Electronic Age

[Snaggletooth]

Ah yes, Electronic Filing, adding multiple requirements.

I think we were seduced into believe this would make things easier. Now that they know we can reprogram our software on the turn of a dime, they can throw hundreds of tax changes at us every year, and even during the middle of tax season. Software companies like Drake jump through the hoops, sometimes overnight, so the govt can be happy and continue to make changes. And people like us are supposed to stay on top of the situation.

Perhaps the worst experiences are with State Websites. SITs and SUTAs all of a sudden make paper filing unacceptable by law or regulations. Once electronic filing is required, then there is no accountability required of the states to maintain accessible websites. I think it is safe to say that these websites are designed for the host and not the user. And if e-filing doesn't work, the user has to figure out the problems because there are no more paper forms. With my particular practice, I have to file taxes in multiple states, and yes, each state has its own website upon which you must learn to navigate.

An example is electronic filing of Alabama personal tax returns (Form 40). The preparer/filer must swear out on a checkbox that the taxpayer has not imported anything into Alabama for which Use Tax has not been paid. If the preparer doesn't check the box, Alabama has forced Drake to program an exception that e-filing would not be allowed.

Am I whining? I guess so. Am I clinging to old-fashioned ways? I guess so. But I wonder if I am the only one who believe we, like lemmings, are rushing into controlled waters before we realize we should be kicking and screaming. Remember, in the information age, whoever controls the information will control everything.

[kathyc2]

An example is electronic filing of Alabama personal tax returns (Form 40). The preparer/filer must swear out on a checkbox that the taxpayer has not imported anything into Alabama for which Use Tax has not been paid. If the preparer doesn't check the box, Alabama has forced Drake to program an exception that e-filing would not be allowed.
.

Asking client if they had purchases subject to use tax should be part of your information gathering whether you need to answer the question on the return or not.

[Lion]

I have that question on a one-page set of questions that I have clients check yes/no and sign. It includes the bought-out-of-state-for-use-in-state question and questions about digital assets and foreign bank accounts/trusts and health insurance and whatever's new & different that year (such as Advanced CTC payments in 2021). Everything else is handled by their original tax documents and a telephone/electronic interview. I'm no longer taking new clients, so I have the history of my clients to compare.

[Rapid Robert]

"The preparer/filer must swear out on a checkbox that the taxpayer has not imported anything into Alabama for which Use Tax has not been paid. If the preparer doesn't check the box, Alabama has forced Drake to program an exception that e-filing would not be allowed."

That is not true in general, maybe just another Drake limitation. In my software, if you don't check the box for "no use tax due", then you simply have to fill in the data to calculate sales and use tax on out of state purchases and it gets added to the tax liability on the return using Schedule ATP. The dialog box in my software includes all three purchase categories and the corresponding rate for each one already set up. Much easier and faster than spending time searching through form documentation (and I am a big fan of relying on the documentation when appropriate).

"Once electronic filing is required, then there is no accountability required of the states to maintain accessible websites."

Not sure what you are talking about. The Alabama Form 40 booklet has about half a page discussing the sales/use tax reporting requirement. And an image of the Schedule ATP is available at https://www.revenue.alabama.gov/form...ies-form-40-3/

[Snaggletooth]

Asking client if they had purchases subject to use tax should be part of your information gathering whether you need to answer the question on the return or not.

Kathy, I'll have to disagree on this one. A preparer of income taxes should not be a collection agent for state sales tax. Thanks for your response though.

I do, however, agree with the IRS requirement for digital assets and control of foreign accounts.

[Uncle Sam]

I have to agree with Kathy - state sales (use) tax calculation has become part of many state tax returns in recent years. And answering a sales/use tax question on a state
return is similar to answering the Digital Asset question on the Federal return.
There usually is an open line on the state tax returns to declare any unpaid sales tax on purchases that were made on out of state purchases where the retailer didn't collect it
because of falling under the minimum thresholds to collect it. That's the taxpayer's last opportunity to pay the tax liability. It's another due diligence effort on the part of the
preparer.

