Department of Revenue Administration Audit Position & Tax Legislation Update

The following article briefly discusses a clarification in a Department of Revenue Administration audit position and the tax changes that are contained in House Bill 2 introduced last week to implement the state budget.

As activity in the Legislature increases, we also wanted to note that Devine Millimet & Branch's Legislative and Governmental Affairs Practice Group, chaired by Bob Dunn, is available to assist our clients in working with the state legislature and executive branch agencies. Teresa Rosenberger, President of Devine Strategies, also interacts with the State, Federal and local governments. Attorney Dunn can be reached at (603) 410-1704 or by e-mail at rdunn@devinemillimet.com and Ms. Rosenberger can be reached at (603) 410-1702 or by e-mail at trosenberger@devinemillimet.com.

For your future planning, please note that the Tax Practice Group will be offering a number of New Hampshire tax seminars in the months of May and June. For more information on these seminars, please visit our Web site periodically to review a full list of seminars that our firm will be presenting this year. New seminars may be added throughout the year.

Learn more about Devine, Millimet & Branch Professional Association at www.devinemillimet.com. Our e-mail alerts are sent to clients and friends and may be considered advertising.

Maurice

Maurice P. Gilbert, CPA, MST

This newsletter discusses two items. The first is a clarification of the Department of Revenue Administration's ("DRA") audit position regarding the inclusion of cash gratuities exceeding $20 in a month received by restaurant staff within the business organization's Business Enterprise Tax ("BET") return. The second item involves the tax changes that are contained in House Bill ("HB") 2, also known as the Budget Trailer Bill, which was introduced in the New Hampshire House of Representatives this week.

The provisions contained within HB 2 enact various changes to the state statutes needed to implement the state budget for the next biennium. The provisions in HB 2 are from Governor Hassan and relate to the budget proposal she submitted to the Legislature last month. Some of these changes may also be contained within other individual bills sponsored by legislators that we previously reported on.

DRA Position Regarding Cash Gratuities

The DRA's position regarding the inclusion of cash gratuities given to restaurant employees that amount to $20 or more in any month is that such amounts are includable in the compensation element of the enterprise value tax base and the BET compensation apportionment factor. They are includable in the BET for the following reasons:

1. The DRA Administrative Rule, Rev 2402.01(b) provides that "Payments in the form of, or for, services identified in IRC section 3401(a)(1), (9), (10), (13), (14), (15), (16), (18), (19), or (20) shall not be considered compensation for purposes of the compensation element or apportionment."
2. Internal Revenue Code ("IRC") section 3401(a)(16) states "(A) as tips in any medium other than cash; (B) as cash tips to an employee in any calendar month in the course of his employment by an employer unless the amount of such tips is $20 or more". [emphasis added]
3. The language in the IRC 3401(a)(16)(B) makes the cash tips of $20 or more in a calendar month subject to income tax withholding.
4. The provision of Rev 2402.01(b) only exempts what the IRC provision exempts so cash tips of $20 or more in a calendar month received by the employee would be includable in the compensation base and apportionment factor for purposes of the BET.
5. The language in the prior version of the DRA Administrative Rules in effect prior to January 10, 2008 , Rev 2402.01(d)(8), stated "As tips to an employee in the course of employment by an employer provided that such amounts are not deductible expenses for the employer." That subparagraph was not re-adopted when the DRA adopted the current BET rules.

The clarification came through two recent telephone conversations with the DRA: one between a practitioner following a proposed audit assessment and a second direct discussion I had with the DRA for purposes of this Tax E-News.

Legislation Being Considered By The House of Representatives

HB 2: An Act relative to state fees, funds, revenues, and expenditures
The bill proposes a number of tax changes that would all become effective on July 1, 2013. The proposed changes are:

1. Section 30 of the bill would defer the increase to $10 million of loss carry forward in the Business Profits Tax from January, 1, 2013 to January 1, 2014;
2. Section 106 of the bill would repeal the education tax credit program and the resulting credits that would have been available against the Business Profits or Business Enterprise Taxes;
3. Section 130 of the bill would postpone the increase to $200,000 of receipts or $100,000 of tax base in the Business Enterprise Tax filing threshold amounts, the use of inflation for increasing future thresholds amounts from taxable periods ending on or after December 31, 2013 to taxable periods ending on or after December 31, 2015;
4. Section 131 of the bill would increase the tax imposed on a package of cigarettes from $1.68 to $1.98 and would also increase the tax on other tobacco products except premium cigars from 48% of the wholesale sales price to a rate that is equivalent to the tax rate on cigarettes;
5. Section 136 of the bill would postpone the effective date of the Business Enterprise Tax ten (10) year carry forward period rather than the previous five (5) year carry forward period from taxable periods ending on or after July 1, 2014 to taxable periods ending on or after July 1, 2015; and
6. Section 152 of the bill increases the research and development credit available under the Business Profits Tax from $1 million to $2 million and also removes the prospective repeal date making the credit permanent.

Our Tax Practice Group can assist you or your clients in reviewing these statutory provisions to determine how they may be applicable to businesses operating in New Hampshire. Members of our group can assist practitioners and their clients with tax planning or tax representation matters before the Internal Revenue Services or the various States' Departments of Revenue.

.....

The Devine, Millimet & Branch Tax Group offers this free periodic Newsletter to provide information regarding tax news and other tax-related topics. If you have any questions about this e-mail, or if you know of others who may be interested in receiving these alerts, please contact us at mgilbert@devinemillimet.com.

This is not a legal document nor is it intended to serve as legal advice or a legal opinion. Devine, Millimet & Branch, P.A. makes no representations that this is a complete or final description or procedure that would ensure legal compliance and does not intend that the reader should rely on it as such.

© Copyright 2013 Devine Millimet & Branch, Professional Association