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EPISODE 1: Starting your first business in Texas | Legal Thoughts

Coleman Jackson, P.C. | Transcript of Legal Thoughts
Published August 08, 2022

Legal Thoughts is an audiocast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.

This episode of Legal Thoughts is an audiocast where the Attorney, Coleman Jackson is being interviewed by Johana Powell, Tax Legal Assistant of Coleman Jackson, P.C. The topic of discussion is “Starting your first business in Texas”. You can listen to this podcast by clicking here:

If you enjoy this podcast, make sure to stay tuned for more episodes from the taxation, litigation, and immigration Law Firm of Coleman Jackson, P.C. Be sure to subscribe. Visit the taxation, litigation and immigration law firm of Coleman Jackson, P.C. online at www.cjacksonlaw.com.

TRANSCRIPT:
ATTORNEY: Coleman Jackson
LEGAL THOUGHTS
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY: Coleman Jackson

Welcome to Legal Thoughts

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation and immigration law firm based in Dallas, Texas.

In addition to myself, we have Alexis Brewer – Tax Legal Assistant, Leiliane Godeiro – Litigation Legal Assistant, Gladys Marcos – Immigration Legal Assistant, and Johana Powell – Tax Legal Assistant.

On today’s “Legal Thoughts” podcast, our Tax Legal Assistant, Alexis Brewer, will be interviewing me on the important topic of: “Starting your first business in Texas.”

This is a series of podcasts about how to start your first business in Texas, and this is the first episode.

INTERVIEWER: Johana Powell, Tax Legal Assistant

Hi everyone, my name is Johana Powell and I am a Tax Legal Assistant at the tax, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.

Good afternoon, Attorney; thank you for agreeing to sit with me as I interview you with respect to this interesting topic: “Starting your first business in Texas.”

Let’s jump right into this!

Question 1: Attorney would be business entrepreneurs have the resources to invest, want to invest and want to start their own businesses in Texas, but have lots and lots of questions about how to start a business in Texas.

What do you think about this Attorney?

Attorney Answer – Question 1:

Good afternoon, Johana.

Businesses in Texas can operate in several different entity structures, such as, Sole Proprietorship, General Partnership, Limited Partnership, Limited Liability Company, and Corporation.

The choice of entity selection involves a number of legal and operational concerns and should be made in consultation with a lawyer, accountant, and possibly an insurance agent and banker depending upon the type of activities that is intended to be conducted in the state of Texas.

INTERVIEWER: Johana Powell, Tax Legal Assistant

Question 2: Attorney what types of legal and operational concerns are you talking about?

Attorney Answer – Question 2:

Johana, that is an excellent continuation question because it allows me to expand on my answer and explain why counsel and professional advice is so important when starting a business in Texas.

Organizers intending to start businesses in Texas must consider the following legal and operational factors;
The federal, state and local business tax structure in the State of Texas (Texas does not have income taxes, but does have sales taxes, property taxes and franchise taxes);
The ease of formation and the startup cost of starting a business in the State;
The accounting and operational requirements for operating a business in the State (The Texas Tax Code requires all businesses operating in the state to keep contemporaneous books and records, to maintain them for 4 years and make them available for inspection and audit examination at the request of the Texas Comptroller of Public Accounts);
The rules and regulations governing the term of operations and rules governing winding down operations within the State (The Texas Business Organization Code governs business structuring matters within the State);
The personal liability concerns for operating a business in the State;
The special requirements, such as, licensing requirements for operating certain types of businesses within the State; and
The unique requirements that might apply to government contractors if the business intends to sale goods and services to the federal, state or local government or to government agencies.

INTERVIEWER: Johana Powell, Tax Legal Assistant

Attorney my next question is what happens if a business entrepreneur already has a business running but no paperwork filed with the State?

Attorney Answer – Question 3:

Johana that is a very complex question because it depends upon whether the business is structured outside of our state and is coming into Texas to do business or whether the business started in Texas but simply did not file any documents with the Secretary of State. Let me first point out that out of state businesses doing business in Texas must register with the Secretary of State’s Office. Let me also point out that the default form of business entity is a sole proprietorship when there is only one owner; and, when there are two or more owners; the default entity is a general partnership. I will not address the various federal tax elections that might be available for businesses. Let’s leave that discussion to another episode of “Starting Your First Business in Texas.” Those starting or thinking about starting businesses in Texas should consult with legal counsel to avoid making legal mistakes when starting their first business enterprise in Texas. Business structuring in Texas is a complicated legal issue which could expose those operating businesses within Texas without following the rules to serious civil and even criminal consequences.

INTERVIEWER: Johana Powell, Tax Legal Assistant

Oh I see; it sounds like you are saying that a lot of complex business and tax laws are at play when starting a business in Texas. My next question is this one:

Question 4: What is the difference and the advantages between all the business structures that you mentioned previously?

