Effective July 1, 2011, the North Carolina portion of the state sales and use tax rates are scheduled to decrease from 5.75% to 4.75%. The total rate for Mecklenburg County (including county and transit sales tax) is currently 7.25% and would decrease to 6.25%. Most other counties in North Carolina are currently at 6.75% and would decrease to 5.75%. Mark your calendars if you are collecting sales tax from your customers, but watch for proposed legislation that would affect this decrease in rates. We will keep you posted as we are updated on changes.

For more information, you can visit the NC Department of Revenue website.

In a move aimed at sparking job growth, a South Carolina House panel is considering a measure that would provide a tax credit to angel investors who invest in the State. While the details of the two versions of the bill (H.3044 or H.3270) are still being debated, it has several goals that it hopes to accomplish. Among those are encouraging individual investors to invest in early stage, high growth, job-creating businesses in South Carolina and enlarging the number of high quality jobs within the State.

While the details of the bill are still being debated, both of the current versions of the act limit the credit to $100,000 per individual. In addition, the credit is nonrefundable – meaning that the credit can not exceed the individuals total income tax liability. And unused credit amount is allowed to be carried forward for ten years from the taxable year in which the qualified investment was made.

One important detail is that in order for an angel investor to qualify for the proposed credit, they must file an application for the credit by December 31st of the year in which the qualified investment was made. This is means that the investor can not wait to file this with his/her tax return which isn’t due until April 15th of the following year.

Also, in order to receive the credit, the investors application must be approved by the Department of Revenue. They will look at the type of investment, the qualifications of the investor and several other factors detailed in the act to determine if the investor qualifies. The aggregate amount of all of the credits allowed to all taxpayers can not a specified amount (one version of the bill says $3 million, and the other version says $6 million). If the total amount of approved applications exceeds that specified, then investors will only receive a portion of their credit – so that the total calculates to whatever the maximum amount is.

When asked about the act, our local Representative from SC House District 47, South Carolina Representative Tommy Pope, said “Hopefully this and similar measures will create an environment in our state that will draw the investment capital needed to re-start our local economy. At a minimum, these measures are needed to keep us competitive with our border states. Some decry the tax break for the “angel” investor but unfortunately the reality is they will put their money where they can get the best return, and we sorely need such investments.”

Almost half the states, including neighboring North Carolina, already have similar credits in place (N. C. Gen. Stat § 105-163. 010). Passage of a similar act in South Carolina could be one more thing that the state must do to lure investment dollars into the State. North Carolina allows for a credit equal to 25% of the investment, just as is considered in South Carolina, but it has a maximum of $50,000 per investor per year and only allows for a 5 year carry-forward.

The Act defines an angel investor in the same manner that the US Securities and Exchange Commission defines one – an individual with a net worth of more than $1 million, or who makes at least $200,000 a year personally or $300,000 as a couple.

Keep in mind that this Act is still not law. Lawmakers must agree on a version of the bill and it must be signed by Governor Haley.

Read more:

GSA Business – Investors hope angel credits gain wings

SC bill would give tax breaks to wealthy investors

State Angel Investor Tax Credit Programs – Summary from the State of Connecticut’s Website

While the repeal of the heath care bill as a whole failed to pass yesterday (all the Democrats voted against the repeal/all Republicans voted for repeal), a separate amendment to the bill (S.AMDT.9) passed easily with an 81-17 margin.

The primary purpose to this amendment was to repeal the portion of the bill that expanded the 1099 reporting requirements to a level that would have easily crippled many businesses – especially hitting smaller businesses hard. Generally speaking, without the repeal, the current 1099 rules would have expanded to include payments made to corporations and payments made for tangible goods. Think of all of the Corporations that you deal with on a daily basis – like Wal-mart, Staple’s, Harris Teeter (or other grocer). All of these would have required a 1099 if you paid them more than $600 in the year. There are also a lot of details that I won’t go into because now that it is repealed, it is a mute point. Just be happy as a small business owner that you don’t have to do this! It would have been really expensive and/or time consuming to administer.

I can’t imagine why any Senator would vote against the repeal of this provision in its current state. It is over reaching and cumbersome. It would have been nearly impossible for the average business to fully conform to the law. It would have been a nightmare to enforce. And at the end of the day, it accomplished nothing in its current state. There would have been tons of double reporting and the numbers reported to the IRS would mean less than the ones they get now. Nonetheless, these 17 Senators voted against the repeal:

Akaka (D-HI)

Carper (D-DE)

Durbin (D-IL)

Franken (D-MN)

Gillibrand (D-NY)

Harkin (D-IA)

Inouye (D-HI)

Lautenberg (D-NJ)

Leahy (D-VT)

Levin (D-MI)

Mikulski (D-MD)

Murray (D-WA)

Reed (D-RI)

Reid (D-NV)

Sanders (I-VT)

Schumer (D-NY)

Whitehouse (D-RI)

As far as the Health Care Act as a whole, many Senators, including South Carolina’s own Lindsey Graham, have vowed to continue their fight to repeal the bill – in whole or in part. Along with Senator John Barrasso of Wyoming, Senator Graham introduced The State Health Care Choice Act that would allow states to ‘opt-out’ of Obamacare. This is far from passage and as you might imagine it will be a long and hard fight before there is closure on the Obamacare issue.

One of the steps we recommend to clients who use independent contractors and who therefore face a heightened risk of a costly IRS payroll tax or benefits audit, is a quick review of some of the key things the IRS tells its agents to look at in determining whether a worker is really an employee.

The primary inquiries fall into three categories. Who has financial control of the job? Who can exercise control over how the worker performs the specific task? And how do the parties themselves view the relationship? When reviewing the checklist, keep in mind that the IRS will make its decision based on the whole picture, not just a single factor.

Workers are more likely to be classified as independent contractors if they:

• Make a significant investment in business property (a home computer is not significant);
• Pay their own business expenses;
• Receive a flat fee that is not based on an hourly or similar rate;
• Are not prohibited from doing work for other companies;
• Can pay subcontractors to get the job done;
• Are not performing services as an integral part of your regular business;
• Have a contract with an enforceable liquidated damages provision;
• Can make a profit;
• Can suffer a loss.

Workers are more likely to be classified as employees if they:

• Are given specific instructions and on-going training in how to get the work done;
• Cannot work for others;
• Have expenses paid by your company;
• Are paid with a salary or hourly wage;
• Do not have a significant investment in their trade or business;
• Are an integral part of your regular business;
• Receive direct reimbursement for all, or almost all, expenses;

Less important is:

• Whether or not the work is performed on the business’s premises;
• Whether the worker has flexibility in setting hours;
• Whether the relationship is temporary or short-term;
• Whether the work is full- or part-time;
• Whether the worker performs services for one or more businesses.

If you suspect from this list that there might be a problem, we would be happy to come in and do an audit of your hiring practices and suggest effective solutions if necessary.