As discussed in our tax update newsletter dated May 1, 2018   http://www.kyjcpa.com/news-updates/no-more-government-subsidy-for-conducting-business-on-the-golf-course/ , starting in 2018, no deduction is allowed for entertainment, amusement, or recreation expenditures.  However, the new tax law did not specifically address whether the meals provided during an entertainment event is deductible (subject to 50% limitation).

In response, IRS issued Notice 2018-76 https://www.irs.gov/pub/irs-drop/n-18-76.pdf  which provides a guidance in the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of food and beverages is stated separately from the cost of the entrainment on one or more bills, invoices, or receipts.  The Notice provides the following three examples to illustrate the application of this guidance:

Example 1.  Taxpayer A invites B, a business contact, to a baseball game. A purchases tickets for A and B to attend the game. While at the game, A buys hot dogs and drinks for A and B. The baseball game is entertainment as defined in § 1.274-2(b)(1)(i) and, thus, the cost of the game tickets is an entertainment expense and is not deductible by A. The cost of the hot dogs and drinks, which are purchased separately from the game tickets, is not an entertainment expense and is not subject to the § 274(a)(1) disallowance. Therefore, A may deduct 50 percent of the expenses associated with the hot dogs and drinks purchased at the game.

Example 2. Taxpayer C invites D, a business contact, to a basketball game. C purchases tickets for C and D to attend the game in a suite, where they have access to food and beverages. The cost of the basketball game tickets, as stated on the invoice, includes the food and beverages. The basketball game is entertainment as defined in § 1.274-2(b)(1)(i) and, thus, the cost of the game tickets is an entertainment expense and is not deductible by C. The cost of the food and beverages, which are not purchased separately from the game tickets, is not stated separately on the invoice. Thus, the cost of the food and beverages also is an entertainment expense that is subject to the § 274(a)(1) disallowance. Therefore, C may not deduct any of the expenses associated with the basketball game.

Example 3. Assume the same facts as in Example 2, except that the invoice for the basketball game tickets separately states the cost of the food and beverages. As in Example 2, the basketball game is entertainment as defined in § 1.274-2(b)(1)(i) and, thus, the cost of the game tickets, other than the cost of the food and beverages, is an entertainment expense and is not deductible by C. However, the cost of the food and beverages, which is stated separately on the invoice for the game tickets, is not an entertainment expense and is not subject to the § 274(a)(1) disallowance. Therefore, C may deduct 50 percent of the expenses associated with the food and beverages provided at the game.

Taxpayers may rely on this guidance until the proposed regulations are issued.

KYJ tax 뉴스레터에 나와있듯이 (http://www.kyjcpa.com/newsupdates/supreme_court_overturns_quill/), Wayfair에서,  미국 대법원이 타주에 있는 판매자 (remote sellers)가 판매가 이루어지는 주의 sales tax를 걷어야하는가의 유무에 대해 물리적 실재 (physical presence)기준을 사용하는 것을 무효화하였다. Wayfair 의 판례에 따라, 많은 주들은 타주에 있는 판매자들(remote sellers)로부터 해당 주의 물리적 실재 (physical presence)와는 상관없이 sales tax  를 걷도록 하는 법안을 이미 채택하거나 입법중에 있다.

2018년 10월 1일부터, 아래와 같은 주에 물건을 판매하는 타주에 있는 판매자 (remote sellers)들은  해당 주의economic nexus 한계를 만족한다면 sales tax를 걷어야한다.

• Alabama
• Illinois
• Indiana
• Kentucky
• Maryland
• Michigan
• Minnesota
• New Jersey
• North Dakota
• Washington State
• Wisconsin

위에 있는 주들 외에도 더 많은 주들이 Wayfair의 판례를 따라, sales tax nexus 기준을 새로 도입하거나 기존 법안을 수정할 것으로 보인다. 여러 주로 물건을 판매하는 판매자들은 각 주에서의 자신들의  상태를 확인하고, 각각의sales tax법안에 잘 준수하고 있는지를 평가해볼 필요가 있다. 아울러, 각 주의 sales tax 법안의 현황과 변화에 대해서도 주목해야할 것이다.

As discussed in our newsletter http://www.kyjcpa.com/news-updates/supreme_court_overturns_quill/ in Wayfair, the U.S. Supreme Court overruled the physical presence nexus standard in requiring remote sellers to collect sales tax.   Following the Wayfair, many states have adopted or are in process of adopting law that would require out-of-state retailers to collect sales taxes on their in-state sales without regard to physical presence in the state.

Effective October 1, 2018, remote sellers making sales to the following states are required to collect sales tax if they meet the state’s economic nexus threshold:

• Alabama
• Illinois
• Indiana
• Kentucky
• Maryland
• Michigan
• Minnesota
• New Jersey
• North Dakota
• Washington State
• Wisconsin

We expect more states will adopt or amend sales tax nexus standard in response to the Wayfair case. Multi-state retailers are recommended to assess its in-state footprint and assess the compliance requirement, and closely monitor legislative changes and current statutes.

The IRS issued proposed regulations regarding the first-year bonus depreciation under Section 168(k). Section 168(k) extends and modifies bonus depreciation, allowing businesses to immediately deduct 100% of the cost of qualified property in the year it is acquired and placed in services through 2022, generally.  The regulations address definition of qualified property, eligibility of used property for bonus deprecation, placed in service definition, and time and manner of making elections.

Qualified Property:   Property may be qualified property for bonus depreciation if it is of a specified type.  Property is of a specified type if it is a Modified Accelerated Cost Recovery System (MACRS) asset which had a recovery period of 20 years or less, generally.

Used Property:  Property may be qualified property if the original use of the property begins with the taxpayer or the taxpayer acquires used property that meets certain requirements.  An acquisition of property meets the requirements of the provision if the property was not used by the taxpayer at any time before the acquisition, and the acquisition is not between the related parties, among controlled group members, or where the nonrecognition provisions apply.

Acquired and Please-In-Service Date:  With an exception to long term contract, to be eligible for 100% bonus depreciation, the property must be acquired and placed in service after September 27, 2017 and before 2022.

Elections:  Consistent with prior law, taxpayers may make an annual election to elect out of bonus depreciation on a class-by-class basis, and it is irrevocable.  Additionally, taxpayers can elect to claim 50% bonus depreciation in lieu of 100% bonus deprecation

Additionally, the regulations provide that Section 754 optional basis adjustment related to 743(b) transactions allocated to qualified property of a partnership may qualify for the bonus depreciation.