Attorney Answer – Question 4:

The main differences in the business structures that I mentioned earlier in our discussions in this ‘episode one’ on the topic “Starting Your First Business In Texas” are the liability and the tax concerns. Regarding the liability concerns; in a sole proprietorship and a partnership which are structures that are not incorporated, the owners of these two entity types do not enjoy liability protection for the acts of the business entity. What I mean by that is that the owners’ personal assets are exposed to the liabilities incurred in the business. As for the liability concerns for owners of corporations and limited liability companies, the owners of those type business structures are limited. What I mean by that is that the owners are not personally liable for the debts of the business entity, unless they personally guarantee those business debts. However, a general partner in a Limited Liability Partnership is personally liable for the debts of the limited partnership whether they guarantee the business debts or not. In the Limited Partnership only limited partners enjoy liability protection.
Now with respect to the tax differences between these various business entities we are discussing here today, generally it is more favorable to structure a business as a Limited Liability Company or corporation.

Let me point out that non-profit businesses must register as such in the State and with the U.S. Treasury and meet state and federal tax requirements to be recognized as non-profit entities in this State and for federal tax purposes; otherwise, a business cannot operate as a non-profit entity in the State of Texas.

Johana this is an extremely complex question as to what constitutes advantages or disadvantages between the choice of entity selection. Determining what type of business structure best fits any particular entrepreneur’s goals and objectives requires a conversation with a lawyer. Many businesses law, contract law and tax law questions need to be discussed when determining what entity fits best to achieve the goals of the new business owner.

INTERVIEWER: Johana Powell, Tax Legal Assistant

Question 5: When a business entrepreneur is ready to do the paperwork what is the first thing they have to do?

Attorney Answer – Question 5:

It depends upon what type of business they decide to form. Remember a sole proprietorship and general partnership can for formed in Texas without filing any paperwork with the Secretary of State’s Office. For now Johana, let’s just leave any discussion concerning operating a business in Texas under an assumed name for another episode in this series.

The organizer of any business entity in Texas must first check on name availability with the Secretary of State’s office (this is a must first step with all the business entity types that we have discussed today because you cannot infringe on the trade marks or rights of other businesses in Texas by using a name that creates confusion in the market place.) For those types of business entities who must file organizational papers with the Secretary of State, for example, limited liability company, and corporation to name a couple; the organizer must file organizational documents compliant with the Texas Business Organization Code. The business should request an Employer Identification Number from the U.S. Treasury if they intend to hire employees and register with the Texas Workforce Commission, and obtain a Texas Sales Tax Permit if the Texas Tax Code requires it. The Comptroller is notified whenever a business files organizational documents with the Secretary of State’s Office. Franchise tax reports must be filed for all businesses who are required to file organizational documents. Johana again we don’t want to make this podcast episode too long; we like to keep our podcast to about 20 minutes each; but we can discuss all of these individual topics in separate bite-size episodes so that our audience and understand these things.

Let me clarify that there are different requirements for each structure of business and our listener’s should subscribe to our Legal Thoughts Podcast if they are interested in this topic or anything dealing with international, federal and state taxation, contracts, litigation or immigration legal matters. Legal Thoughts Podcast is published bi-weekly on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcasts.

INTERVIEWER: Johana Powell, Tax Legal Assistant. Wrap-Up

Attorney, thank you for siting with me today to explain how to prepare in the journey of owning your first business.

TAKEAWAY: It seems like the overall idea here is that selecting the best entity structure to conduct a business in Texas is complex and has many tax, operational and legal issues that entrepreneurs starting a business in Texas should consider and discuss with their legal counsel prior to investing a dollar. It is kind of like plan your trip before you start driving; otherwise, you might be delayed getting to your destination and possibly not arriving there at all.

I am glad this topic “Starting a Business in Texas” is going to be a series of podcast where we will discuss other aspects to starting a Texas businesses. That is super Attorney!

Our listeners who want to hear more podcast like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, contracts, litigation and immigration Legal Thoughts from Coleman Jackson, P.C., located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.
English callers: 214-599-0431 | Spanish callers: 214-599-0432 |Portuguese callers: 214-272-3100

Attorney Closing Remarks

This is the end of today’s Legal Thoughts!

Thank you all for giving us the opportunity to inform you about: “Starting your first business in Texas.” Remember this is the first episode of Starting Your First Business in Texas.

If you want to see or hear more taxation, contract litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast.

Stay tuned! We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

Gains from Sale Or Exchange of a Residence are Sometimes Taxable

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By: Coleman Jackson, Attorney & Certified Public Accountant
June 12, 2022

Gains from Sale Or Exchange of a Residence are Sometimes Taxable

The residential real estate market has been hotter than a Texas Summer for more than three years now. Principal residences have been flying off the shelf for just as long throughout Texas and practically everywhere else in the United States. First time home buyers, others and investors too have been bidding up the prices; seemly, with no end in sight to higher and higher prices. I heard recently that the pace of home sales in the North Texas area has begun to slow a bit; but the prices have not modulated that much. Prices are up; and residential residence sellers are still in the power seat; some continue to flip their homes like flipping pancakes on a hot griddle. Lots of money is being made by home owners. What does the federal tax laws have to say about gains from sale or exchange of principal residences?

Gain Exclusion for Single Taxpayer Filers:

Internal Revenue Code Sec. 121(b)(1) provides for exclusion from gross income for federal tax purposes up to $250,000 of gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, the property was owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.

Gain Exclusion for Husbands and Wives Filing Joint Tax Returns:

Internal Revenue Code Sec. 121(b)(2) provides for exclusion from gross income for federal tax purposes up to $500,000 of gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, if

Either spouse owned the property during the 5-year period ending on the date of the sale or exchange and either spouse used the property as their principal residence for periods aggregating 2 years or more;
Both spouses meet the 2-year use requirement; and
Neither spouse is ineligible for the principal residence gain exclusion because one or both of them were involved in the sale or exchange of prior principal residence during the 2-year period ending on the date of the current sale or exchange.

