Governments are looking to find new sources of revenue to hold their heads above water during troubling economic times or just to generate more income, and they are becoming more active in tracking down multistate and even multilocal tax liabilities.
“The states are becoming more and more active in making certain that the taxes they can charge are indeed charging,” says Chuck Zellmer, attorney for McDonald Hopkins LLC.
“They are becoming very active assessing and collecting taxes, contacting clients on a regular basis. I think what you'll see is even going down to the municipalities because some of them have different tax rates, they’re collecting the tax or not, and businesses just don’t think that way right now. Businesses are cognizant that they've got to collect sales taxes but not necessarily on a multistate level.
“Then you have the whole issue of are my people in the state regularly enough that I not only have to pay taxes for the sales in the state, but do I have to pay income taxes, do I have a franchise tax, and all the other taxes that go with having an employee in the state,” Zellmer says.
In the past, businesses have conducted themselves by having independent contractors in other states instead of employees. However, the government is looking at that very hard. Zellmer recommends conferring with your attorney since even some of the more sophisticated clients ? because they think they have sophisticated independent contractor agreements ? aren’t necessarily going to meet the standards the government is pushing these days.
“The independent contractor question is one that is going to be on the front burner for a while until the government settles some questions ? the trend seems to be pushing toward making it the exception when there is an independent contractor relationship,” he says.
Chuck Zellmer is manager of the Business Law Department for McDonald Hopkins LLC. Based in Cleveland, he focuses his practice on business counseling, real estate and succession planning for business clients in a variety of industries on personnel, contract and other issues encountered in daily operations, transactions and strategic planning.