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Summing It Up

Keeping you ahead of the curve with timely news & updates.

President Obama's Fiscal Year 2014 Federal Budget Proposal

describe the imageFrom the Thompson Reuters report," On April 10, President Obama released his Fiscal Year 2014 federal budget proposal, which included $1.8 trillion of additional deficit reduction over 10 years. It contains many of the provisions proposed in his 2013 budget, along with several new ones, such as the use of a chained consumer price index (CPI), a $3 million limit on tax-preferred retirement accounts, and an increase in the excise tax on tobacco.

Employing a “balanced approach,” the budget proposal seeks to tame the deficit while making businesses more competitive, providing middle-class tax relief, and reforming the tax Code. There are provisions that many will wholeheartedly support, and others that many will find unacceptable. Businesses will undoubtedly applaud the new stability in a permanent research credit and expensing deduction. Higher earners with incomes over $1 million will not be happy with paying at least 30% of their income in taxes under the so-called “Buffett Rule.” The elderly on a fixed budget may see the use of chained CPI as a politically safe way to cut Social Security. Some will view as overdue reforms to prevent companies from shifting profits overseas to avoid U.S. taxes and to encourage “insourcing” and job creation in
the U.S.

It is of course unlikely that many of these provisions will make their way into legislation, but some very well may. Whether regarded as a vision of the President’s agenda or a road map to coming changes, the budget proposal can’t be ignored." 

 To learn more and gain access to the full report, click HERE.

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Amendments to New York’s Royalty Expense Add Back Statute

NY Royalty ExpenseAs the first legislative quarter for 2013 comes to an end and the second quarter begins, elected officials across the country are considering a large number of state income and franchise tax law changes. Some proposals have been audacious, recommending significant tax reform (e.g., eliminating the corporate and individual income taxes), while others stay true to the current tax policies and play around the edges (e.g., eliminating tax breaks).

One of the amendments to the current tax policies in New York State applies to corporate franchise tax, bank franchise tax, tax on unrelated business income, personal income, and insurance tax. Royalty income (sometimes called running royalties) are usage-based payments made by one party (the "licensee") to another (the "licensor") for the right to ongoing use of an asset, sometimes an intellectual property. Royalties are typically agreed upon as a percentage of gross or net revenues derived from the use of an asset or a fixed price per unit sold of an item of such, but there are also other modes and metrics of compensation. A royalty interest is the right to collect a stream of future royalty payments. 

Changes to New York’s royalty income add-back and exclusion provisions, which apply to taxable years beginning on or after January 1st 2013, eliminate the exclusion of royalty income received, if the related member that made the royalty payment was required to add back the payment to its income. Further, the bill creates new exceptions:

  • The royalty payment was paid, accrued or incurred by a taxpayer that is organized under the laws of a foreign country that has a tax treaty with the US. The taxpayer was subject to tax in the foreign country on a tax base that included the royalty payment paid, accrued or incurred by the taxpayer; the effective tax rate equals that imposed by New York; and the royalty payment was paid, accrued or incurred pursuant to a transaction that was undertaken for a valid business purpose and using terms that reflect an arm’s length relationship.

  • If the taxpayer was subject to tax on or measured by its net income in New York or another state; the tax base for the tax included the royalty payment paid, accrued or incurred by the taxpayer; and the aggregate effective tax rate (a nominal rate multiplied by the recipients apportionment percentage) applied to the related member in those jurisdictions is not less than 80% of the applicable New York statutory rate.

  • If the taxpayer was subject to tax in New York, another state or foreign nation on a tax base that included the royalty payment paid, accrued or incurred by the taxpayer; the related member during that same taxable year directly or indirectly paid, accrued or incurred such portion to an unrelated third party; and the transaction giving rise to the royalty payment between the taxpayer and related member was undertaken for a valid business purpose.

The new legislation is forth coming, applying to tax years beginning January 1st, 2013 and all applicable taxes related to this, filed thereafter.

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When it comes to taxes, Freed Maxick CPAs is different than most accounting firms in Western New York. What matters to you, matters to us; giving you the most up to date alerts to any changes that may affect you and help you respond in a timely way. We serve all 50 states. Contact us to today.




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How Much Do You Know About Marcellus Shale?

By: Jeffrey T. Zawada, CPA and David L. Mancuso, CPA

The incentives and implications of legislation

Hydraulic Fracturing, also known as “Fracking,” is a “well stimulation” process used to maximize the extraction of underground resources – oil, natural gas and geothermal energy. The hydraulic fracturing process includes the acquisition of source water, well construction, well stimulation, and waste disposal. Hydraulic fracturing involves the pressurized injection of fluids commonly made up of water and chemical additives into a geologic formation. The pressure exceeds the rock strength and the fluid opens or enlarges fractures in the rock. As the formation is fractured, a “propping agent,” such as sand or ceramic beads, is pumped into the fractures to keep them from closing as the pumping pressure is released. The fracturing fluids (water and chemical additives) are then returned back to the surface. Natural gas will flow from pores and fractures in the rock into the well for subsequent extraction.

FrackingCTAGet our helpful whitepaper to learn more about the incentives and implications of related legislation.

Freed Maxick is leading the way in help companies navigate state by state tax filing requirements in the oil and gas industry; whether in oil and gas investments or directly with drilling companies. Our professional can assist at the entity and investor level to ensure deductions are maximized. Please visit us at freedmaxick.com for more information, or call 716-847-2651.

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