Some Special Rules or Applications in Various Different Situations:

Physical or Mental Incapacity:

Taxpayers can become ill and incapacitated and spend long stresses of time in nursing homes or other long-term care facilities. If such unfortunate events, such as, physical or mental incapacity occur, the taxpayers qualify for the exclusion of gain on the sale of their principal residence, so long as, they own the property for a five-year period and reside in the property as their principal residence for a period aggregating 12 months

Ill Health, Change of Employment Unforeseen Circumstances:

In the event the5-year principal residence ownership period or the 2-year principal residence use period are not met due to ill health, change of employment or otherwise unforeseen circumstances. The burden rest on the taxpayer to marshal the facts and evidence to show that they qualify for this exception to the 5-year ownership requirement and the 2-year principal residence use requirement of the statute.

Survival and Divorce Situations:

The 5-year property ownership and 2-year principal residence use period includes the 5-year property ownership and 2-year use period the survival’s deceased spouse held the property for purposes of exclusion of the gain on sale of principal residence. Property used by a former spouse pursuant to a divorce decree or marital separation agreement counts towards the individual’s 2-year use of the property as a principal residence for the purposes of exclusion of gain on sale or exchange of a principal residence.

Uniformed Services, Foreign Service, and Intelligence Community:

Uniformed service members, United States foreign service employee and employees of the U.S. intelligence community can elect to extend the 5-year ownership period for up to 10 years and suspend the 2-year use period while they or their spouse is serving the U.S. in their official capacities as a member of the U.S. uniformed services, or U.S. foreign service or employee of the U.S. intelligence community.

Expatriation to Avoid Tax (Former Citizens of the United States):

Internal Revenue Code Sec. 877 provides that gain on the sale or exchange of property by an expat is included in their gross income for federal tax purposes. The exclusion rules of Internal Revenue Code Sec. 121(a) are not applicable to expats.

With respect to the high real estate prices and rapid flipping of residential real estate now-a- days, the tax issue is this one: how many homeowners selling their residences will have recognized gains for federal tax purposes? If none of the special situations and rules discussed above apply, these gains from sale of residential property could be taxable at the taxpayer’s ordinary tax rates.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

Podcast – Who is a Resident Alien Under United States Tax Law? | LEGAL THOUGHTS

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Published July 9, 2020

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C. The topic of discussion is “Who is a Resident Alien Under United States Tax Law?” You can listen to this podcast by clicking here:

You can also listen to this episode and subscribe to Coleman Jackson, P.C.’s Legal Thoughts podcast on Apple Podcast, Google Podcast, Spotify, Cashbox or wherever you may listen to your podcast.

TRANSCRIPT:

ATTORNEY: Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY: Coleman Jackson

Welcome to Tax Thoughts

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation, and immigration law firm based in Dallas, Texas.
Our topic for today is: “Who is a Resident Alien Under United States Tax Law?”
Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz, Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and I will be responding to her questions on this important tax topic: “Who is a Resident Alien Under U.S. Tax Law?”

Interviewer: Mayra Torres, Public Relations Associate

Question 1:

Good morning, Coleman. This is Mayra. I do have a couple of questions for you when it comes to umm… a resident alien under U.S. tax law. Who or what is considered a Resident Alien under U.S. Tax Law?

Attorney Answers Question 1:

S. tax law defines the term Alien in the following ways:
1. Nonresident Alien; and
2. Resident Alien
I am going to go into further details on both; but our main focus in this podcast will be on the Resident Alien. Anyone who is interested to learn more about how a nonresident alien is impacted by U.S. tax law can subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever they get their podcasts.
1. Nonresident Alien is defined in Internal Revenue Code Section 7701(b)(1)(B) as any individual who is not a citizen of the United States and who do not meet either the Green Card Test or the Substantial Presence Test for Resident Alien.
2. Internal Revenue Code Section 7701(a)(9) includes only the 50 States and the District of Columbia in determining whether an alien is a nonresident alien. The law does not include U.S. possessions, territories, or U.S. airspace. For example, Guam is not included in making the determination as to whether an alien is a nonresident alien.
3. I am now going to focus this podcast strictly on the question: Who is a Resident Alien in U.S. Tax law?
4. There are two test or measures used in U.S. tax law to determine whether an alien is a resident alien under U.S. tax laws as follows:
  - Green Card Test: Under this test an individual is a Resident Alien (should be simply U.S. Resident, but as I mentioned the law still says resident alien, nevertheless) Under the Green Card test an individual is a U.S. resident if the individual was a lawful permanent resident of the United States at any time during the calendar year.
  - An individual is a Green Card Holder if they have become a Lawful Permanent Resident under the immigration laws of the United States 8 United States Code.
  - For U.S. tax purposes lawful permanent residence status continues unless the status is rescinded administratively or rescinded by a U.S. federal Court, such as, in a deportation proceeding by an Immigration Court.
  - An LPR can also abandon their Green Card Status by following the appropriate procedures or any Consular Officer or Border Protection Officer possibly could argue that the LPR status has been abandoned under circumstances described in U.S. Immigration Laws. U.S. tax regulations Section 301.7701(b) sets forth the Internal Revenue Codes positions concerning the Green Card test in determining whether an Alien is a Resident of the United States based on the Green Card test.

