Amazon Now Collects Taxes in 19 States … with More on the Way

Amazon Now Collects Taxes in 19 States … with More on the Way
5 Changes for Your 2014 Qualified Retirement Plan
New Instagram Ads Bring 17 Percent More Brand Awareness
Does a Rise in Housing Starts Equal Growth in Construction Startups?

Posted: 06 Jan 2014 01:30 PM PST

You probably remember the Internet Sales Tax that passed the U.S. Senate last year. The proposed law seemed to get stranded in committee in the U.S. House soon after, but there is buzz that it may yet move forward.

The proposed Federal law in its current form would require all online retailers (wherever located) to collect sales tax in any state where they generate more than $1 million in sales a year.

And you may also remember the so-called nexus or Amazon sales tax laws passed in numerous states — a total of 13 by our last count. Some say the laws were an attempt to get Amazon to collect sales tax on sales made to state residents through a local affiliate marketer.

The result was that Amazon ultimately ended its relationships with its affiliates in those states, many of them small business owners, to avoid paying. The Performance Marketing Association, an affiliate advocacy organization, estimates 90,000 affiliates were affected. Some businesses either closed up shop, downsized or moved into a neighboring state without similar legislation. Others just lost an income stream to affiliates in other states.

And after all this, a decision by the Illinios Supreme Court effectively striking down Illinois’ version of the law left many wondering about the fate of any of this legislation.

States Woo Amazon in Exchange for Tax Dollars

So it’s quite an irony to hear recently that after its attempts to avoid paying sales tax for so long, the online retail giant is now willingly collecting and paying it in 19 states.

Those states currently include Arizona, California, Connecticut, Georgia, Kansas, Kentucky, Massachusetts, New Jersey, New York, North Dakota, Pennsylvania, Texas, Virginia, Washington, West Virginia and Wisconsin. And Amazon just started collecting sales tax for Tennessee, Indiana and Nevada on Jan. 1.

More states may be added to that list in the future, we hear.

So what caused this sudden change of heart? Was it another Supreme Court decision, a new more powerful state law, pressure brought to bear from its remaining affiliates? What is it that finally got Amazon to pay?

Well, it was none of these things, actually. Amazon’s claim that it owed no state sales tax was based, from the beginning, on a 1992 U.S. Supreme Court case called Quill Corp. v. North Dakota. In the case, the court found merchants are not required to collect sales tax unless they have a physical presence in the state.

Recently, states hoping to collect sales tax from Amazon have switched tactics offering to cut deals with the online retailer to get the company to locate distribution hubs within their borders.

Tax journalist Kay Bell recently explained:

“The latest real estate/tax break blockbuster came last fall when Wisconsin agreed to provide Amazon $7 million in state tax credits to get the company to build a 1-million-square-foot distribution facility in Kenosha.”

So states are providing Amazon with tax breaks to help the company do what it wants most. That is to establish distribution hubs across the country bringing Amazon closer to its same day delivery goals and squeezing out local retail competition.

There’s one further irony here. If the Internet Tax Law does finally pass, Amazon won’t even likely be affected much. By then, it will likely already be collecting much of the state sales tax the new law would require.

Instead, the regulations will likely affect smaller online retailers less equipped to deal with the added costs and complexities the law will bring.

Image: Amazon

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5 Changes for Your 2014 Qualified Retirement Plan

Posted: 06 Jan 2014 11:00 AM PST

qualified retirement plan

Most businesses have a qualified retirement plan to enable owners and employees to save for retirement on a tax-advantaged basis. Self-employed individuals may also have a qualified retirement plan to shelter profits while saving for retirement.

If you have a qualified retirement plan or if you don't but are thinking of choosing one, there are some changes afoot for 2014.

Qualified Retirement Plan Developments for 2014

1. Higher Contribution and Benefit Limits

The limits on contributions to defined contribution plans (such as profit-sharing plans) and benefits payable from defined benefit (pension) plans are higher for 2014 than in 2013. The deduction limit for contributions to defined contribution plans is $52,000 (up from $51,000 in 2013). The limit for benefits under a defined benefit plan is $210,000 (up from $205,000 in 2013).

