The Tax Act passed at the end of 2017 brought with it a number of changes to how businesses both big and small are to be taxed moving forward. While the most visible change has been the lowering of the corporate tax rate to a flat 21 percent rate, most businesses should be able to find additional benefits from changes in how business equipment is to be depreciated, how net operating losses can be carried forward into future years, and what improvements to non-residential real property are eligible for an immediate deduction.
A recent presentation given to FICPA discusses the aspects of the Tax Act, other than the Qualified Business Income Deduction, which are most likely to affect the tax savings of your business.
Our community is near multiple major ports, including Port Manatee and the Port of Tampa. Taxpayers that import goods through these ports should be aware of U.S. tax issues that can arise from their actions. U.S. taxpayers that import goods from related parties outside the United States have several tax rules to consider in setting their transfer prices and reporting income, including the transfer pricing regimes in both the importing and exporting jurisdictions. Among the U.S. tax rules that such importers must consider is a lesser-known Internal Revenue Code section, Section 1059A.
Section 1059A provides that the maximum amount a U.S. taxpayer may claim as basis in inventory goods imported from a related party is the amount that was determined for customs purposes when the goods were imported. The statute is designed to prevent taxpayers from claiming low values for customs purposes (reducing the amount of U.S. customs duties owed) and high values for transfer pricing purposes (reducing the amount of U.S. taxable income).
A trap for the unwary can occur when related parties retroactively modify their intercompany pricing after goods are imported. For example, a U.S. company may increase the amount paid for an imported good at the end of the year in order to satisfy the arm’s length standard for transfer pricing purposes. This additional amount is generally be subject to customs duties, but reporting additional customs duties can fall through the cracks if a company’s personnel responsible for tax and customs compliance do not communicate regarding the adjustment. In addition, even where additional amounts are reported for customs purposes, the timing of an upward adjustment in the customs price could prevent taxpayers from including the adjustment in the basis of the inventory for tax purposes if the adjustment is made after the customs value has been “finally-determined” (generally, 314 days after the date of entry). These issues may frequently arise when taxpayers retroactively adjust transfer prices in accordance with Advance Pricing Agreements.
In recent years, practitioners have called for better coordination between the Internal Revenue Service and U.S. Customs and Border Protection along with reforms to eliminate the potential whipsaw of Section 1059A. It remains to be seen whether current tax reform proposals will reach this issue.
We previously blogged that the Florida Legislature enacted a reduction to the state sales tax rate on commercial real property leases from 6% to 5.8% effective January 1, 2018. The language of the new statute is unclear as to whether the rate decrease would apply to current leases. However, we have confirmed with a representative of the Florida Department of Revenue that they interpret the rate reduction as applying to current leases for periods after December 31, 2017.