Now let us turn to the second test used by the IRS in determining whether an alien is a Resident Alien of the United States. The second test is known as the Substantial Presence Test. Under the substantial presence test, an individual is a Resident Alien or U.S. Resident if they are physically present within the United States on at least:
1. 31 days during the current calendar year; and
2. a total of 183 days during the current year and the two preceding years, counting each day of physical presence in the current year as one whole day, each day of presence in the first preceding year as one-third of a day., and each day of presence in the second preceding year as one-sixth of a day. Fractional days derived from these computations are not counted towards substantial presence.
I know this may sound very complicated to non-tax lawyers or Certified Public Accountants; the Substantial Presence Test is explained in excruciating detail in Internal Revenue Regulation Section 301.7701(b)-1(c)(1). And both the Green Card Test and Substantial Presence Test is codified in 26 United States Code Section 7701.

Interviewer: Mayra Torres, Public Relations Associate

Question No 2:

I am just curious, are there any exceptions to this Substantial Presence Test. I mean, you are always saying the law is complicated and that there are often exceptions to the rules. What about now… are there any folks exempt from the Substantial Presence Test?

Attorney Answers Question 2:

The following individuals are exempt from the Substantial Presence Test pursuant to Internal Revenue Code Section 7701:
1. International Students
2. Professional Athletes
3. Diplomats and their immediate family members
4. Teachers on the J Visa immigration status and their immediate family members.
5. Full time Employees of international organizations and their families that have been appropriately designate by the Secretary of the Treasury in consultation with the Secretary of State of the United States.
6. Regular commuters from Mexico and Canada are not generally considered meeting the substantial presence test.
7. There might be a few other exceptions; but these are the ones I can recall right now. I might add that even within these exceptions there are further particulars that I am just not going to get into right now.
8. The actual application of the substantial presence test is very complex, and anyone impacted by these issues should consult with qualified tax professionals in their area.

Interviewer: Mayra Torres, Public Relations Associate

Question 3:

Well alright then. What are some of the United States tax consequences to an individual meeting either the Green Card Test or the Substantial Presence Test?

Attorney Answers Question 3:

S. residents who meet either the Green Card Test or the Substantial Presence Test must comply with all U.S. tax laws (I am using this term for resident aliens because I think it sounds more humane and welcoming).
S. residents are generally taxed in the same manner as U.S. citizens. They are taxed on their worldwide income the same as U.S. citizens.
S. residents must report their income by filing the appropriate federal tax return complying with all the reporting requirements applicable to U.S. citizen taxpayers.
S. residents are allowed exclusions from gross income with respect to certain income earned, such as, certain compensation paid by foreign employers, nontaxable dividends, gains from sale of home and other types of income specifically excluded from gross income for U.S. taxation purposes.

Interviewer: Mayra Torres, Public Relations Associate

Question No. 4

S. residents are taxed just like U.S. Citizens pretty much. I get that. But what about that $600 per week people are receiving under the CARES Act?
Can resident aliens (foreigners who satisfy the Green Card Test or Substantial Presence Test) receive that $600 per week too? And what about people who don’t have their papers? How and where do resident aliens apply.

Attorney Answers Question 4:

Yes, individuals who satisfy the Green Card Test or the Substantial Presence Test can qualify to receive the weekly $600 emergency increase in unemployment compensation benefits under the CARES Act because Subtitle B Section 6428.2020(2)(b)(d) says that nonresident alien individuals do not qualify.
Remember I spoke earlier about an alien can be either (1) a nonresident alien or (2) a resident alien for U.S. tax purposes. If an alien satisfies the Green Card test or the Substantial Presence Test they are classified as Resident Aliens (I like to use the term U.S. Resident) for tax purposes. And yes, undocumented individuals can satisfy the Substantial Presence Test and be treated as Resident Aliens for tax purposes. They typically should apply for an Individual Tax Identification Number otherwise called an ITIN to comply with U.S. tax laws.
There is no mention of Resident Aliens being unqualified to receive the $600 emergency increase in unemployment compensation benefits in the CARES Act. In Texas, these individuals (U.S. Residents) apply for this federal emergency increase of $600 with the Texas Workforce Commission at the same time they file an Unemployment claim based on loss of employment as the result of Covid-19. I think Resident Aliens or U.S. Residents qualifies to receive the weekly $600 under the CARES Act.

Attorney’s Concluding Remarks:

This is the end of Legal Thoughts for now!

Thanks for giving us the opportunity to inform you about who is a resident alien of the United States under U. S. tax law. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Subscribe on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast. Stay tune! We are here in Dallas, Texas and want to inform, educate, and encourage our communities on topics dealing with taxation, litigation, and immigration. Until next time, take care.

Podcast – Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair? | LEGAL THOUGHTS

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Published June 29, 2020

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C. The topic of discussion is “Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair?” You can listen to this podcast by clicking here:

TRANSCRIPT:

ATTORNEY: Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY: Coleman Jackson

Welcome to Tax Thoughts

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation and immigration law firm based in Dallas, Texas.
Our topic for today is: “Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair?”
Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz, Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and our Immigration Legal Assistant, Reyna Munoz will be reading answers that I previously wrote in response to the questions on this important tax topic: “Liability of Remote Sellers to Collect, Remit and Report Texas Sales Taxes After Wayfair?”

Interviewer: Mayra Torres, Public Relations Associate

Question 1:

Hello, Good morning Coleman. My name is Mayra Torres, for everyone who hasn’t met me yet, I am the Public Relations Associate at Coleman Jackson, P.C. Umm… todays first question is regarding Wayfair. What Businesses Located Outside of Texas are Required to Collect and Remit Sales Taxes to the State of Texas after Wayfair. Who is “Wayfair”?

Attorney Answers Question 1:

Wayfair refers to a united states supreme court decision decided by the court on June 21, 2018 in a case that is called south Dakota vs Wayfair, Inc. The case involved a sales tax dispute between south Dakota and Wayfair, Inc.

Interviewer: Mayra Torres, Public Relations Associate

Question 2:

Well what was the dispute about?

Attorney Answers Question 2:

Wayfair, Inc. Was not located in south Dakota and had no physical presence within The state.

Wayfair, Inc. Sold goods from its remote location to customers who lived in South Dakota. The question in this case was: “when can an out-of-state seller be required to Collect and remit sales tax to a state where they have no physical presence.”

Interviewer: Mayra Torres, Public Relations Associate

Question 3:

So, why was that even in doubt that South Dakota could make Wayfair an out-of-state Seller collect taxes on purchases of goods and services by south Dakota Residents?

Attorney Answers Question 3:

That is an excellent question. I am going to explain the concerns with respect to States imposing legal duties on out of state residents as it relates to sales Taxation: the issue here is the free flow of interstate commerce!
1. The constitution of the united states gives congress the power to regulate Commerce in article 1, section 8, clause 3.
2. The concern of the framers of the constitution was division within the United states where states are fighting among themselves imposing economic Burdens on the free flow of commerce.
3. The commerce clause limits the states regulation of commerce
The U.S. Supreme Court will allow a State tax on Commerce so long as it meets all of these conditions:
1. The tax applies to an activity with a substantial nexus with the taxing State;
2. The tax is fairly apportioned;
3. The tax does not discriminate against interstate commerce; and
4. The tax is fairly related to the services the State provides.
Condition Number 1 is the only one in question in the Wayfair Case: the tax applies to an activity with a substantial nexus with the taxing State:
In those states that have a sales tax statute, before Wayfair, sellers had to have a physical presence within a state in order for that state to impose a liability on a merchant to collect sales taxes on purchases of goods and services. That is known as the Quill physical presence test from the U.S. Supreme Court decision in 1992 called Quill Corporation vs. North Dakota.
After Wayfair, which involves South Dakota, out-of-state sellers can be held responsible for collection and payment of sales taxes to a state by selling a product or service to customers within the state. The Court said that physical presence in a State can be established merely by selling goods and services to customers in the State. No employees or offices or other physical presence is required in order to establish substantial nexus in the taxing state. So now mere shipping goods and services into a state may bring remote sellers within the scope of out-of-state sales tax statutes. The Supreme Court in Wayfair said that imposing this sales tax collection, remittance and reporting requirement in some circumstances did not violate the Commerce Clause of the United States Constitution, Article 1, Clause 3.

Interviewer: Mayra Torres, Public Relations Associate

Question 4:

Okay…. What Texas… Who is a remote seller selling goods and services to people who live in Texas? Are they liable to collect, remit, report, and keep records of Texas taxable sales?

Attorney Answers Question 4:

A remote seller is defined in Texas Tax Code Rule 3.286(a)(4)(l) and (J) as any seller whose only activities in Texas are the remote solicitation of sales, which includes activities such as solicitation by catalogs, flyers, radio, television, telephone or internet.
Sellers outside of Texas who sell goods and services to Texas residents are required to collect, remit and report Texas sales and use tax effective October 1, 2019 if they made total sales of $500,000 into Texas for a prior 12-month period. If the appropriate sales tax is not properly collected the Use tax must be submitted to the Texas Comptroller of Public Accounts.
And yes, remote sellers must keep proper books and records of all Texas taxable sales transactions and have them available for inspection and examination in compliance with 34 Texas Tax Code Section 3.281. The TAC specifically identifies the types of records that all sellers of taxable goods and services must maintain for 4 years.
Texas Comptroller Auditors are permitted to estimate taxable sales in the event a seller fails to maintain and present the required records for inspection at the request of the Texas Comptroller.

Interviewer: Mayra Torres, Public Relations Associate

Question 5:

What are the Texas Sales and Use Tax Rate?

Attorney Answers Question 5:

The current sales tax rate is 6.25 percent State rate and each local taxing authority can charge up to 2.0 percent. The maximum allowable sales tax rate in Texas is 8.25 percent.
As for remote sellers, Texas permits them to charge a flat rate of 1.75 percent instead of the local rate which changes from county to county, city to city and school district to school district throughout the State. Remote sellers make this election by filing form 01-799, Remote Seller’s Intent to Elect or Revoke Use of Single Local Use Tax Rate with the Comptroller’s Office. If the remote seller does not make this election, they must compute, collect and remit the local tax based on the local tax applicable to the location to which they shipped the goods or performed the service.