However, limits on 401(k) plans and SIMPLE plans for small businesses are unchanged. Participants in 401(k)s can add no more than $17,500 as elective deferrals (employees reduce their taxable compensation by the amount they add to the plan). An additional $5,500 can be added by those age 50 or older by December 31, 2014. Those in SIMPLEs can add up to $12,000 (plus $2,500 for those 50 or older by year end).

In figuring contributions and benefits, no more than a set amount of compensation can be taken into account. The compensation limit for 2014 is $260,000 (up from $255,000 in 2013).

2. In-Plan Rollovers to Designated Roths Permitted

Traditional 401(k) plans can allow participants to make after-tax contributions to a Roth account, called a designated Roth account (PDF). This can be made by allocating annual contributions between the traditional 401(k) and the designated Roth. Alternatively, it can be done by converting funds in the traditional account to a designated Roth. This is referred to as an in-plan rollover.

The converted funds become immediately taxable, but enable the participant to build up tax-free income in the future. The converted amounts are not subject to the 20% mandatory withholding that usually applies to plan distributions. There is no 10% early distribution penalty even if the participant is under age 59-1/2.

Plans are not required to offer the in-plan rollover option, but may want to do so as a way to give employees more retirement planning flexibility. For safe harbor 401(k)s (plans that automatically enroll employees but give them the option to opt out or lower their predetermined contributions), mid-year changes to plans, even favorable ones, usually are not allowed. However, under a special rule, such plans can add the in-plan rollover option during 2014. A plan amendment reflecting this change must be completed by December 31, 2014.

3. PBGC Premiums Increased

Pension plans must pay annual premiums to the Pension Benefit Guaranty Corporation (PBGC) to help fund benefits paid to workers in companies that cannot meet their promised pension obligations. This would include companies that have gone out of business or pension plans that do not have sufficient funds. Premium rates for 2014 are slightly higher than in 2013.

The flat-rate premium is $49 per plan participant (up from $42 in 2013). This rate is paid regardless of the fiscal viability of a pension plan. In addition, there is a variable rate premium owed by plans that are underfunded (they do not have sufficient funds to meet projected pension promises). The rate for 2014 is $14 per $1,000 of unfunded vested benefits (UVBs). This is up from $9 per $1,000 of UVB in 2013. The variable rate premium is capped at $412 per participant. However, plans with fewer than 25 employees have a lower cap.

4. Review Plan Investments

The economic landscape isn't static and change in 2014 may favor certain types of investments over others.

Employee-selected investments. Make sure that, if your retirement plan enables participants to select their own investments, there is a good menu of investment options. Be sure to factor in fees and expenses of these options in selecting an appropriate menu of investment options.
Plan-selected investments. If investments are selected by plan administrators (who typically include owners for plans at small companies), be sure that the investments continue to meet expectations. Reposition holdings where advisable.

5. Look for Possible Law Changes

Investment firms have been pushing the U.S. Department of Labor to increase "retirement readiness" by making changes to retirement plan rules. Their motives may not be altruistic, but Congress may decide nonetheless to put retirement savings on a more automatic basis. This could include mandatory plan contributions, much like Social Security and Medicare tax payments by workers, employers, and self-employed individuals. As talk of overall tax reform proceeds in Congress, pay attention to any enactment of changes impacting retirement plans.

Conclusion

Take the time at the start of the year to review your current retirement plan, if you have one. Talk with your tax and financial advisor to assess where you are now and whether changes are desirable.

Retirement nest egg photo via Shutterstock

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New Instagram Ads Bring 17 Percent More Brand Awareness

Posted: 06 Jan 2014 08:00 AM PST

Instagram Sponsored AdsEdit

If and when Instagram advertising becomes available to smaller businesses, there seems to be some evidence of its effectiveness for brand awareness.

Of course, whether that exposure will make dollars and cents to smaller companies depending on the cost of the advertising is uncertain. (Instagram has been working with a very select group of advertisers since November and hasn’t revealed anything about the cost of the ads.)

However, if your business already uses Instagram to communicate with customers, these numbers ought to give some idea of the effectiveness of the messages you share.

Instagram Shares Some Ad Results

Certainly the reach claimed for Instagram’s initial ads is impressive. Of the two brands for which Instagram shared initial data the company says:

Levi’s reached 7.4 million over a nine-day campaign that targeted users between ages 18 and 34, while
Ben & Jerry’s reached 9.8 million over an eight-day campaign targeting users between 18 and 35.

The company also shared more detailed case studies on both brands here (PDF) and here (PDF).

Of course, for ordinary business users this kind of reach would only be possible with a more expensive advertising campaign. (You probably don’t have 9.8 million people following you on Instagram!)

However, for many users, the most interesting information comes from the Ben & Jerry’s campaign. On a recent post on the official Instagram blog, the company explained:

“In particular, seventeen percent of people who saw a single ad for Ben & Jerry's Scotchy Scotch Scotch-flavored ice cream not only became aware of the new flavor, they also associated it with the brand.”

The results suggest that, for those followers with whom you share images, the message does have an effect.

However, the company also notes the initial ads may have gotten better results because they are new.

Bottom line: There seems to be some firm evidence that Instagram can boost your brand message.

Image: Instagram

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Does a Rise in Housing Starts Equal Growth in Construction Startups?

Posted: 06 Jan 2014 05:30 AM PST

ConstructionEdit

The U.S. Commerce Department reported recently that November's residential housing starts were up 30 percent year-over-year. That means they have reached their highest level since February 2008. Those numbers do signal some life in the beleaguered construction sector. But they don’t indicate an end to the long term decline in start-up activity in the industry.

As I have written here before, construction is a tough business. Information from the U.S. Census Bureau reveals it is the industry with the highest five-year start-up failure rates. Only 36.4 percent of new construction companies reach their fifth year anniversary. U.S. Bureau of Labor Statistics (BLS) economists concur, writing that construction has among the lowest 10-year survival rates of any industry.

The tough going in the industry has deterred many from starting new construction companies in recent years. The number of new construction businesses created in the previous three months declined from 27,000 in March of 2006 to 17,000 in March 2013, according to Bureau data. That’s a 37 percent drop. And it’s much higher than the 12 percent slide in the rate of new business startup overall.

It would be easy to attribute the decline in the rate of new construction firms to the bursting of the housing bubble. After all, housing prices peaked in early 2006 and have only modestly recovered. With housing prices in the dumps, we should expect few would-be entrepreneurs to go into construction. That could explain the decline in construction start-ups in recent years.

Unfortunately, the numbers indicate that just isn’t the case.

The rate of construction company startups has lagged behind other sectors of the economy since well before the housing bubble burst. Bureau numbers show that the founding of new companies overall rose 26 percent between June 1993 and March 2006. Over the same period, the number of new construction companies increased at only half that rate. Even during the housing boom, it seems, the number of construction start-ups was growing relatively slowly.

More importantly, new firm creation in the construction sector has been on a long-term decline. Census Bureau data reveal that the number of construction start-ups fell a whopping 79 percent between 1977 and 2011, the latest year data are available. That's the largest fall of any of the nine primary sectors of the economy. Moreover, the rate of formation of construction start-ups has been declining consistently since the mid-1990s. As a result, the number of American construction companies peaked in 2000, and in 2011, was 34 percent lower than its highest level.

The recent rise in housing starts is a small blip on a long-term downward trend in entrepreneurship in the construction sector. It may signal short-term improvement for those in the industry. But it doesn’t suggest that would be entrepreneurs will move back into the sector over the next decade.

Construction photo via Shutterstock

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