation between the IRS and state licensing boards," Sen. Max Baucus, D-Mont., said in a statement. Sen. Charles E. Grassley, R-Iowa, urged the IRS to work with all the states on arrangements similar to its data-sharing program with California.

  By George L. Yaksick, Jr., CCH News Staff

GAO Report: Tax Compliance: Opportunities Exist to Improve Tax Compliance of Applicants for State Business Licenses (Reference Number: GAO-09-569)

Senate Finance Committee Release: Baucus, Grassley Call for Federal-State Cooperation in Improving Tax Compliance
 

CCH (cch.taxgroup.com) reports:

  Following a White House meeting with President Obama, Sen.Olympia Snowe, R-Maine, said it would be "overly ambitious" to pass a health care bill on the Senate floor before the August recess. However, she thought the Senate Finance Committee could finish its mark up of the measure by the scheduled summer break and that the Finance and Senate Health, Education, Labor, and Pensions (HELP) committees could spend August melding the two proposals. In response to Snowe's recommended delay, however, White House Deputy Press Secretary Bill Burton said "the president still wants the House and Senate to pass health care reform bills by the August recess."

  Snowe, who is a swing vote on the tax-writing panel, noted the complexity of the bill and said members should not be restrained by a set timeline to finish their work. "It's important to take time to work through these issues," Snowe said. Although she stressed the importance of moving in a "deliberative fashion," Snowe thought Congress should be able to pass a health care reform bill this year.

  The Finance Committee needs to review the ramifications of its proposal to make sure it is not "overloaded with taxes and spending," she advised reporters. Snowe said it is preferable and desirable to win bipartisan support of the Finance Committee bill in order to increase the odds of a bipartisan bill on the Senate floor.

  On the Baucus comments about the president's lack of support for taxing employer-provided health benefits, Burton said there are bound to be "bumps along the way" toward passing House and Senate legislation. He maintained that the president is not favoring the House and HELP bills over the Finance measures that are under consideration. The president is still very committed to reaching agreement on a final package that has bipartisan support, Burton asserted.

  Senate Finance Committee Chairman Max Baucus, D-Mont., inched closer to completing his mark on health care reform July 16 despite news that the legislation would cost more than it would save. Appearing earlier in the day before the Senate Budget Committee, Congressional Budget Office Director Douglas Elmendorf told lawmakers that the reform revenue measures proposed to date would only serve to increase federal spending on health care.

  "In the legislation that has been reported, we have not seen the fundamental changes that would be necessary to reduce the trajectory of federal health spending by a significant amount, and, on the contrary, the legislation significantly expands the federal responsibility for healthcare costs," he said. Elmendorf told the panel that the government has two powerful levers for controlling costs: changing Medicare payment rules and limiting the tax exclusion for employer-sponsored insurance. But the latter option has led to second thoughts among Senate Democrats and was never favored by President Obama.

  "Basically, the president is not helping, "said Baucus following a bipartisan meeting with several members from the Committee. "He does not want the exclusion, and that's making it difficult." Baucus, however, said the proposal was still on the table.

  Key members of the panel continued to meet throughout the day with Baucus, looking for the right combination of health care delivery savings and revenues that Democrats and hopefully some GOP members will accept. Senate Budget Committee Chairman Kent Conrad, D-N.D., said the group was looking at about 10 smaller revenue proposals that could help fill the estimated $320 billion gap.

  Senate Majority Leader Harry Reid, D-Nev. told reporters that he still hopes the Senate can take up health care reform legislation during the week beginning July 27, but that it would depend on whether or not the Senate Finance Committee completes a markup of its bill during the week beginning July 20.

  By Jeff Carlson and Paula Cruickshank, CCH News Staff

CCH (cch.taxgroup.com) reports:

  The House Ways and Means Committee was expected to complete consideration late on July 16 of the America's Affordable Health Choices Bill of 2009 (HR 3200), which included a chairman's mark that made changes to the tax treatment of health savings accounts, spousal coverage and other provisions estimated by the Joint Committee on Taxation (JCT) to cost $6 billion. As expected, the health insurance reform measure ran into stiff opposition from Republican lawmakers, who labeled the bill a government takeover of medicine that would harm physician-owned hospitals, tax small businesses into oblivion and worsen the federal budget deficit.

  Democratic lawmakers voted against any attempt by Republicans to impose a week-long delay in order to consider the more than 1,000 page measure, which was introduced on July 14. They also brushed aside Republican concerns that the Congressional Budget Office has not completed an analysis of the cost of the legislation. Under HR 3200, approximately $544 billion in revenues would be raised through a surtax of 5.4 percent on married individuals with adjusted gross income (AGI) over $1 million beginning in 2011; a 1.5-percent surtax on incomes between $500,000 and $1 million; and a 1-percent surtax on incomes from $350,000 to $500,000. The measure is expected to be considered by the full House before the August recess.

  Speaking to reporters during her weekly press conference on July 16, House Speaker Nancy Pelosi, D-Calif., defended the bill's tax provisions, promising that the Medicare cost containment sections would sufficient to fund the measure. The tax increases, Pelosi insisted, would be used for deficit reduction. "I believe that we have an obligation to try to squeeze as much savings out of the system so that we can use as much of the tax of the high income people in our country to reduce the deficit," Pelosi said. "To the extent that we have the cooperation of those who we want to squeeze in the system, we can do less on the tax side." Pelosi said she had not yet seen a letter from House Democratic freshman lawmakers who are reportedly unhappy with the bill's surtax on wealthy taxpayers.

  However, Ways and Means member Wally Herger, R-Calif., charged that the massive tax increases in the bill are no substitute for real fiscal responsibility. He criticized the plans for raising taxes in order to spend even more on a public health care option that will force people out of the private insurance market. GOP concerns were unlikely to win the day however, since Democrats hold an 11-seat majority on the committee. Moreover, the bill is likely to be changed again to build more Democratic support before it reaches the House floor.

  By Stephen K. Cooper, CCH News Staff

Amendment in the Nature of a Substitute to HR 3200, America's Affordable Health Choices Act of 2009

JCT Description of an Amendment in the Nature of a Substitute to the Provisions of HR 3200, The America's Affordable Health Choices Act of 2009, JCX-32-09

JCT Estimated Effects of the Chairman's Amendment in the Nature of a Substitute to the Revenue Provisions of HR 3200, The America's Affordable Health Choices Act of 2009, Scheduled for Markup by the House Ways and Means Committee on July 16, 2009, JCX-33-09

HR 3200, America's Affordable Health Choices Act, Summary of Changes in the Chairman's Amendment in the Nature of a Substitute
 

Tax Analysts report: