SUPREME COURT’S DOMA RULING HAS IMPORTANT TAX IMPLICATIONS

Some of the implications of the Supreme Court’s DOMA ruling are obvious, while others are not.  For starters, same-sex married couples will now be able to make decisions regarding filing a joint return that were previously denied them.  In an odd way this is going to bring equality in the tax code.  Before the court’s ruling, a same sex couple was required to file single, however in tax resolution cases when one person owes back taxes, the IRS treated the couple as married if they lived in community property states like California.  The ability to pay by the delinquent partner was increased by 50% of the income and assets of the other partner

The distinction between married and unmarried status is pervasive in federal tax law, even though the code does not define such terms as husband, wife or married.  The issue comes into play in connection with income tax rates, the treatment of capital losses, credits for the elderly and disabled, taxation of Social Security benefits, and a number of other provisions.

Marital status also plays a key role in the estate and gift tax laws and in the part of the tax code dealing with taxation on the sale of property.  For estate tax purposes, property transferred to one spouse as the result of the death of another spouse is deductible for purposes of determining the value of the decedent’s estate.  In the case heard by the court, U.S. v. Windsor, Windsor owed more than $363,000 in federal estate tax on her wife’s estate, since she was not covered by the spousal deduction. She would have owed zero estate tax with the benefit of the spousal deduction.

Moreover, gifts from one spouse to another are deductible for purposes of the gift tax, and gifts from one spouse to a third party are deemed to be from both spouses equally. Transfers of property from one spouse to another or to a former spouse if the transfer is incident to a divorce are permitted without any recognition of gain or loss. These provisions permit married couples to transfer substantial sums to one another, and to third parties, without tax liability in circumstances in which single taxpayers would not enjoy the same privilege. 

Another implication is the IRS will have their hands full processing mountains of amended tax returns; amending returns from same sex couples who originally filed single.

 

THE INTERNET TAX, THE GOOD, BAD AND UGLEY

Part II

In my last blog on this issue I give a general over view of the federal Marketplace Fairness Act, also referred to as the internet sales tax bill, and of the “Sales and Use Tax” law.  At that time the bill passed the US Senate and was working its way through the US House of Representatives.  Recently the Speaker of the House, John Boehner (R-OH), referred the bill to the House Committee on the Judiciary and the Committee Chairman, Bob Goodlatte (R-VA), announced his committee will not take up the bill.  So at this point it looks like the bill will die in committee and it is not something we need to worry about.  I will keep you up to date if things change.

However this does not relieve the small business owner from being concerned about sales tax in other states.  The current law requires a business to collected sales tax in other states if there is a business presence in those states.  A business presence is not only established by having a physical office or store but a business presence can also be established by other means, like print advertising or establishing a business relationship with a independent repairman to service warranty claims.

If you sell a product or service out of state, I encourage you to have a review of your potential sales tax liability to see if you have or have not a business presence out of state.

If you have any questions, please call this office to see if you have any reason for concern

WEEKEND VULNERABILITY AND PATCH REPORT

June 2, 2013

The following software vulnerabilities and updates were announced by Citadel Information Group.  They strongly recommend that readers update their computers and take other action as indicated.  This is from an e-mail received from Stan Stahl, Ph.D. [www.citadel-information.com] and posted with his approval.

Important Security Updates

Dropbox: Dropbox has released version 2.0.22 of Dropbox. Updates are available from within the program or download from the Dropbox website. 

RoboForm: Siber Systems has released version 7.8.9.5 of Roboform. Updates are available from within the program, look for the "Check New Version" button on the Options menu or from the Roboform website.

Yahoo! Browser for Android: Yahoo! has released version 1.4.5 of its browser for the Android. Updates are available through the device.

Current Software Versions

Adobe Flash 11.7.700.202 [Windows 7: IE9, Firefox, Mozilla, Netscape, Opera]

Adobe Flash 11.7.700.202 [Windows 8: IE]

Adobe Flash 11.7.700.202 [Macintosh OS X: Firefox, Opera, Safari]

Adobe Reader 11.0.03

Dropbox 2.0.22 [Citadel warns against relying on Dropbox security. We recommend files containing sensitive information be independently encrypted with a program like Axcrypt; encryption keys be at least 15 characters long; and the Dropbox password be at least 15 characters long and different from other passwords.]

Firefox 21 [Windows]

Google Chrome 27.0.1453.94

Internet Explorer 10.0.9200.16521 [Windows 7: IE]

Internet Explorer 10.0.9200.16519 [Windows 8: IE]

Java SE 7 Update 21 [Citadel recommends removing or disabling Java from your browser. Java is a major source of cyber criminal exploits. It is not needed for most internet browsing. If you have particular web sites that requires Java, Citadel recommends using a two-browser approach to minimize risk. If you normally browse the Web with Firefox, for example, disable the Java plugin in Firefox and use an alternative browser - such as Chrome, IE9, Safari, etc - with Java enabled to browse only the sites that require it.]

