Calling NC preparers - optional sales tax tables

[FEDUKE404]

Two software companies (you would recognize both names) are butting heads over how to handle the situation when a person uses the optional sales tax, instead of state tax, on line 5 of Schedule A.

Software company A says the amount on line 5 transfers to line 33 of NC Form D-400 as an "addition" to income.

Software company B says the amount on line 5 (when the sales tax tables are used) is irrelevant and therefore places a zero on line 33 of NC Form D-400.

I have read the statute, and the NC instructions, and I concur completely with company A.

Note: The client is not taking the standard deduction.

Company B is adamant that they are correct, stating "the software must go by the instructions provided to us by the states."

Ideas?? The reason is that for some clients, their overall taxes are not changed by the choice to take the optional sales tax table amount, even if such is lesser than their "income tax" numbers. NC folks can understand "Bailey ruling." And the way I understand it, by using the sales tax tables for Schedule A they can essentially avoid the federal tax NEXT year on the refund. Some of these refunds (due to stock market crash and related) are quite large.

Does any of this make sense, or have I perhaps gone to tilting at windmills this late in the season??

FE

[JohnH]

I agree with you and with Company A. The NC instructions simply say the adjustment is taken from Line 5 of Fed Schedule A (and Line 8, if any entry appears there). They don't distinguish between Income tax and Sales tax - they simply say to adjust by the Line 5 entry for state and local taxes. Since NC doesn't have any local income taxes but they do have local sales tax, that's a logical assumption.

If you really dig into this, you might come up with a different answer, and one which might explain Company B's position. I say this because the adjustment which must be entered on the Corporate tax return specifically says you cannot deduct taxes which are calculated based on net income. So sales tax paid on purchases is deductible on the corp return, but income tax is not. Maybe company B is confusing the corp rules with the individual rules (or maybe they are correct on the law and the D-400 instructions are wrong).

[FEDUKE404]

I think Company B has blinders on

I agree with you and with Company A. .... Maybe company B is confusing the corp rules with the individual rules (or maybe they are correct on the law and the D-400 instructions are wrong).

Interesting point.

Of course, I've actually asked Company B what perhaps Company A knows (as well as apparently us!) that Company B does not know.

I'm still waiting for a response.......

FE

[JohnH]

If Company A happens to be Drake, then it's probably settled. But if Company B happens to be Drake, we'd better dig some more.

[FEDUKE404]

Dueling software

If Company A happens to be Drake, then it's probably settled. But if Company B happens to be Drake, we'd better dig some more.

Actually, Company "FE" has pretty well concluded that Company B is, ah, confused. It will not be the first time I have had to play that "override" card with them.

(You can also eliminate Drake from this competition . My guess is they probably agree with Company "FE" also. )

FE

[FEDUKE404]

Update

As of Friday Company B has issued a software update and is now in compliance with what I thought were the rules all along.

FE