Businesses confront state and local tax (SALT) issues in many contexts. Businesses that operate in multiple states must understand their obligations, if any, to pay taxes to each state in which they operate. Businesses must also grasp the states’ heightened enforcement efforts to ensure that out-of-state companies with nexus comply with the state’s sales tax collection laws.
Decades of experience and exclusively focused on state and local tax law. Read more.
State Tax Disputes with Georgia Department of Revenue
For over 30 years, Richard Litwin has worked in state and local taxation, including five years as an Assistant Attorney General in the Tax Division of the State of Georgia Department of Law (the Georgia Attorney General’s Office). In his role as an Assistant Attorney General, Richard represented the Georgia Department of Revenue in administrative hearings, in federal court (including U.S. Bankruptcy Court) and superior courts throughout the State of Georgia on various state tax matters. Now, in private practice since 1995, Richard represents large and small businesses in matters before the Georgia Department of Revenue. Richard represents businesses prior to and during audits, to ensure that the tax auditor adheres to proper audit standards. After the audit, if the Georgia Department of Revenue issues a Notice of Proposed Assessment, then Richard represents businesses in protesting the Georgia Department of Revenue’s Notice of Proposed Assessment and representing the business at the administrative hearing before the attorneys at the Georgia Department of Revenue’s Office of Legal Affairs & Tax Policy. Richard also represents businesses in court, in challenging either a State Tax Execution or an Official Assessment and Demand for Payment. The Georgia Tax Tribunal, which opened in 2013, is a specialized tribunal that is independent from the Georgia Department of Revenue. The Georgia Tax Tribunal hears cases addressing Georgia state taxation, including challenges to Official Assessments, State Tax Executions, and refund actions. Richard represents businesses in litigation filed in the Georgia Tax Tribunal.
Resources: Video Presentation
State Tax Disputes with Other States or Cities
Richard Litwin represents businesses in disputes with taxing agencies in other states during audits and protests. If the matter cannot be resolved at the administrative level (with the state or city taxing agency), then Richard represents the business in court and typically by securing local counsel in the state in which the case is filed. Richard has represented businesses in specific matters at the taxing agency or in court in several states and before state taxing agencies and local (city or county) taxing agencies.
Georgia’s 4% Nonresident Withholding Taxes and Composite Returns
Like many states, Georgia requires pass-through businesses (S corporations, partnerships or limited liability companies) that operate in Georgia to withhold 4% of all nonresidents’ K-1 income (taxable income sourced to Georgia). Georgia also offers alternatives to withholding. These alternatives allow a pass-through business to forgo the 4% withholding requirement. The business can file a composite return (Form IT-CR) to report and pay income tax on all the K-1 income of all nonresidents. Also, the business can forgo the 4% withholding by having nonresidents sign a Georgia Form NRW-Exemption (a one-time certification by the nonresident partner/member/shareholder whereby the nonresident promises to file a Georgia return and pay Georgia income taxes). But relying on the Form NRW-Exemption is not without drawbacks – where the nonresidents do not file returns, then the flow-through or pass-through business remains liable for the 4% withholding tax. Moreover, the other members or partners (residents and nonresidents, general and limited) are liable personally for the 4% withholding tax, interest, and penalties. Richard Litwin has extensive experience in handling nonresident withholding matters, including the assertion of nonresident withholding taxes by the Georgia Department of Revenue against businesses (including partnerships, limited partnerships, S corporations and limited liability companies) that (1) operate in Georgia, (2) have shareholders/members/partners that are nonresidents of Georgia, and (3) have not withheld and remitted to the Georgia Department of Revenue the 4% nonresident withholding tax imposed on the nonresident’s share of the net income of the business that is sourced to Georgia.
