Tax Docket

From the Wall Street Journal:

State tax officials, under orders from cash-strapped Albany to ramp up their audit and compliance efforts, have begun to enforce one of the more obscure distinctions within the state’s sales tax law.

In New York, the sale of whole bagels isn’t subject to sales tax. But the tax does apply to “sliced or prepared bagels (with cream cheese or other toppings),” according to the state Department of Taxation and Finance. And if the bagel is eaten in the store, even if it’s never been touched by a knife, it’s also taxed.

According to sources, Chef Gordon Ramsay’s firm owes over $2 Million in taxes. Reports have indicated that U.S. Authorities have issued the chef’s firm three outstanding tax bills in the last eight months. The last bill was for about $500,000.The news comes days after the celebrity chef was forced to shut down his restaurant in Cape Town last week.

FOX23 News: Chef Ramsay in tax trouble

Method Man plead guilty to tax evasion charges Monday. The Hip Hip artist  was arrested on August 9 for failure to pay state and personal income taxes. According to reports, he wrote a $40,000 restitution check on the spot after owning approximately $106,000 in taxes.

The Associated Press, Method Man Pleads Guilty to NYC- Tax Evasion Charge

ABC News, Method Man Pleads Guilty to Tax Evasion

Fox News, Method Man Pleads Guilty to Tax Evasion Charge

New York Daily News, Wu-Tang rapper Method Man Pleads Guilty to Attempted Tax Evasion, Pays $106K in Restitution

The Wall Street Journal is reporting that shrinking the amount of charitable contributions New Yorkers earning more than $10 million can deduct from there state taxes is gaining support from Gov. David Paterson and lawmakers:

Under the plan, the amount those high earners could be allowed to deduct may drop to as little as 25% of their giving. The current limit is 50%.

Depending on where the limit is set, lawmakers estimated the state could generate $60 million to $100 million from an estimated 3,500 taxpayers, including Mayor Michael Bloomberg, who donated $254 million in 2009.

“We haven’t seen the details, but it sounds like it would really hurt the charities and nonprofits that people rely on now more than ever,” said Stu Loeser, a spokesman for Mr. Bloomberg.

The tax would be the third significant hike targeted at wealthy residents that Albany has passed during the Paterson administration.

According to the New York Times, Gov. David A. Paterson has reached a tentative deal with leglislative leaders that would raise New York’s cigarette tax by $1.60 per pack making it the highest cigarette tax in the nation:

The proposal, which officials said Mr. Paterson would include in an emergency budget bill due for a vote on Monday, would also raise wholesale taxes on other tobacco products like chewing tobacco, bringing the tax on those products closer in line with those of cigarettes.

In New York City, which levies steep taxes of its own on tobacco products, a pack of cigarettes would come with a tax of $5.85, making it the nation’s first city to break $5, antismoking advocates said. That would bring the overall cost of a pack of premium cigarettes above $10 in many stores in the city.

The legislation will also include a plan to begin collecting taxes on cigarettes sold off the reservation by Indian tribes in New York, an issue that has provoked confrontations between State Police officers and protesting tribe members in years past.

Here is a map from Tax Foundation, which shows the state excise tax rates on cigarettes per 20-pack of cigarettes as of January 1, 2009. Click the map to enlarge.

For those worried that your New York pet trust may be invalid because of the Rule Against Perpetuities (RAP), have no fear — New York has eliminated RAP and provided that pet trusts terminate when the living animal beneficiary or beneficiaries of the trust are no longer alive.

See 2010 Sess. Law News of N.Y. Ch. 70 (effective May 5, 2010).

Wills, Trusts & Estates Prof Blog

On Wednesday, The Hill reported that Sen. Chuck Schumer (D-N.Y.) introduced a bill that places an $0.25 excise tax on companies that transfer domestic service calls to foreign call centers:

“If we want to put a stop to the outsourcing of American jobs, than we need to provide incentives for American companies to keep American jobs here,” Schumer said in prepared remarks. “This bill will not only serve to maintain call center jobs currently in the United States, but also provide a reason for companies that have already outsourced jobs to bring them back.”
Under the bill, companies would incur a $0.25 excise tax for any domestic customer service call that is transferred overseas.

Companies must also disclose to the caller that their call is being transferred overseas and name which country is receiving the call.

A recent Tax Foundation publication, States Vary in Distribution of Who Bears the Burden of Federal Income Taxes, analyzes the distribution of income and federal income taxes by income group of each state:

Connecticut by far has the most progressive distribution of federal income taxes. Taxpayers earning under $50,000 earned 13 percent of the AGI in the state, but paid 5 percent of the federal income taxes paid by all taxpayers in the state. By contrast, taxpayers earning over $200,000 earned 44 percent of the AGI, but paid 66 percent of the income taxes.

New York has the second most progressive distribution of federal income taxes. Taxpayers earning more than $200,000 earned 40 percent of the state’s AGI but paid 63 percent of the state’s federal income taxes. Indeed, they paid three times as much in federal income taxes as every taxpayer earning under $100,000 paid combined.

The other states in which taxpayers earning over $200,000 paid a greater share of the state’s federal tax burden than the national average include: New Jersey (58 percent); Texas (57 percent); Florida (56 percent); Massachusetts (56 percent); Wyoming (56 percent); California (55 percent); Illinois (54 percent); and Louisiana (53 percent).

The article includes tables for each state displaying the distribution of income and federal income taxes by income group for each state. The tables also show the effective tax rate-or share of income paid in taxes-for each income group.

According to the New York Daily News, Helmer Toro, founder of H & H Bagels, plead guilty of second degree larceny today for pocketing $369,000 in payroll taxes:

The bagel big admitted he withheld $337,000 from his workers’ paychecks between 2003 and 2009, and simply kept the money.

Toro also admitted taking the remainder of the money by registering some 89 payroll names under a succession of new shell companies so that he could pay their unemployment insurance taxes under the lowest rate, reserved for brand new businesses.

As part of the restitution deal, he has pledged as collateral the $500,000 mortgage on his main bakery plant at 45th Street and 12th Avenue — where he has boasted of making 80,000 bagels a day.

According to Justin Higginbottom’s Tax Foundation article, taxes on plastic bags have been disappointing in their debut:

Since January 2010, shoppers in Washington, D.C. have had to pay five cents on most paper or plastic bags at grocery and convenience stores. In early results, shoppers are often unwilling to pay, so carry-out bag use is greatly reduced, revenue from the tax is low, and the mayor has suggested transferring what little has been collected out of an environmental fund into a general fund. Whether the citizens consider the new tax a success depends on which of the many, often contradictory purposes they remember from the debate over passage.

In at least 15 states, bag tax proposals are pending (see table). Sometimes they are pitched as “fees” and sometimes as “taxes,” with important rhetorical, political and legal ramifications. In almost all cases, proposed bag taxes do not come close to meeting the definition of a fee. Even when pitched more honestly as taxes, they are likely to fall short of ambitious environmental clean-up goals. Also, bag taxes cause unintended effects, such as stimulating bulk purchases of plastic bags, perhaps of a type that would cause equal environmental damage. And bag taxes invariably get caught up in the political process in which special interests in business and government are served more than the public’s interest.

Whether assessed theoretically or practically, bag taxes are not a promising development in tax policy.

Below is a chart from Higginbottom’s article that lists proposed bag tax legislation: