Rea states that in 2006, Congress changed the rules for non-profits and tax returns. Previously organizations with gross income under $25,000 didn’t have to file a return. Starting in 2007, any non-profit that does not file for three consecutive years will lose its tax-exempt status.

“The original filing deadline was May 17, 2010,” said Rea “However, the IRS recognized that many small non-profits had no idea this was happening, so they now have until October 15, 2010, to file.”

The IRS has stated that tax-exempt organizations that fail to satisfy the annual filing requirements for three consecutive years will automatically lose their tax–exempt status. This could be devastating to many small organizations that are typically managed by volunteers who could change year-to-year. (insert last name) encourages all non-profits to verify that all appropriate documents are submitted before the October date.

The IRS has posted a special page on its website at www.irs.gov containing the names and last-known addresses of these at-risk organizations, along with guidance on how to come back into compliance. The volume of organizations currently not in compliance is staggering as it is in the tens of thousands.

“We are doing everything we can to help organizations comply with the law and keep their valuable tax exemption,” IRS Commissioner Doug Shulman said. “So if you do not have your filings up to date, now’s the time to take action and get back on track.”

Small organizations required to file Form 990-N simply need to go to the IRS website, supply the eight information items called for on the form and electronically file it by October 15. That will bring them back into compliance.

Rea advises that before going online to fill out the form, an organization should check with a reputable tax professional to make certain its annual gross receipts are $25,000 or less. (insert last name) belongs to the National Association of Tax Professionals, an organization whose members are held to high ethical and expertise standards. To find a professional tax preparer, visit www.natptax.com.

IRS and state taxing agencies expect taxes to be paid on income as it is earned, hence the quarterly filing requirement.   Quarterly estimated payments are due on April 15, June 15, Septem,ber 15, and January 15 each year.  If you have income subject to a quarterly payment requirement and wait until April 15 to pay the tax, you will be subject to an underpayment penalty.

Leonard D. Rea EA CFP joined federally authorized tax practitioners including Enrolled Agents, Attorneys and CPAs from many parts of the country for a comprehensive conference on the advanced aspects of representing clients before the IRS. Enrolled Agents (EAs), Attorneys and Certified Public Accountants (CPAs) are federally authorized tax practitioners. They are regulated by the IRS and are permitted to  represent taxpayers at all levels of the IRS in addition to preparing tax returns that meet exacting standards. They represent taxpayers who are being examined by the IRS, taxpayers who are unable to pay tax liabilities, taxpayers who want to appeal IRS determinations, and taxpayers who wish to avoid or recover penalties. Enrolled Agents are licensed by the federal government and must demonstrate professional competence and meet annual professional education requirements in federal tax matters.  Attorneys and CPAs are licensed by the various states which require professional competence and continuing professional education.

WHAT: American Academy of Tax Practice Annual Conference on Advanced Taxpayer Representation and IRS Procedure

WHEN: July 21 through 23, 2010

WHERE: Annapolis, MD

WHO: Bryan & Jean Gates, EAs –  Conference Facilitators

The American Academy of Tax Practice is a professional institute devoted to tax practice education and training developing and sharpening the skills depended upon by federally authorized tax practitioners who practice before the IRS.

The class I attended went into some very complicated calculations related to Partnerships and S-Corporations but the point is the same:  If you are going to be investing in vehicles that require a calculation of your cost to determine the taxable amount when you sell them, you need to keep the records related to those things.

For your stocks and mutual funds it is the monthly and annual statements you receive.  For other investments that do not generate staements you need to keep a written record of your investments and distributions as well as your cancelled checks and bank statements.

For more information regarding this and other tax topics feel free to contact me.

The complete details:

II. Purchases Qualifying for the Exemption

The exemption applies to sales of tangible personal property bought for personal use only. Purchases by corporations or other businesses and purchases by individuals for business use remain taxable. Purchases exempt from the sales tax under G.L. c. 64H are also exempt from use tax under G.L. c. 64I. Therefore, eligible items of tangible personal property purchased on the Massachusetts sales tax holiday from out-of-state retailers for use in Massachusetts are exempt from the Massachusetts use tax. Alcoholic beverages sold for off-premises consumption by liquor or package stores qualify for the 2010 sales tax holiday.

III.  Specific Rules

The following rules are to be applied by retailers in administering the Massachusetts sales tax holiday exemption:

A. Non-Exempt Sales.[1] motorboats,[2] meals,[3] telecommunications services,[4] gas,[5] steam, electricity, tobacco products[6] and of any single item whose price is in excess of $2,500, do not qualify for the sales tax holiday exemption and remain subject to tax.  All sales of motor vehicles,

B. Threshold. When the sales price of any single item is greater than $2,500, sales or use tax is due on the entire price charged for the item. The sales price is not reduced by the threshold amount. For example, if an item is sold for $3,000, the entire sales price of the item is taxable, not just the amount that exceeds $2,500.

Exception:  Under G.L. c. 64H, § 6(k) there is no sales tax on any article of clothing unless the sales price exceeds $175; in that case, only the increment over $175 is subject to tax. If, on the sales tax holiday, the price of an article of clothing exceeds the threshold, the first $175 may be deducted from the amount subject to tax. The $2,500 threshold amount is not increased by $175.

Examples: 

A customer buys a suit on the sales tax holiday for $600. No tax is due. 

A customer buys a wedding dress on the sales tax holiday for $2,550. Tax is due on $2,375 ($2,550 – $175).

C. Multiple Items on One Invoice. Where a customer is purchasing multiple items on the sales tax holiday, separate invoices do not need to be prepared. As long as each individual item is $2500 or less, there is no upper limit on the tax-free amount each customer may purchase.

Example: A customer purchases a television, a stereo receiver, and a computer. The three separate items costing $1,500, $1,200 and $2,000 can be rung up together, all tax free.

D. Bundled Transactions. When several items are offered for sale at a single price, the entire package is exempt if the sales price of the package is $2,500 or less. For example, a computer package including a CPU, keyboard, monitor, mouse, and printer with a single sales price of $3,500 would not qualify for the sales tax holiday exemption because the single sales price of the package ($3,500) is more than the sales tax holiday threshold amount of $2,500.

Items that are priced separately and are to be sold as separate articles will qualify for the sales tax holiday exemption if the price of each article is $2,500 or less. For example, a customer purchases a personal computer for $3,000, and a computer printer for $200, each of which is priced separately. The purchase of the personal computer will not qualify for the exemption because the sales price ($3,000) is in excess of the sales tax holiday threshold amount of $2,500. However, since the sales price of the computer printer ($200) is less than $2,500, the printer would be exempt from tax. 

E. Coupons and Discounts. If a store coupon or discount provided by a retailer or manufacturer reduces the sales price of the property, the discounted sales price determines whether the sales price is within the sales tax holiday price threshold of $2,500 or less. If a store coupon or discount applies to the total amount paid by a purchaser rather than to the sales price of a particular item and the purchaser has purchased both eligible property and taxable property, the seller should allocate the discount on a pro rata basis to each article sold. 

Example: A furniture store customer has a coupon for 20% off her entire bill. She purchases a dining room table for $1,800, and a sofa for $3,500.   The total discount available is $1,060 ($5,300 x .20), of which $360 is attributable to the table ($1,800 x .20), and $700 is attributable to the sofa ($3,500 x .20).   No tax is due on the sale of the table. Tax of $175 is due on the sales price of the sofa, $2,800 ($3,500 – $700), as even its discounted price exceeds the $2,500 threshold.      

F. Exchanges. Consistent with the Department’s usual practice, if a customer purchases an item of eligible property during the sales tax holiday, but later exchanges the item for an identical or similar eligible item, for the same price (“an even exchange”), no tax is due even if the exchange is made after the sales tax holiday, see LR 03-8.   