QuickTime 7.7.4

Safari 5.1.7  [Windows]

Safari 6.0.4 [Mac OS X]

Skype 6.3.0.105

Newly Announced Unpatched Vulnerabilities

None

For an updated list of previously announced Unpatched Vulnerabilities, please see the resources section of Citadel's website.

For Your IT Department

Cisco Nexus 1000V: Secunia reports at least 6 unpatched vulnerabilities in Cisco's Nexus 1000V switch. No official solution is currently available.

Novell Client: Secunia reports 2 separate unpatched vulnerabilities within Novell's Client; one refers to the VERIFY_KEY and the second refers to REQUEST_REPLY. No official solution is currently available.

VMware ESX Server: Secunia reports a partial fix to address two vulnerabilities in VMware's ESX Server, reported in versions 4.0 and 4.1. Apply the patch if available.

If you are responsible for the security of your computer, Citadel's Weekend Vulnerability and Patch Report is for you. We strongly urge you to take action to keep your workstation patched and updated.

If someone else is responsible for the security of your computer, forward our Weekend Vulnerability and Patch Report to them and follow up to make sure your computer has been patched and updated.

Vulnerability management is a key element of cyber security management. Cyber criminals take over user computers by writing computer programs that "exploit" vulnerabilities in operating systems (Windows, Apple OS, etc) and application programs (Adobe Acrobat, Office, Flash, Java, etc). When software companies find a vulnerability, they usually issue an update patch to fix the code running in their customer's computers.

Citadel publishes our Weekend Vulnerability and Patch Report to alert readers to some of the week's important updates and vulnerabilities. Our focus is on software typically found in the small or home office (SOHO) or that users are likely to have on their home computer. The report is not intended to be a thorough listing of updates and vulnerabilities.

Copyright © 2013 Citadel Information Group. All rights reserved.

THE INTERNET TAX, THE GOOD, BAD AND UGLEY

Part I

 

There is a lot of discussions concerning the “Internet Tax” as passed by the US Senate.  Unfortunately, much of the conversation about the tax is not completely accurate.  I am not necessary taking a position on the “Internet Tax”, but we need to have a correct idea as to what the issues are.  Thus I over the next several weeks, as part of my blog, I am going to have weekly updates about the tax.  I will explain what the tax is all ablaut and how it could affect all Taxpayers. 

Most people are aware of sales tax which is dictated by each state’s “Sales Tax” law; there are 50 states, thus 50 different laws, many are not in conformity.  In California, sales tax is only charged on the sales of merchandise; however New York also charges tax on services.  Some states charge tax on the delivery of merchandise, but other states do not.  Creating and mailing invoices by a billing company is not taxable in California but it is in New York. There are some states that do not have a sales tax.  Currently, sales tax is imposed only on where the product is sold and if the seller has a business presence in the same state.  If the purchase occurs over the internet and the seller does not have a business presence in the state the purchase occurred, then sales tax is not charged.

Most people on the other hand are not aware that states that have a “Sales Tax” also have a “Use Tax”.  “Use Tax” requires the purchaser to pay a tax for using the product in the state when tax is not charged.  Consequently if sales tax is collected no use tax is required, if no sales tax is collected, then use tax is required.  States that have a sales tax requires the individual to report purchases where no sales tax is paid and remit use tax on those purchases.  Many times this is done on the individual’s state’s income tax return.  On the California personal income tax return (from 540) this is reported on line 95 of page 2, for New York, it is line 59, page 3.  However most people do not understand this and thus it is ignored.  Even many professional tax preparers are not aware and do not understand “Sales and Use Tax” laws.

Even though the above is a brief explanation of the “Sales and Use Tax” laws, as you might gather it can be difficult to totally understand and to administer.  The sad truth is “brick and mortar” business are losing sales to large internet sales companies like Amazon who do not collect sales tax, thus the purchaser can buy product at a perceived discount.  It is not uncommon for a person to go into a “brick and mortar” business try on clothes or look at products they wish to purchase, then go home and buy clothes or products over the internet.  This has resulted in many “brick and mortar” business to go out of business.  Many Borders book stores have closed their doors.  This is especially hard on small business. The states also lose a lot of tax revenue this way.   The “Internet Tax” is an attempt to correct this.  However is it a good, bad or just ugly like many of our tax laws are.

 

My future Blog posts will closely look at the proposed law and the changes that are proposed as it goes through the sausage mill in congress.