home > practice areas > tax law & planning

Tax Law & Planning - What's New

• Back to school tax news

• Tax credits are in the mail!

• Tax win for the Eagles

• Jobs and Growth Tax Relief

topThe back to school shopping season is gearing up.

In an attempt to jump-start the economy for retailers after a less than stellar fiscal year, many states have enacted "tax holidays" in August for back to school items. During the scheduled holidays, many items that are traditionally taxed for sales tax purposes will be exempt.

Among the states that have enacted such holidays are Connecticut (clothing & footwear costing less than $300 from Aug 17-23); Georgia (clothing & footwear costing less than $100 per item, school supplies costing less than $20 per item and $1,500 towards a personal computer and accessories such as monitors or modems from Jul 31-Aug 3); Iowa (clothing & footwear costing less than $100 per item from Aug 1-2); New York (clothing & footwear costing less than $110 per item from Aug 26 - Sep 1); North Carolina (clothing, footwear & school supplies costing $100 or less per item; sports and recreation equipment costing $50 or less per item; and computers, printers, printer supplies, and educational software costing $3,500 or less per item from Aug 1-3); South Carolina (clothing, school supplies, computers and printers during the period from Aug 1-3); Texas (clothing & footwear costing less than $100 from Aug 1-3); Vermont (new or used desktop, laptop or notebook computers costing less than $4,000 or less from Aug 9-11); and West Virginia (clothing, accessories, computer accessories, and school supplies costing less than $100 per item, and purchases of computers under $750 from Aug 1-3). Note that, in most states, restrictions apply, so check with the Department of Revenue in your state.

As for Pennsylvania, New Jersey and Delaware?

In Pennsylvania, there is currently no sales tax on clothing and footwear (there is sales tax on certain accessories). The Commonwealth has exempted sales of computers during certain "PC tax-free holidays" in the past. There are no publicized plans in the works for another such holiday.

I've heard of no plans for any tax-free holidays in budget-challenged New Jersey. However, last year, there was a week in September dedicated to tax exempt purchases of books (stay tuned!).

And Delaware? It touts itself as "sales tax free"!

topThe check's in the mail!

As part of President Bush's plan to stimulate the economy, certain households with child dependents will begin receiving checks of up to $400 per eligible child this summer. The checks represent a portion of the expanded tax credit passed this summer but made retroactive to January.

Just as the last batch of checks in 2001, the checks are not a "refund" but an advance against an expanded credit which will be applied towards the taxpayer's 2003 tax liability. Thus, instead of claiming the full $1000 child tax credit on your 2003 return, taxpayers who receive an advance check will claim a reduced credit.

The amount of the credit for most families will be $400 per eligible child. To qualify for the full amount, your adjusted gross income must be between $40,000 and $110,000. The details for lower and higher income families are still be worked out in Congress.

Refunds will be issued based on the last two digits of the primary taxpayer's Social Security number. Checks for those whose Social Security numbers end between 00 and 33 will be mailed on July 25. Checks for those whose Social Security numbers end between 34 and 66 will be mailed August 1. The remaining checks will be mailed after August 8.

Note that checks will first be issued for those who timely filed (by April 15) in 2002. Those taxpayers who received extensions can expect delays of between six and eight weeks.

topThe Philadelphia Eagles have scored a big win off the field in tax controversy matter.

The Pennsylvania Supreme Court, in Philadelphia Eagles Football Club, Inc. v. Philadelphia, PA (No, 14 EAP, 2001, April 25), ruled that only 50% of the Eagles' share of revenues from the NFL's television network contracts should be treated as copyright royalties and is therefore subject to Philadelphia's Business Privilege Tax ("BPT"). The rationale from the court was that the Eagles only played half of the season's games in Philadelphia.

The BPT is imposed on the gross receipts and net income of "every person engaging in any business in the city of Philadelphia"; the term "person" includes corporations and other entities.

The Eagles had lost two previous decisions at the Court of Common Pleas and Commonwealth Court levels, both of which held that 100% of the revenues would be subject to the BPT.

The arguments in both decisions had revolved specifically around nexus and Section 322 of the BPT regulations. The ruling can have significant impact for taxpayers such as athletes, artists and actors who live in Philadelphia and receive royalty income.

topThe Jobs and Growth Tax Relief Reconciliation Act

The Jobs and Growth Tax Relief Reconciliation Act of 2003 was approved by Congress on 23 May 2003 and signed into law by President Bush five days later. The Act is a much smaller version of the initial Bush proposal. Included in the Act are the following:

• Reduction in Tax Rate on Long Term Capital Gains and Dividends for most taxpayers from 20% to 15% through 2008. Taxpayers in low income tax brackets will have their rates lowered to 0% in 2008.

• Increase in Bonus Depreciation and Expensing for Equipment from the levels established under the Job Creation and Worker Assistance Act of 2002. A bonus depreciation of 50% is now available for "qualified property" acquired after 5 May 2003 and before 31 December 2004. The amount of depreciable assets that may be expensed has been increased to $100,000 for the years 2003-2005 with certain limitations.

• Acceleration of Reductions in Marginal Tax Brackets as established under the Job Creation and Worker Assistance Act of 2002. The brackets, which are retroactive to 1 January 2003, are as follows: The 38.6% rate will be reduced to 35%. The 35% rate will be reduced to 33%. The 30% rate will be reduced to 30%. The 27% rate will be reduced to 25%.

• Acceleration of Reduction of the so-called "Marriage Penalty." The standard deduction will be increased to twice the standard deduction for single taxpayers. The 15% rate for married couples is increased to twice as much for single taxpayers.

• Acceleration of Increase in the Child Tax Credit to $1000 per child. The credit will not apply to all taxpayers, as lower income families were excluded from the Act. There is currently a bill pending in the Senate to expand the credit to all families.

And what got left out?

Tax Shelter Provisions, Corporate Governance Provisions, Executive Compensation Reforms, S corporation changes, REIT Modification and Savings Provisions, and Extension of Expiring Provisions including AMT relief for individuals, credit for electricity produced by renewable sources, work opportunity and welfare-to-work tax credits, deductions of donations of computer technology and expensing of brownfield remediation expenses.