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Cornerstone CPA Group, LLC

6420 West 95th Street Suite 202 
Overland Park, Kansas 66212

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Main Phone: 913.381.8350 
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Supreme Court Overturns Sales Tax Physical Presence Standards

August 29, 2018

US Supreme Court Overturns Physical Presence Standard for Sales Tax

 

A recent Supreme Court decision will most likely open the gates for states to charge sales tax on out-of-state sellers. The June 21st decision ruled that the physical presence standard (from Quill v. North Dakota, 1992) was “unsound and incorrect”.

 

The physical presence rule states that retailers and businesses must collect and remit sales tax from sales in states where the business has a physical presence. Sufficient physical presence, or “nexus”, determines whether a sales or use tax should be imposed on an out-of-state business selling goods and services into another state. 

 

With this Supreme Court ruling, businesses who sell across state lines will most likely have some sales tax exposure, because the definition of “nexus” is changing for sales tax. The court ruled that actual physical presence is not required to meet the substantial physical presence standard for purposes of “nexus” and has lowered the definition of substantial presence to “extensive virtual presence.”

 

This new nexus law will go into effect starting December 1, 2018. As a result of this decision, states will most likely begin to change their laws in order to tax online/internet sales from out-of-state vendors. This decision will impact online retail giants like Amazon, but will also impact smaller companies who sell items (and possibly services) across the internet. 

 

The specific impact of any changes at the state level are not known at this time, but Cornerstone will stay current on any developments and will communicate any changes.  In addition, keep in mind that this court ruling applies to sales tax and not income tax.  Please contact us if you have any questions.

 

 

"Back-to-School" Turns our Thoughts to 529 College Savings Plans

 

Back-to-school is just around the corner, so if you are a parent with college-bound children, setting up a financial plan will relieve some anxiety surrounding paying for those college expenses. If your children are already in college, you may be concerned with current or imminent college bills. There are a couple of things you can do to save some tax and save for college.

 

From a federal tax perspective, there is no deduction for contributions to a 529 college savings plan, but you can contribute $15,000 per person per beneficiary in 2018 (so $30,000 for a married couple to their child) with no gift tax consequences. In addition, you may get a state tax deduction for 529 contributions. For married couples, those deductions are $6,000 per child in Kansas and up to $16,000 in total for Missouri.

 

If you are currently paying college costs, consider contributing to a 529 plan first to receive the state tax benefits and then use those funds within the 529 plan to pay for those college expenses.

 

Also remember that you do not have to invest in Kansas or Missouri sponsored plans (if you are resident in one of those states). Both states allow for the deduction as long as the contribution is made to any state qualified 529 plan. A great resource we recommend to research 529 plans is www.savingforcollege.com

 

With all of the benefits of a 529 plan, there are some rules to keep in mind when withdrawing money. Here is a great article on how to avoid unintended consequences when taking money out of your plan: http://www.savingforcollege.com/article/avoid-these-529-withdrawal-traps

 

Finally, the Tax Cuts and Jobs Act (TCJA) has also made some changes to 529 plans. The new law provides that qualified higher education expenses now include expenses for tuition at elementary or secondary public, private, or religious schools. Withdrawals for this type of tuition are limited to $10,000 per year, however. If you have children in a private school, you may considered contributing to your 529 for the tax break and then using those funds within the 529 plan for the private school tuition only (up to $10,000).

 

 

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