Interviewer: Mayra Torres, Public Relations Associate

Question 6:

So, who administers the Limited Sales, Use and Excise Tax laws in Texas?

Attorney Answers Question 6:

The Texas Comptroller of Public Accounts.

Interviewer: Mayra Torres, Public Relations Associate

Question 7:

Are all remote sellers required to do this now?

Attorney Answers Question 7:

No; these requirements do not apply to all remote sellers.
A remote seller whose total Texas revenue from sales into Texas in the preceding 12 calendar months are less than $500,000 is not required to obtain a sales tax permit and they are not required to collect and remit any sales tax to Texas. The sales are computed on gross revenue not net revenue.
As of April 1, 2020, remote sellers must combine sales made through all mediums with delivery into Texas to determine whether they must collect, remit and report Texas Sales.

Interviewer: Mayra Torres, Public Relations Associate

Question 8:

Wow, it seems like a somewhat complex issue.

Attorney Answers Question 8:

Yes, we have just a brief outline here of the issues and sales tax laws applicable to remote sellers since the Wayfair decision of the U.S. Supreme Court.
Listeners should stay tune and follow our podcast and read our blogs as we might revisit this topic in the future.

Attorney’s Concluding Remarks:

This is end of “legal thoughts” for now!

Thanks for giving us the opportunity to inform you about how the Texas Tax Code requires remote sellers to collect, remit and report sales taxes on sales made to Texas residents to the Texas Comptroller. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! We are here in Dallas, Texas and want to inform, educate, and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

Podcast – Does unemployment compensation recipients have to pay federal taxes on the money received resulting from Covid-19? | LEGAL THOUGHTS

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Published July 14, 2020

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses and agencies from around the world in taxation, litigation and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, the Public Relations Associate of Coleman Jackson, P.C.

The topic of discussion is “Is Unemployment Compensation Received Taxable Income?” You can listen to this podcast by clicking here:

You can also listen to this episode and subscribe to Coleman Jackson, P.C.’s Legal Thoughts podcast on Apple Podcast, Google Podcast, Spotify, Cashbox or where ever you may listen to your podcast.

TRANSCRIPT:

ATTORNEY: Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY: Coleman Jackson

Welcome to Tax Thoughts

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, litigation and immigration law firm based in Dallas, Texas.
Our topic for today is: “Is Unemployment Compensation Received Taxable Income?”
Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz,Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
On this “Legal Thoughts” podcast our Public Relations Associate, Mayra Torres, will be asking the questions and I will be providing the answers to the questions on this important tax topic: Is Unemployment Compensation Received Taxable Income?

Interviewer: Mayra Torres, Public Relations Associate

Question 1:

What are unemployment benefits?

Attorney Answers Question 1:

Unemployment benefits generally includes any amount of money received under any federal or state law program designed to protect taxpayers against loss of income caused by involuntary loss of employment or decrease in compensation.

Interviewer: Mayra Torres, Public Relations Associate

QUESTION 2:

Who is eligible to receive unemployment benefits?

Attorney Answers Question 2:

Keep in mind that unemployment benefits, as a general policy, is governed by State and federal labor laws and are designed to replace in whole or part the loss of employee wages due to some involuntary lay off or employment disruption.
Unemployment programs are administered by the States and each State has its own rules as to who qualifies and how they should apply. In Texas, the Texas Workforce Commission administers the Texas Unemployment Compensation System.

Interviewer: Mayra Torres, Public Relations Associate

Question 3:

Well okay, I kind of understand. But there is a lot of talk about the CARES Act and something about$600 dollars people are receiving.
What is the CARES ACT? Does it affect unemployment benefits… like, who qualifies and how they apply and how much they get and how long they can get unemployment benefits?

Attorney Answers Question 3:

Those are excellent questions!
The CARES Act was enacted into law on Friday, March 27, 2020. CARES stand for the Corona virus, Aid, Relief, and Economic Security Act. It is a $12, trillion-dollar economic relief package featuring extensive tax provisions. It is Public Law 116-136 (3/27/2020). And yes it does impact who qualifies for unemployment compensation, how they apply and how much they receive it and for how long if their loss income is related to Covid-19.
Employees who lost jobs qualify
Self-employed individuals qualify under the CARES Act
Qualified individuals impacted by Covid-19 must file unemployment claims through the State governmental agency who regulate unemployment benefits in their State. Residence in Texas must file claims with the Texas Workforce Commission and follow all filing requirements and follow-up guidance that TWC requires to obtain their compensation. Keep in mind that TWC rules and requirements may continue to change as the State continues to reopen its economy during this pandemic.

Interviewer: Mayra Torres, Public Relations Associate

Question 4:

Okay…. And what about undocumented workers and self-employed people; can they file for

unemployment benefits with TWC too?

Attorney Answers Question 4:

Yes, workers and self-employed individuals do not have to be United States citizens or lawful permanent residents to qualify for unemployment. All residence of Texas who had employment prior to the Covid-19 Crisis can file for unemployment.

Interviewer: Mayra Torres, Public Relations Associate

Question 5:

What about the $600 everybody is talking about; how do unemployed people get that?

Attorney Answers Question 5:

The CARES Act not only expanded the eligibility for unemployment to self-employed individuals like I mentioned before; the Act also extended coverage by 13 weeks and provides unemployed individuals with an extra $600 per week of federal assistance on top of the State benefits.
Qualified individuals apply for this extra $600 per week federal benefit when they file their State Unemployment Claim. Again, in Texas everything is filed with the Texas Workforce Commission.Contact TWC for help in filing an unemployment claim in Texas. The TWC rules are in flux as the State reopens during this pandemic.