Georgia Ad Valorem Property Taxation
Georgia has unique laws on the taxation of property, both real and personal. Each year, a business must report and pay tax on all property owned and located in Georgia as of January 1 of the respective year. Richard Litwin advises businesses on property tax issues relating to heavy-duty construction equipment, cranes, airplanes, cars and trucks, and inventory (whether manufactured goods or retail inventory). Richard also represents businesses facing assessment notices issued by a county board of tax assessors.
Georgia’s Title Ad Valorem Tax Fee (TAVT)
Since 2013, purchases of cars are exempt from Georgia sales and use tax and are not subject to county ad valorem tax. Now, when buying a car, the purchaser must pay a 7% tax (that can be increased each year with a maximum rate of 9%). Further, persons who bring a car from another state and title the car in Georgia must pay the TAVT. Georgia law provides for many exceptions and exemptions to the TAVT. Georgia law also provides for reduced rates under some circumstances. Richard Litwin advises businesses on the TAVT and represents businesses in disputes regarding computation of the TAVT and the application of exemptions from the TAVT.
Multistate Taxation
Now, more than ever, businesses operate in many states. Businesses have representatives working in or visiting other states to meet with customers, deliver product, solicit sales, or perform services. Some businesses have employees living in other states. Some businesses send employees to the other states. Some businesses use independent contractors to provide services for clients or customers. Businesses that operate in other states must understand whether the level of contact with another state creates sufficient nexus to obligate the business to collect the other state’s sales and use tax and/or pay net worth taxes, franchise taxes, or income taxes to the other state. Once “nexus” is established, the business must determine whether its product sales or sales of services are subject to the state’s sales and use tax. Further, the business must determine whether it must pay income tax to the other state or whether the business is protected by federal bars to imposition of tax on the net income of the business (commonly known as Public Law 86-272). Finally, the business must determine the applicable apportionment formula, which, too, can create a web of confusion, especially in light of the single-factor (sales) apportionment formula adopted by many states. Moreover, where the business provides services, the sourcing of the sales can create confusion based on whether the state uses cost of performance sourcing (sales receipts are sourced to state where the service that generated the revenues is performed) or market-based sourcing (sales revenues are sourced to state in which customer benefits). At Litwin SALT Law, we draw from our experience working exclusively in state and local taxation to help Georgia businesses and businesses throughout the country determine and understand their tax obligations.
Resources: Video Presentation
Sales and Use Tax
Richard Litwin advises businesses as purchasers and as sellers on the application of sales and use taxes. Richard’s experience in handling state and local tax matters allows him to identify quickly how a particular state’s sales and use tax applies to a particular product or service and to determine whether sales and use tax applies. Richard draws from over 30 years of experience in handling exclusively state and local tax matters, including many sales and use tax matters, to quickly and efficiently identify the issue and determine the best strategy for resolving the sales and use tax issue.
Multistate Taxation – Wayfair and Economic Nexus
After the U.S. Supreme Court decision in Quill Corp. v. North Dakota, 112 S.Ct. 49 (1992), a remote seller had to have a “substantial nexus” with a state before the state could force the remote seller to collect the state’s sales and use tax. “Substantial nexus” meant physical presence. The remote seller had to have a physical presence, including, for example, an office/location, property, employees, or independent sale representatives working in the state. If the remote seller had no physical presence in the other state, then the seller did not have to worry. The other state could not make the remote seller collect other states’ sales and use tax on sales of taxable product or services to customers in the other state.
The U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc., 138 S.Ct. 2080 (June 21, 2018), in upholding a South Dakota statute, broadened the meaning of “substantial nexus.” Under Wayfair, “substantial nexus” is not limited to just physical presence. Now, under Wayfair, “substantial nexus” is based on the virtual contacts and economic contacts that a seller has with a state.
Under Wayfair, “substantial nexus” based on economic nexus exists where the remote seller delivers more than $100,000 of goods or services or engages in 200 or more separate transactions (generally, one invoice is one transaction) for the delivery of goods or services annually. Under Wayfair, “substantial nexus,” based on virtual nexus, exists when a remote business interacts with in-state customers through a business website.