[Rapid Robert]

"A preparer of income taxes should not be a collection agent for state sales tax."

Can you provide evidence that anyone asking or expecting the paid tax preparer to collect state sales/use tax? Your comment has nothing to do with your original complaint.

Meanwhile, I factually addressed your original complaint, can you at least acknowledge that there is nothing about this situation that prevents you from efiling an Alabama individual income tax return (except maybe limitations of Drake software)?

[kathyc2]

Kathy, I'll have to disagree on this one. A preparer of income taxes should not be a collection agent for state sales tax. Thanks for your response though.

Seriously? I assume all states have something along the line of "under penalty of perjury I believe this return is complete and correct". If you don't ask, how can you ethically sign your name to that statement?

[Snaggletooth]

"A preparer of income taxes should not be a collection agent for state sales tax."

can you at least acknowledge that there is nothing about this situation that prevents you from efiling an Alabama individual income tax return (except maybe limitations of Drake software)?

Yes, according to Drake, they are forced to be compliant with Alabama's insistence that the use tax question be answered. I believe Drake is just passing through the requirement, and not the author of the requirement.

Uncle Sam has stated that a sales/use tax line item is included as an integral part of the income tax return on many states. I didn't know that, as I only do personal income taxes for Alabama and Kentucky. I have done payroll taxes (SUTAS and SiTS) for a number of states as I do write-up work for government contractors.

Living in Tennessee, without an income tax, is long and narrow, so we are never far away from the eight states that surround us (ALL of which have income taxes). At one time or another I have done all of them, but probably before the Supreme Court decision to allow interstate sales taxes. On an annual basis, I only do Alabama and Kentucky now.

Thanks to RR, Kathy, and Uncle Sam for responding.

[Lion]

CT, NY, CA are three states I can remember asking if the tax payer owes Use Tax on the state income tax return. I'm sure there are many more. In CT, not answering the question is equal to not filing a use tax return, so there's no SOL if a use tax return is not filed. Do your due diligence.

[Snaggletooth]

This whole conversation has opened my eyes. Apparently other states are crossing the sales tax threshold to create the fusion of a different type of tax into a state income tax return.

If this can happen (and apparently it is), what's next? Property taxes? Ad Valorem Taxes? Business Licenses? License plate tags? Mortgage (stamp) taxes? The states can have a field day if they can require all imaginable taxes to be part of due diligence. If we are still around, we would long for the times when income tax preparers prepared income taxes only.

State auditors need to get off their butts and out in the field auditing and collecting, instead of insinuating preparers become auditors under the guise of "Due Diligence." My clients pay me to prepare their income taxes based on information primarily supplied by them. If I started looking under the woodwork to find money for taxing authorities, I would lose every one of them.

[Uncle Sam]

Buckle your seatbelt folks.
Are you aware of the fact that FinCEN's Corporate Transparency Act is coming up starting January 1, 2024?
Another term for it is Beneficial Ownership Information (BOI) where all but corporations subject to Sarbanes Oxley will need to furnish to FinCEN a reporting form disclosing
what the Federal and State governments ALREADY HAVE in the form of ownership information. There is already a coalition of tax practitioner groups organized to fight this
(and inform their respective memberships). I have been informed by reliable sources that this disclosure process - if we as practitioners will be involved in providing this for
our clients - is tantamount to practicing law without a license. And yes - there ARE exceptions to the requirement of disclosure, but the entity first has to
file to disclose it is exempt.

So if you think that state tax returns incorporating a line for state use tax is extensive - be prepared for what's coming up.
I attended last year's 1040 tax update from NCPE that mentioned it and have been on the lookout for any news articles this year.

Here's a preview: https://www.google.com/search?q=corp...TF-8#cobssid=s

[kathyc2]

State auditors need to get off their butts and out in the field auditing and collecting, instead of insinuating preparers become auditors under the guise of "Due Diligence." My clients pay me to prepare their income taxes based on information primarily supplied by them. If I started looking under the woodwork to find money for taxing authorities, I would lose every one of them.

