From Smart Business Hawaii
SBH CPA, Natalie Iwasa, reminds us that the state legislature passed several bills earlier this year that may have an impact on you and your business. In addition, there are some changes in reporting requirements for credit cards, and the IRS mileage rate changed.
IRS Mileage Rate
Effective July 1, 2011, the standard mileage rate for business use went from 51 cents to 55.5 cents per mile. The medical and moving standard mileage rate also increased to 23.5 cents per mile. Mileage for charitable work remains at 14 cents per mile. The rates for 2012 will be 55.5 cents for business, 23 cents for medical or moving purposes and 14 cents per mile for charitable work. Remember that if you reimburse your employees for mileage, amounts paid above the IRS rates are considered compensation and subject to payroll taxes.
Transient Accommodations Tax (TAT)
Effective 7/1/11, a flat TAT rate of $10 per room per night is required on all complimentary rooms. The state came out with an information release, (click here), that explains what is meant by "complimentary." There is a new form, TA-30, to report this information.
Hawaii Income Tax Deductions and Exemptions
Effective for taxable years beginning after 12/31/10, state income taxes are no longer deductible by certain taxpayers, including corporations and the following individuals: single filers who have AGI of $100,000, Head of Household filers with AGI of $150,000 and Married-Filing-Joint filers with AGI of $200,000. More importantly, overall itemized deductions for certain taxpayers are limited as follows: $25,000 for single filers and $50,000 for joint if gross income exceeds $100,000 or $200,000 respectively.
Denial of General Excise Tax (GET) Benefits
Act 155, the GET "Protection Act," was signed into law on June 1, 2010. Basically under this law, any entity or person who is liable for GET but does not file the annual Form G-49 could potentially lose all GET benefits. Benefits are the exemptions, deductions, exclusions and credits that are used to reduce the overall GET liability. Safe harbors and reasonable cause may be used in defense of failure to file, but it is best to file the annual return. This includes organizations that had not filed in the past because all of their revenues are exempt.
Note to nonprofit organizations...
A seminar in July had recommended that nonprofit organizations report ALL gross receipts. The state came out with a communication in September, however, that indicates they do not want nonprofit organizations to report donations on their GET returns. This law also turned the GET into a trust fund tax similar to payroll taxes. This means that certain "key" individuals can now be held liable for unpaid GET. Key individuals are generally those people who have control or responsibility to file or pay GET and include board members of nonprofit organizations.
GET Exemptions Suspension
When Act 105 passed and went into effect earlier this year, there was a lot of media attention about the loss of certain exemptions, e.g., subcontractor, sublessor deduction, gross receipts from conventions and conferences for nonprofit organizations, sales of tangible personal property to the federal government, etc., so I won't go into many of those details. There is a provision for grandfathering in exemptions under binding written contracts signed prior to July 1, 2011, but only if the contract does not allow increased rates of taxes to be passed on.
A lesser-known requirement under this law, however, is information reporting. The state is collecting not only information related to exemptions taken by businesses but also information on the number and type of employees and average salaries paid as well as gross receipts. The form used to report this information is Schedule GE-1 and is available only online. The first deadline for completing the schedule was December 1, but it appears there are no penalties for late filing. Also note that there is no mechanism for requesting an extension. According to a representative from the state's tax department, if you filed an extension for your annual GET return, you are still required to complete the GE-1 by its due date and then file an amended return later if needed. If you claimed exemptions on your 2010 GET return (or will claim them on your 2011 return), you are required to complete the schedule.
New Form 1099-K
One new form you may see in your mailbox early next year is the 1099-K. If you receive credit card payments from customers, sell items on EBay or Amazon or receive payments through PayPal, you may have already received a letter asking for your social security or federal ID number. The Form 1099-K is the result of the Housing Assistance Tax Act of 2008. While no reporting is required if gross amounts do not exceed $20,000 and the total number of transactions is less than 201, this new reporting requirement may result in duplicate reporting of revenues and added questions from the IRS.
Also note that this new reporting requirement increases the administrative burden on third-party settlement organizations. Therefore, you can expect to see increases in your merchant fees if they have not already been implemented.
GET Branch Licenses
If your business has multiple locations, you should have a license for each location. See Hawaii form GE-50.
Act 134 from 2009 - Cash Economy
This act applies mainly to businesses that receive a substantial amount of their revenues in cash.
Businesses are required to have a copy of the GET license available for inspection and may be subject to fines for failure to produce it. The law also required businesses to use cash registers. That requirement was removed for businesses that maintain contemporaneous records. (This law was directly targeted at businesses such as crafters and farmers who sell at markets.)
The law also created the special enforcement section to investigate taxpayers who are subject to the requirements under this law. Fines may be levied for failure to produce books/records, failure to offer a receipt or keep receipts if there are more than 10 cash transactions in a day, or if a different price is offered for customers who pay via cash.
If you have any questions or need assistance, please contact Natalie J. Iwasa, CPA, Inc. at 808-395-3233