Following Wayfair, states enacted economic nexus statutes similar to South Dakota’s statute. By 2020, 43 states and the District of Columbia had economic nexus statutes (note that Alaska, Delaware, Montana, New Hampshire and Oregon have no state sales tax).
Under most economic nexus statutes, a remote seller that has no physical presence may still have to collect the state’s sales and use tax if the remote seller has met sales thresholds. Many states have a $100,000 threshold with no sales volume threshold. Thus, if the remote seller has gross sales (retail and wholesale) exceeding $100,000, either for the current calendar year or prior calendar year, then the remote seller must register and collect the state’s sales and use tax.
The economic nexus statutes raise many questions for remote sellers. And the economic nexus statutes are changing: In the beginning, most statutes imposed collection obligations when the remote seller exceeded $100,000 in sales or had made 200 sales transactions to customers in the state. States are trending away from the “transactions” threshold in favor of a dollar threshold only.
For a recent analysis of the top 10 takeaways from remote seller obligations, including the traps and pitfalls that remote sellers must consider, go to this two-part article, posted in 2021, and entitled “Remote Seller Sales/Use Tax Obligations to the Other States: Ten Takeaways from 2020.” Blog #Part One | Blog #Part Two
Voluntary Disclosures to Pay Back Taxes to Other States/Counties
A business that has been operating in another state or has nexus with another state may have overlooked its income tax, franchise tax and/or sales tax collection obligations for many years. Sometimes the business becomes aware of obligations to other states after the business is contacted by one state. At that point, the business realizes that it faces similar issues in other states. As long as the other states (or counties) have not contacted the business, Litwin SALT Law can approach the other states/counties on behalf of the business (without disclosing the identity of the business) and pay back taxes under the state or county voluntary disclosure program. Noncompliance can also become an issue during negotiations for the sale of the business. The prospective purchaser or the private equity firm hires forensic accountants to confirm that the business is complying with all states’ tax laws. If the business has not been complying, then the prospective purchaser will want to escrow some of the purchase money, and not release any of the escrowed funds until the business gets into compliance. The Litwin Law Firm represents businesses seeking to get into compliance with states in which the business operates. Richard has created a model by which we can quickly determine the states (and/or counties) of greatest concern and work quickly through voluntary disclosures to the states/counties.
Georgia Department of Revenue State Tax Executions
Like most state taxing agencies, the Georgia Department of Revenue is different from other creditors in that the Georgia Department of Revenue does not have to file a lawsuit to collect on a tax debt. If a taxpayer fails to respond to Georgia Department of Revenue notices, then the Georgia Department of Revenue can issue a State Tax Execution. The State Tax Execution Modernization Act, which became effective on January 1, 2018, has changed the manner by which the Georgia Department of Revenue prepares, files, records and enforces state tax executions (commonly known as tax liens). Unlike the past rules, the Georgia Department of Revenue no longer has to physically send the state tax execution to the clerk of superior court of the taxpayer’s county of residence. As of January 1, 2018, the Georgia Department of Revenue sends the state tax execution to the Georgia Superior Court Clerks’ Cooperative Authority (the “GSCCCA”), and the GSCCCA forwards the state tax execution to the clerk of superior court for recording. But the state tax execution is deemed recorded and enforceable at the time that the GSCCCA receives the state execution from the Georgia Department of Revenue. Also effective as of January 1, 2018, state tax executions have a 10-year life. As a result, the Georgia Department of Revenue now has 10 years to enforce a state tax execution. In the past, the Georgia Department of Revenue had the right to rerecord a state tax execution every seven years. Taxpayers must recognize that the Georgia Department of Revenue will increase its collection efforts and not sit idly by waiting for the individual to sell his home or investment property. Individuals should expect the Georgia Department of Revenue to use all tools available to enforce state taxes, including levying on bank accounts, wage garnishment, setoffs from refunds due from other government agencies. In issuing a state tax execution, the Georgia Department of Revenue must follow specific procedures. If the Georgia Department of Revenue fails to adhere to the statutory guidelines for issuing and recording a state tax execution, then, although eventually recorded, the state tax execution may not be enforceable. Litwin Law leverages nearly three decades of experience in helping individuals resolve state tax executions issued by the Georgia Department of Revenue. Depending on the circumstances, the result can vary from a withdrawal of the state tax execution by the Georgia Department of Revenue to a reduced payment through an Offer in Compromise or monthly installment payment agreement.