G. Layaway Sales. A layaway sale is a transaction in which property is set aside for future delivery to a customer who makes a deposit, agrees to pay the balance of the purchase price over a period of time and receives the property when the last payment is made. Layaway sales do not qualify for the sales tax holiday, even if the last required payment (or payments necessary to complete the transaction) are made on August 14 and 15, 2010.

H. Special Order Items; Transfer of Possession after Sales Tax Holiday. Special order items such as furniture are eligible for the sales tax holiday so long as they are ordered and paid in full on the sales tax holiday weekend, and the cost of each item is $2,500 or less, even if delivery is made at a later date. Generally, a customer pays for an item when the seller receives cash, a credit card number, a debit authorization, a check, or a money order or the buyer and seller enter into financing arrangements with a third party, including an affiliated entity (but excluding seller financing where the seller extends credit to the customer). A prior special order purchase with a deposit paidbefore August 14, 2010 will not qualify for the holiday, even if the retail customer pays the entire remaining balance due on August 14 or 15, 2010.

I. Rain checks. When a customer receives a rain check because an item on sale was not available, property bought with the use of the rain check will qualify for the exemption regardless of when the rain check was issued if the rain check is used on the sales tax holiday weekend. Issuance of a rain check during the sales tax holiday weekend will not qualify otherwise eligible property for the sales tax holiday exemption if the property is actually purchased after the sales tax holiday.

J.  Rentals.  Generally, rentals for thirty days or less of tangible personal property other than motor vehicles and motorboats are eligible for the sales tax holiday, even if the rental period covers days before or after the holiday, providing payment in full is made during the sales tax holiday weekend. The sales tax holiday does not apply to rentals or leases of tangible personal property of any type if the term of the rental or lease contract is longer than thirty days. 

K. Rebates. A rebate is a refund of an amount of money by the manufacturer of a product to the retail purchaser of the product. If a vendor sells tangible personal property to a customer who applies a manufacturer’s rebate to reduce the sales price at the time of the sale, the rebate is generally treated as a cash discount and is excluded from the sales price. The discounted sales price determines whether the sales price is within the sales tax holiday price threshold of $2,500 or less.    

If a vendor sells tangible personal property to a customer who will receive a rebate after the sale (e.g., by mailing a coupon to the manufacturer), the full purchase price of the property determines whether the sales price is within the sales tax holiday price threshold of $2,500 or less, and tax must be charged on the full purchase price if it is over $2,500. 

If a vendor offers a customer a cash discount upon the purchase of tangible personal property and the customer also receives a rebate from the manufacturer of the property after the sale, only the cash discount given by the retailer is excluded from the sales price for purposes of the sales tax holiday exemption. The amount of the manufacturer’s rebate is not deducted from the sales price.

L. Internet Sales. If a customer orders an item of eligible property over the Internet, the item is exempt if it is ordered and paid for onAugust 14 or 15, 2010 Eastern Daylight Time. Generally, a customer pays for an item when the seller receives a credit card number, a debit authorization, a check, or a money order. The actual delivery can occur after the holiday period. For example: a customer orders a computer over the Internet with a sales price of $2,000 and charges the sale to his credit card at 1:00 p.m. (EDT) onAugust 14 or 15, 2010; the computer has a delivery date of September 1, 2010.  The sale is exempt since the computer was ordered and paid for during the sales tax holiday.

M. Splitting of Items Normally Sold Together. Articles normally sold as a single unit must continue to be sold in that manner. Such articles cannot be priced separately and sold as individual items in order to obtain the sales tax holiday exemption. 

N. Returns.  Generally, sales tax may only be refunded to a retail customer on returns within 90 days of the sale. G.L. c. 64H, § 1. For the 90 day period following August 14 or 15, 2010, when a customer returns an item that could have qualified for the sales tax holiday exemption, the vendor may not credit or refund sales tax to the retail customer unless (1) the customer provides a receipt or invoice that shows the tax was paid or (2) the seller’s records show that tax was paid. Sellers may set their own return policies. This requirement is not intended to change or extend a seller’s return policy. 

