Tax Break

Essential reading: Tax break nears end for online shoppers, and more

July 16, 2012

A rally outside the shareholders meeting in Seattle, Washington, May 24, 2012. REUTERS/Marcus Donner

Welcome to the top tax and accounting headlines from Reuters and other sources.

* Tax break nears end for online shoppers. Monica Langley – The Wall Street Journal. Republican governors, eager for new revenue to ease budget strains, are dropping their longtime opposition to imposing sales taxes on online purchases, a significant political shift that could soon bring an end to tax-free sales on the Internet. The newfound support among Republicans is a dramatic change from just a few months ago, and Republicans in Congress are seizing on the state level shift to push ahead federal legislation. Link

* Democrats threaten to go over ‘fiscal cliff’ if GOP fails to raise taxes. Lori Montgomery – The Washington Post. Democrats are making increasingly explicit threats about their willingness to let nearly $600 billion worth of tax hikes and spending cuts take effect in January unless Republicans drop their opposition to higher taxes for the nation’s wealthiest households. Emboldened by signs that GOP resistance to new taxes may be weakening, senior Democrats say they are prepared to weather a fiscal event that could plunge the nation back into recession if the new year arrives without an acceptable compromise. Link

* A fuller picture in the small-business tug of war. Trip Gabriel – The New York Times. By reframing the issue of tax increases on the wealthy into a debate about job creation, Republicans have cannily evoked Americans’ patriotic support of small businesses. But the world of small businesses — more specifically, of individuals who report business earnings on their tax returns — is complex. Many enterprises do not fit the rosy image of a tech start-up in a garage or a mom-and-pop florist. Link

* IRS denials a worry for political tax-exempt groups-attorneys. Patrick Temple-West, Reuters. The Internal Revenue Service’s denial of tax-exempt status to two small U.S. political groups is prompting concern among other tax-exempt organizations raising millions of campaign dollars that they could lose the ability to collect anonymous donations, tax attorneys say. The IRS announced in May and June that it took the actions against two groups defined as tax-exempt under the 501(c)(4) section of the tax code. The IRS on Thursday declined comment on its tax-exempt final rulings. Link

* IRS ends deals that let companies avoid repatriation tax. Richard Rubin – Bloomberg news. The U.S. Internal Revenue Service will prevent companies from entering into transactions that allow them to tap their offshore cash stockpiles without paying taxes, the government said. The IRS notice describes two types of transactions it is trying to prevent and says the agency is “aware” that taxpayers are engaging in them. One involves selling a patent from a U.S. company to a foreign subsidiary without triggering an immediate U.S. tax. In the other type of transaction, a company uses its offshore money to purchase a U.S. company and quickly reorganizes to move the purchased company outside the U.S. Link

* For transit relief, congested Atlanta ponders a penny tax. Kim Severson – The New York Times. This month, Atlanta-area voters are being asked to approve an ambitious fix that would raise $8.5 billion by adding a penny to the sales tax for 10 years. The approach is an attempt to thread the political needle in an era when the recession and smaller-government sentiment have made any effort at new public spending, especially one with the word “tax” attached, a Sisyphean task. Link

* China clarifies tax rules, foreign companies benefit. Dinny McMahon – The Wall Street Journal. More foreign companies will be able to repatriate their profits from China at a lower tax rate after Beijing clarified existing regulations, according to global accounting firm KPMG, in the latest step in China’s ongoing efforts to ease its capital restrictions. The changes were issued by China’s tax authority on Friday and took effect June 29, said Khoonming Ho, a partner in charge of tax for China and Hong Kong for KPMG. It allows more companies based in some places outside mainland China to pay as little as 5 percent withholding tax on dividends sent home from China, half the 10 percent rate that firms from countries without a tax treaty need to pay. Link

* Accountants battle over tax avoidance. Adam Jones – The Financial Times. The chief executive of the UK’s largest accountancy body has lashed out at accountants who promote aggressive tax avoidance, alienating some of his own members in the process. Michael Izza, who runs the Institute of Chartered Accountants in England and Wales, said there was no place in the profession for extreme tax-avoidance measures such as the K2 scheme used by Jimmy Carr, the comedian, and others. Link

* Norquist’s phantom army. Senator Tom Coburn – The New York Times opinion. Senate Republicans — and many House Republicans — have repeatedly rejected Grover Norquist’s strict interpretation of his own anti-tax pledge, a reading that requires them to defend every loophole and spending program hidden in the tax code. While most Republicans do, of course, oppose tax increases, they are hardly the mindless robots Democrats say they are. Norquist is the one who is increasingly isolated politically. Link

* Policy and the personal. Paul Krugman – The New York Times opinion. This election really is — in substantive, policy terms — about the rich versus the rest. Tax Policy Center estimates the Mitt Romney plan would reduce the annual taxes paid by the average member of the top 1 percent by $237,000 compared with the Barack Obama plan; for the top 0.1 percent that number rises to $1.2 million. Link

* The tax cliff is a growth killer. Arthur Laffer and Ford Scudder – The Wall Street Journal opinion. The United States faces an economic collapse thanks to massive tax increases on Jan. 1, and continued deficit spending for years on end. The blunt reality is that we cannot have a prosperous economy when government is overspending, raising tax rates, printing too much money, overregulating and restricting the free flow of goods and services across national boundaries. Link

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