Personal Liability for a Business’s Trust Fund Taxes
An individual who holds a position of responsibility at a business can be held personally liable for any trust fund taxes that the business fails to pay over to the government, including the Georgia Department of Revenue. A trust fund tax includes employer withholding taxes and payroll taxes (the portion withheld from employee wages). For state tax purposes, a trust fund tax also includes any amounts required to be collected from customers, including sales taxes. The individual officer or employee in the position of authority within the business can be held personally liable if the business collected or did not collect (and should have collected) sales taxes or withheld or should have withheld payroll taxes. Litwin Law helps individuals who have been targeted by state taxing agencies, including the Georgia Department of Revenue, as a liable responsible person. As with other taxes, the state taxing agency can only collect from persons who are (1) responsible persons and (2) that acted willfully (which means paying other creditors over the taxing agency). Moreover, many state taxing agencies, including the Georgia Department of Revenue, are restricted or limited by a statute of limitations. Litwin Law advises individuals targeted by the Georgia Department of Revenue and other state taxing agencies for the unpaid trust fund taxes. We represent individuals in the Georgia Tax Tribunal and Superior Court in litigating responsible person trust fund liability assessments. We also represent individuals who have not been contacted by the Georgia Department of Revenue but who want to come forward voluntarily (without having been contacted) under the Georgia Department of Revenue’s voluntary disclosure program, to limit lookback period and penalties. Mr. Litwin draws from over 30 years of handling such matters as both an Assistant Attorney General for the Georgia Department of Law (representing the Georgia Department of Revenue) and in private practice devoted exclusively to state and local tax.
Airplanes, Exotic Cars and other Large Asset Purchases
A purchaser of an airplane must pay Georgia sales and use taxes and county ad valorem taxes every year based on the county in which the airplane is principally hangared. Effective March 2013, a purchaser of a car does not have to pay sales and use tax. But, the purchaser must pay Georgia’s title ad valorem tax (TAVT). The tax rate for 2015, 2017 and 2018 is 7%. By law, the rate cannot exceed 9%, but the Georgia Department of Revenue can increase the 7% rate for purchases after December 31, 2018. The TAVT is imposed on the fair market value of the car. Some cars are not subject to the TAVT, and some transactions are taxed at a reduced rate, such as transfers of title between certain relatives or transfers of cars to a charitable non-profit organization. Further, in some situations, no tax is due. A purchaser who buys a car for immediate transport outside Georgia and with the intent to register the car in another state does not have to pay the TAVT. Litwin Law deals exclusively in state and local tax matters. Richard Litwin has over 30 years of experience as both an Assistant Attorney General for the Georgia Department of Law (representing the Georgia Department of Revenue) and in private practice devoted exclusively to state and local tax (SALT). Litwin Law represents clients in disputes with the Georgia Department of Revenue relating to the imposition of sales and use tax on airplane purchases. Litwin Law represents clients in disputes with county taxing agencies in ad valorem property tax matters tied to airplanes. We also advise clients on title ad valorem tax matters at both the state and county level.
Nonresident Withholding Taxes (Pass-through Obligations to Pay)
States are very aggressive in seeking out and assessing nonresident individuals that earn money in the state but fail to pay income taxes on such earnings. Entertainers, athletes and celebrities, in particular, may make a one-day appearance at an event in a state and earn substantial monies from the time spent in the other state. Litwin Law helps individuals arrange their affairs to comply with nonresident requirements imposed by other states. Litwin Law also helps individuals who have received assessment notices from states.
Resources: Article
Repaying Delinquent Taxes and Collections
The Georgia Department of Revenue offers several options for repaying delinquent taxes, interest and penalties. If the Georgia Department of Revenue has not contacted the individual, the taxpayer can pursue the voluntary disclosure program. The voluntary disclosure agreement provides a limited lookback period (typically four years for individual income taxes), waiver of civil penalties, and waiver of criminal penalties. If the Georgia Department of Revenue has contacted the taxpayer, other options are available, including an offer in compromise and installment payment agreement. Drawing from over 30 years of experience in practicing exclusively in state and local tax, Litwin Law represents individuals in determining the best payment option and in negotiating the terms of the payment plan under voluntary disclosure agreements, installment payment agreements, and offers in compromise.
Georgia Department of Labor Unemployment Insurance (UI) Taxes
For businesses of any size, the first indication of a state employment tax issue can come from a State of Georgia, Department of Labor inquiry on worker classification. Such contact is often triggered by an independent contractor’s attempt to collect unemployment benefits under the belief that he/she was an employee. Depending on the results of the Georgia Department of Labor inquiry, an employer could face obligations as to the respective contractor as well as any other workers who are treated similarly by the business. The business could be required to pay back taxes and be required to treat future workers as employees and not independent contractors, because the state considers the independent contractors to be employees. If you have a Georgia Department of Labor employment tax issue, or if you have received a Georgia Department of Labor Wage & Liability Inquiry or questionnaire from the Georgia Department of Labor, do not try to complete the form without the help of an attorney who specializes in this area. The issue will not likely go away without legal guidance and counsel from an experienced tax attorney. Richard Litwin helps businesses navigate the bureaucracy of Georgia Department of Labor unemployment insurance taxes arising from worker classification.
If the business has not obtained an SS-8, then determining whether the wages are paid for employment and thus require the business to remit Georgia Department of Labor employment taxes hinges on two key factors in Georgia that determine a worker’s status:
- Is the worker subject to substantial control in terms of direction of performance? Richard has extensive experience in helping businesses understand how to maintain independent contractor status so that the business does not have substantial control over the performance of the workers’ services.
- Is the worker engaged in an established trade? Richard has extensive experience in helping businesses maintain the necessary formalities with the worker, so that the worker remains engaged in an independently-established trade or profession. Eligible trades include electrician, filing clerk, bricklayer, secretary, paraprofessional and others.
Georgia State Tax Litigation in the Georgia Tax Tribunal
Some state tax disputes with the Georgia Department of Revenue cannot be resolved at the administrative (Department of Revenue) level. Effective January 1, 2013, Georgia has a tax tribunal that is specifically charged with hearing tax disputes with the Georgia Department of Revenue. The judge is a tax attorney who has experience with tax issues. The rules and guidelines for litigating a case in the Georgia Tax Tribunal are unique and designed to streamline the process with an eye toward a speedy resolution. A taxpayer who has received an Official Assessment and Demand for Payment can file a petition with the Georgia Tax Tribunal. A taxpayer can also challenge a State Tax Execution in the Tax Tribunal. At Litwin Law, we represent individuals and businesses before the Georgia Tax Tribunal and have seasoned experience in litigating cases in the Tribunal. For more information about the Tribunal and its role in resolving state tax disputes, read more in Richard Litwin’s co-authored article “The Georgia Tax Tribunal of 2012”, State Bar of Georgia Journal (December 2012).
Other Issues
Do you have a state and local tax matter that we did not itemize? We have noted the most common state and local tax issues our clients face, but this list is not exhaustive. Contact us to discuss your specific situation and learn how we can help you effectively and efficiently resolve your state and local tax matter whether that matter is in Georgia, another state, or across multiple states.