Update on Internet Retail Taxation, with Rob Wood, Tax Attorney, San Francisco

There is a lot of hype right now regarding online sales tax, with a lot of people adamantly for the Marketplace Fairness Act and a lot of people against it.  As a consumer, it is hard to follow the debate about it due to a lot of untrue statements, says Rob Wood, tax attorney with Wood, LLP in San Francisco, California.

Currently, the Marketplace Fairness Act is being considered in the senate and Wood believes the bill will pass the senate.  "The days of tax-free clicks on the internet are fast-closing," he says with Amazon already collecting tax in some states, with even small retailers starting to collect.

Wood says there are lawsuits with more to come and so far, New York state beat Amazon and Overstock in an appellate court.  California recently sent out a letter saying that whether or not you're collecting tax at the time you buying something, as a California resident, you are liable for use tax - a law that exists in 45 states, according to Wood.

Most of the debate is about collection mechanisms and not being liable for the tax, notes Wood.  He adds that many state income tax forms will ask towards the end of the form if you owe use tax and how much was brought into your state. 

"There is no question that state and local governments are hurting and they are hoping this internet purchase phenomenon will help their revenue," says Wood.

Attorney Robert Wood, of Wood, LLP in San Francisco is a featured commentator with The Tax Law Channel, part of The Legal Broadcast Network.  

BP Oil Spill Victims, Their Damages and Taxation, with Rob Wood, Tax Attorney in San Francisco, California

Attorney fees are often considered a tax-trap but the basic rule is that everything is income.  Rob Wood, tax attorney in San Francisco, California, says that there are exceptions but you have to start with the basic notion that any money you get is going to be taxed.

Wood says that the average person may think of lawyers fees on a contingency basis, so the average client who gets a settlement looks, understandably, at their net dollars, not gross.  For example, if the lawyer is charging one-third contingency and the case is settling, the client is looking at the other two-thirds as theirs, and that being the maximum amount on which to pay tax.  According to Wood, that is wrong, based on a US Supreme Court case in 2005.  The court said that in a contingency fee situation, the client is viewed as getting 100% of the money, even though the lawyer in most cases is paid directly and separately.  The client, for tax purposes, is treated as receiving all three-thirds, to cite Wood's example.  The main exception to this tax rule are employment cases, notes Wood.

Wood points out that when someone says they're paying taxes on their attorney fees, what they mean is they can only deduct attorney fees as a miscellaneous itemized deduction, which means they're paying AMT, or alternative minimum tax.

Regarding the BP oil spill case and taxation on attorney fees, it depends on what that person is getting, says Wood.  They need to look at each element of damages they're receiving, whether it's for personal injury, emotional distress, property damages, etc.  Wood explains that there are very complex tax rules for people getting the money and advises getting the proper professional help, well before tax time.

Attorney Robert Wood, of Wood, LLP in San Francisco is a featured commentator with The Tax Law Channel, part of The Legal Broadcast Network.  For more information on his Forbes article on this case, click here.

Phil Mickelson Income Tax Comments, With Robert Wood, Tax Lawyer

PGA golfer and celebrity endorser Phil Mickleson got into some hot water when he candidly discussed the impact of new State of California and Federal income tax rates on his business and professional decisions. His rate, quoted as being "62% to 63%" means that a large share of his annual income is subject to the highest possible tax rates. 

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IRS After Florida Widow for Inheriting $42 Million Swiss Bank Account, With Tax Lawyer, Robert Wood

A Florida widow has inherited $42 million from a Swiss bank account and the IRS is treating this case very harshly, as it had lost out on taxes from 2007-2011.  The penalty is 50% of the highest balance ($21.5 million) and up to 6 years in prison, says Robert Wood, tax lawyer with Wood, LLP in San Francisco.

Wood says that this case reminds us that it is a good idea to disclose foreign bank accounts, as the rules for permanent U.S. residents are to report worldwide income and separate disclosure forms  called F Bars, which are separate from tax returns.  They apply even if someone doesn't own the money but if they're merely a signatory.  

The hard part, Wood believes, is the transition from being undisclosed to coming into compliance and if there's a way to do it, that's "less frightening and less expensive" than going through the volunteer disclosure process.  Wood says that usually, the answer is no but in some cases there may be.  Wood says that the IRS is good at reminding people, especially around tax season, that these things are serious.  It is important to seek the proper advice in these cases, says Wood, so as to not end up like this Florida widow.

Attorney Robert Wood, of Wood, LLP in San Francisco is a featured commentator with The Tax Law Channel, part of The Legal Broadcast Network.  For more information on his Forbes article on this case, click here.

Online Sales Tax, With Tax Lawyer Robert Wood, San Francisco

For businesses making online wholesale purchases for resale, they shouldn't be paying an online sales tax.  Tax lawyer Robert Wood, of Wood, LLP in San Francisco says that the idea is that the sales tax should be applied at the final sale at retail and it is assumed that the consumer will pay sales tax at the final point of the distribution chain.

As there is no uniform national law on sales tax, it is still a state item but Wood believes it's better to impose uniform standards on what states can and can't do, as this would "generally be good for businesses in that it would streamline the process of compliance."

In the early 90's, the Supreme Court said that a business needs to have a presence in the state in order to be subject as a business to collect sales tax, says Wood.  When buying online, it matters where you are because if that merchant has a store in your state, then it doesn't matter if you're buying online or from the actual store, as the sales tax would apply, he adds.

The use tax is the mirror image of the sales tax, which is when the merchant doesn't collect sales tax but you have the good shipped into your state, according to Wood.  

Attorney Robert Wood, of Wood, LLP in San Francisco is a featured commentator with The Tax Law Channel, part of The Legal Broadcast Network.