O. Erroneously Collected Taxes. Customers who were erroneously charged sales tax by a vendor for an exempt purchase should take their tax paid receipt to the vendor to obtain the refund. If the vendor has previously remitted the erroneously collected tax to the Department, the vendor may file an application for abatement of the erroneously collected tax within 3 years upon satisfactory evidence that the vendor has credited or refunded the tax to the purchaser.

IV. Responsibilities of Retailers

A. Participation. All Massachusetts businesses normally making taxable sales of tangible personal property that are open on August 14 or 15, 2010 must participate in this sales tax holiday.

B. Erroneous Collection. Any sales or use tax erroneously or improperly collected by a retailer on August 14 or 15, 2010 must be remitted to the Department of Revenue. 

C. Nonbusiness Use by the Purchaser. The requirement that purchases under the Sales Tax Holiday be for nonbusiness use is unchanged and purchasers paying for tangible personal property with business credit cards or checks must be charged tax on the items purchased. Normal business records showing the date of sale, item(s) purchased, and selling price must be kept by the retailer/vendor. However, a separate certification of nonbusiness use from the purchaser will not be required for the 2010 Sales Tax Holiday regardless of the amount of the otherwise qualifying purchase.

D. Out-of-State Retailers. Out-of-state retailers registered to collect Massachusetts sales and use taxes must participate in this sales tax holiday. Such retailers should not collect sales/use tax for items ordered and paid for on August 14 or 15, 2010 in accordance with the rules of this technical information release. The retailers must keep records sufficient to verify the date of sale, item(s) purchased, and selling price.

E. Penalties.  Retailers that back-date sales occurring after August 15, 2010 or that forward-date sales that occurred beforeAugust 14, 2010 in order to make them appear to qualify for the sales tax holiday or otherwise fail to follow the rules in the TIR in order to improperly avoid collecting and remitting sales or use tax may be subject to the tax evasion penalties of G.L. c. 62C, § 73, including a felony conviction, a fine of not more than $100,000 or $500,000 in the case of a corporation, or by imprisonment for not more than five years, or both, and may also be required to pay the costs of prosecution.

                                                                                    /s/Navjeet K. Bal           

                                                                                    Navjeet K. Bal

                                                                                    Commissioner of Revenue

NKB:MTF:jet

310044

August 5, 2010

TIR 10-10

[2] Motorboats, including jet skis, are not exempt under the sales tax holiday. For purposes of the holiday, a motorboat is any vessel or watercraft propelled by machinery, such as an inboard or outboard motor, whether or not such machinery is the principal source of propulsion. See G.L. c. 90B, § 1. Rentals of motorboats are also excluded from the sales tax holiday. Generally, the sales tax holiday will apply to purchases of canoes, kayaks, rowboats, and other types of watercraft with no mechanical propulsion, provided that the sales price is $2,500 or less.

[3] “Meals” are defined in c. 64H as “any food or beverage, or both, prepared for human consumption and provided by a restaurant, where the food or beverages is intended for consumption on or off the restaurant premises, and includes food or beverages sold on a ‘take out’ or ‘to go’ basis, whether or not they are packaged or wrapped and whether or not they are taken from the premises of the restaurant.” G.L. c. 64H, § 6(h); 830 CMR 64H.6.5.

[4] “Telecommunications services” are defined in G.L. c. 64H as “any transmission of messages or information by electronic or similar means, between or among points by wire, cable, fiber optics, laser, microwave, radio, satellite or similar facilities but not including cable television.” G.L. c. 64H, § 1. Sales of prepaid calling arrangements and cards are not eligible for the sales tax holiday. Telecommunications equipment, such as a telephone or cell phone purchased for nonbusiness use, is eligible for the sales tax holiday.

[5] The term “gas” here refers to natural gas; sales of gasoline are not subject to the sales tax under G.L. c. 64H.

[6] “Tobacco products” includes products subject to the excise under G.L. c. 64C such as cigarettes, cigars, and smoking and smokeless tobacco.