No one is saying you need to grill clients, but you do need to ask. I have a one page checklist that clients need to sign off on that they have given me everything on the list that pertains to them. Tax free purchases is a line item as is a generic "any other items of income". It's protection for me to ask.

In Indiana it's generally only a matter of time until state will audit business clients. They will say it's an income, payroll and sales tax audit, but the auditor will spend 90% of the time looking for use tax.

[Rapid Robert]

"CT, NY, CA are three states I can remember asking if the tax payer owes Use Tax on the state income tax return."

CA has had this for quite a few years. What they also offer to make it easy is an optional "safe harbor" amount of use tax based on AGI. Ever since the Wayfair court decision that out of state sellers like Amazon must withhold state sales taxes, the answer for almost all of my clients is "no", they have no unpaid use tax. It's not a big deal.

This may put you in a tizzy: recently, CA has started requiring that a taxpayer's physical address and county of residence be reported on the tax return, so that they are properly included in jury selection pools.

"If we are still around, we would long for the times when income tax preparers prepared income taxes only."

Snaggletooth, you seem to have a distorted view of your role in this process. We already deal with many taxes other than "income" tax (which itself is a fuzzy definition). We have to report and calculate payroll taxes, for self-employed or tip income, for example. We actually have three different income tax regimes to deal with (regular, alternative, and net investment), even if only to determine that we are not subject to one or the other of them. We calculate and report a number of excise taxes and penalties (sometimes known as "additions to tax"). We also facilitate government welfare programs (various refundable credits, "Economic Impact", "Making Work Pay", etc).

Oh, and don't forget that in order to properly complete Schedule A, you have to determine whether the state income tax or state sales tax deduction is greater (and this has been around for decades, were you complaing about asking sales tax questions back then?)

It's like this: citizens elect legislators, wno in turn legislate tax laws. Our job as paid professionals is to process the forms provided completely and accurately. If you find that Alabama's individual income tax return is out of scope for the level of service you offer, then don't prepare them. Just like I, for example, don't prepare estate tax returns (Form 706).

"Am I whining? I guess so."

Agreed.

[Lion]

I haven't been a tax preparer as long as many of you, but when I started with HRB back in 1995 or earlier, the CT income tax form already had a line asking taxpayers if they purchased any items out of state without paying CT sales tax. It was a required response. If the answer was Yes, it lead to a form to list purchases, compute the CT sales tax owed, and subtract any sales tax paid to other states on those purchases. For my NY commuters who shopped in NY with it's higher sales tax, that form usually netted zero.

I had one wealthy client, CT residents, hubby earned 6 figures in NY (and maybe NJ) selected by CT for a sales tax audit. Turns out the wife did shop a LOT in NY, having her purchases sent to her CT home. At that time (before Wayfair) Saks and her other favorite stores did NOT collect NY sales tax on purchases they shipped out of NY. CT charged sales tax on clothing over $75. As wife told me, "I haven't bought a blouse under $75 since I was 12 years old !!" CT required her to get printouts of all her purchases from Saks and Barneys, IIRC, and charged her CT sales tax for 3 years. (I don't know if CT continued to watch their returns, because hubby thought they'd save money if wife prepared their returns on TT; wife did have a personal assistant who paid bills, etc. But they had 3 states and kiddie tax with 3 children! I was leaving Block, so don't know how that worked out for them.)

Had another client selected by NY for a sales tax audit. A CT resident, he bought a computer online, DID pay CT sales tax, But he had it shipped to his office in NY, because no one was at home during the day in CT, and pricey computers did get stolen off front porches with some frequency. It took a lot of back and forth with NY to convince them the computer was taken home to CT the day it was delivered to his NY office, for use in CT at his home for personal (probably his kid for school, AOL, and gaming) use and not biz use. I think he had a picture of his kid opening it up at home, setting it up in the home's family room or such, because that was a generous gift for a child at that time.

But these audits are time-consuming!

Ask the state questions. Document the answers. Like Kathy, I have a one-pager of questions that clients answer AND SIGN. And, a paragraph on my engagement letter that states when a separate fee, separate engagement is triggered.