Interviewer: Mayra Torres, Public Relations Associate

Question 6:

Okay, I was just curious; many folks are afraid of going back to work because they might get sick or get their families sick.
Can somebody continue to receive unemployment even though their boss tell them that they can come back to work now?

Attorney Answers Question 6:

Unemployment benefits are for people who loss their jobs or income due to no fault of their own. People who quit their jobs generally will not qualify for unemployment compensation in Texas. I say generally because facts and circumstances matter. Application of the law can be messy at times because facts matters. Perhaps an unemployed individual can make out a winnable case that it’s too dangerous for them to return to work during the Covid-19 pandemic.
But, Keep in mind that people who file initial and continuation claims for benefits with TWC provides self-certification under penalty of perjury that they are otherwise able to work and are available for work under the Texas Labor Code that governs such matters in Texas.
The rules concerning this question may change from day to day or week to week as the State of Texas reopens during this pandemic.

Interviewer: Mayra Torres, Public Relations Associate

Question 7

Okay, I understand; it sounds like it just depends on all the facts, and circumstances and State and federal government rules updates.
Another BIG QUESTION A LOT OF PEOPLE HAVE IS THIS!
Do unemployed individuals have to pay taxes on unemployment benefits that they receive?

Attorney Answers Question 7:

The tax treatment of unemployment benefits received depends on the type of program paying the benefits.
I am going to try to keep this simple; but folks must understand that the federal and state program funding the compensation can impact whether the amounts received are taxable.
I am going to limit my answer to only three types of unemployment benefits that I think are germane to the types of benefits that most people are receiving during this Covid-19 national emergency:
Types of Unemployment Benefits that are Taxable
1. Benefits paid by a State or the District of Columbia from the Federal Unemployment Trust Fund
2. State Unemployment insurance benefits
3. Unemployment assistance under the Disaster Relief and Emergency Assistance Act of 1974
Conclusion: Most people receiving unemployment due to Covid-19 falls under one of these programs. The benefits are taxable!

Interviewer: Mayra Torres, Public Relations Associate

Question 8

I think I’m getting it now! What about the extra $600 per week from CARES Act, is it taxable too?

Attorney Answers Question 8:

Yes, unemployment compensation received under the CARES Act is taxable because the CARES Act does not specifically exempt the $600 extra unemployment compensation from federal taxation.
In fact, the CARES Act states that in the event there is a conflict in the CARES Act with provisions in the Disaster Relief and Emergency Assistance Act of 1974, then the provisions of the Disaster Relief and Emergency Assistance Act of 1974 controls. As we have seen, benefits received under the 1974 Act is taxable.
So, the answer to your question is, yes, unless Congress exempts the $600 from federal taxation, it is taxable under Internal Revenue Code Section 85(a).

Interviewer: Mayra Torres, Public Relations Associate

Question 9

When does the taxes on that unemployment money have to be paid?

Attorney Answers Question 9:

Those filing for unemployment can ask TWC to withhold the appropriate amount of tax from their unemployment compensation. Make this choice by giving TWC Form W-4V, Voluntary Withholding Request; or
They may have to file estimated taxes by the 15th day of the end of each quarter. They can compute this amount on Form 1040-ES and make their estimated payments to the IRS by phone,online or by mail.

Interviewer: Mayra Torres, Public Relations Associate

Question 10

What if people don’t know and never ask TWC to withhold the money and never do this

estimated tax thing?

Attorney Answers Question 10:

If taxpayers don’t pay enough taxes during a year, either by withholding or by estimated tax deposits, or some combination of the two, they may have to pay an underpayment penalty.
The federal tax system in the United States is a pay-as-you-go self-certification system. But keep in mind, the IRS and the taxpayer will probably receive a Form 1099-G from TWC for all unemployment compensation paid during the course of the calendar year.

Attorney’s Concluding Remarks:

This is end of Legal Thoughts for now

Thanks for giving us the opportunity to inform you about taxation of unemployment compensation. If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune! We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration. Until next time, take care.

Federal Tax Developments Related to Covid-19

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By: Coleman Jackson, Attorney & Certified Public Accountant
March 30, 2020

As you can imagine, things are changing and developing fast and furious during this Covid-19 Pandemic. Developments in taxes are no exception! Our law firm desires to keep our clients and others informed with regards to certain tax developments that might impact their businesses. In keeping with that desire, note some of the most significant recent federal tax developments:

Tax Day now July 15, 2020: The U.S. Treasury and Internal Revenue Service automatically extended from April 15, 2020 to July 15, 2020 the federal income tax filing due date. The IRS gives affected taxpayers until the last day of the Extension Period to file tax returns or make tax payments, including estimated tax payments, that have either an original or extended due date falling within the Period. The IRS will waive any interest and late filing and payment penalties related to these late tax returns.
Small and midsize employers can begin taking advantage of two refundable payroll tax credits designed to immediately and fully reimburse them, dollar of dollar, for the cost of providing Coronavirus-related leave to their employees.
The CARES Act of 2020 enacted in response to Covid-19 provides employers with an employee retention credit in the amount of 50% of their wages impacted by closure due to Covid-19. Further the Act which became law on March 27, 2020 extends the due date for paying employer payroll taxes. Taxpayers must carefully review the law and properly compute the amount of payroll taxes that can be deferred; because it is not 100% deferral of all payroll taxes. Note: The Small Business Administration has announced that they are taking applications for disaster relief from small businesses with respect to loans up to two million dollars for monies borrowed to make payroll and pay rent during this Covid-19 Crisis. The application process and details regarding what businesses qualify and the procedures for applying can be found on the Small Business Administration website. The SBA has announced that they have relaxed some of their processing and documentation requirements to expedite the processing of these emergency loans to small businesses impacted by Covid-19. It appears that these SBA emergency loans could be converted to grants under certain condition(s). The IRS will waive the usual fees and expedite requests for copies of previously filed tax returns for affected Covid-19 taxpayers who need them to apply for benefits or to file amended tax returns claiming casualty losses. Watch our blogs as more changes may be forth coming in the area of employer relief due to Covid-19 closures. But for now, this appears to be the game plan regarding employers.
“Existing Installment Agreements –For taxpayers under an existing Installment Agreement, payments due between April 1 and July 15, 2020 are suspended. Taxpayers who are currently unable to comply with the terms of an Installment Payment Agreement, including a Direct Deposit Installment Agreement, may suspend payments during this period if they prefer. Furthermore, the IRS will not default any Installment Agreements during this period. By law, interest will continue to accrue on any unpaid balances.” Source: IR-2020-59, March 25, 2020.
The CARES Act eliminates the 10% early withdrawal penalty for Covid-19 related distributions from retirement accounts and make other rule changes regarding retirement account contributions.
The Act relaxes certain corporate and individual charitable contributions rules and provides for an above the line deduction up to $300 for charitable contributions.
Texas has been declared a Presidential Disaster Area related to Covid-19, so more specific rules and provisions could be developed by the IRS related to individuals and businesses with business operations in Texas or impacted by this particular Presidential Disaster Area Declaration.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432

A Spouse May Be Relieved of Federal Tax Liability under Certain Circumstances

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April 08, 2019
By Coleman Jackson, Attorney, Certified Public Accountant

Texas is a community property state, which means that income earned by either spouse during their marriage is an item of community income. Under federal tax law, each spouse is liable for federal taxes on community income regardless of which spouse earned the item of community income.

Under Internal Revenue Code Section 66(b), the Internal Revenue Service can modify the federal tax outcome resultant from application of community property laws and charge only one spouse with respect to an item of community income if that spouse acted as if they were solely entitled to the item of income; that is, they used it on themselves and not the community or household benefit, and they did not notify their spouse of the item of community income before the due date for filing the spouse’s federal tax return for the applicable tax period.

This is only one of the many situations where an innocent spouse might be relieved of federal tax liability. There is also, sometimes equitable relief available for innocent spouses even when the couple filed a joint tax return which created joint and severable liability for both spouses for the entire amount of the tax deficiency, penalties and interest due on the joint return.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432.

ONLINE RETAILERS LOOK OUT FOR TEXAS LIMITED SALES, USE & EXCISE TAX

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By: Coleman Jackson, Attorney, Certified Public Accountant
July 27, 2018

Online retailers have good reason to look out for the Texas Limited Sales, Use & Excise Tax. Have you ever heard of South Dakota versus Wayfair, Inc.? South Dakota vs. Wayfair, Inc., 585 U.S. ____ (2018) is a case decided by the U.S. Supreme Court on June 21, 2018. In that case the Court decided in favor of South Dakota and against Wayfair, Inc. Wayfair establishes a nationwide rule that basically allows all 50 States to lawfully tax the sales of goods and services performed by online retailers the same as they tax brick and mortar retailers. Each State is permitted to change its laws governing transactions to realize this new source of revenue. It is hard to imagine that Texas would not extend its sales, use and excise taxes to reach online retailers selling into Texas from other States or Countries. The U.S. Supreme Court has given the States a green light to tax online retailers selling goods and services into their States from remote locations.

Online retailers have good reason to look out for Texas to extend the reach of its sales, use & excise tax rules to online retailers selling goods and services to consumers and businesses located in Texas. In the past as it relates to brick and mortal retailers, Texas law presumed that all retail sales or uses of tangible personal property are taxable transactions. The burden rested squarely on the shoulders of the brick and mortar retailers to show that sales were somehow exempt from sales, use and excise taxes. Brick and mortar retailers are required by law to collect the tax and turn it over to the State of Texas pursuant to set rules and regulations. These rules and burdens are most surely to extend to online retailers in the not so distant future when the Texas Legislature has had a chance to visit the issue after the South Dakota vs. Wayfair, Inc. decision.

Online retailers ought to watch, wait and plan their business activities in anticipation because the days when online retailers selling to consumers in Texas are numbered. The Texas Comptroller of Public Accounts is the Texas governmental agency responsible for enforcing the sales tax rules in Texas. Online Retailers need to perform due diligence and comply with Texas Limited Sales, Use & Excise Tax Act through voluntary disclosure and appropriate registrations. Watch because the tax authorities cometh when you expect not. Watch our blogs for future updates on this very important topic and other tax, litigation and immigration concerns of interest to our readers.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader. You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432