Friday, August 23, 2013
A couple of weeks ago Sutton-McCann & Company participated in the Lungevity Fundraiser “Breathe Deep, Seattle”. This 5k raises funds for research on the prevention and treatment of lung cancer. What an inspiring event and a wonderful team-building opportunity for our firm.
Sharon Holcomb, EA
More and more often these days we hear people complain about churches not paying taxes. I find in the vast majority of cases that the people complaining have a muddled idea of what taxes they think churches should pay and usually no idea of what taxes churches do pay. I would like to clear up some of the confusion regarding what churches pay in taxes in the areas of property taxes, income taxes, and sales taxes.
First, in the area of real property taxes, most states limit the number of properties that any organization can exempt from taxes. I believe the number in Washington is five properties. If the church owns more than five properties the excess properties are taxed at regular rates. For example, the church I attended had one “property” of about 2 ½ acres but it was listed as five different tax lots in the county records. Any additional property acquired by the church would be fully taxable. In addition, many of the special fees and assessments made by the county on the property tax statement are not exempt, so the church paid a significant amount of property tax.
When it comes to income tax, I find that peoples’ thinking is particularly fuzzy. Our income tax system taxes entities on their net income after expenses. Very few churches have any net income after expenses if you count their ministry work as an expense. I never hear people declaring that the Red Cross, for example, should pay income tax on all its donations before deducting the expense of helping in emergencies. Perhaps some think that some churches run commercial businesses and don’t have to pay taxes on that profit, but they are incorrect. All federally tax exempt entities have to pay regular income tax on business profits that are unrelated to their tax exempt purpose. In addition, most tax exempt entities have to pay income tax on their investment income beyond a minimal amount. It may be that in the income tax area people are really talking about their belief that individuals should not receive a tax deduction on their personal tax returns for making a contribution to churches on the grounds that churches are not in the same category as other charities. That is a philosophical argument that is too deep for this format, but if that is what they are thinking they should make it clear so that a reasonable discussion can ensue.
In the area of state sales tax, churches have to pay sales tax just like any other consumer. Churches also pay excise tax on telephone service, license fees, and all the other miscellaneous taxes that the rest of us pay.
So whether you believe churches should pay taxes or not, let’s be sure that we know the facts before voicing our opinion.
Loren L McCann, CPA, MS (Tax)
Wednesday, August 14, 2013
Periodically Congress takes a look at the corporate tax rates and, depending on where public opinion is at the time, either raises or lowers the corporate rates. The problem stems partly from the two views of what corporations really are. Corporations are a legal fiction that we have created to facilitate the large scale investment needed to fund businesses that need huge amounts of capital. Many of our laws treat corporations like people in order to be able to deal with them more easily. This legal fiction fools some of us into thinking of corporations as real people, and indeed sometimes they act like real people. Corporations, however, are not real people and no matter how many levels of parent and subsidiary corporations you have, ultimately it is individual people that own all property.
Those who believe that corporations are people think that corporations should pay a high level of tax, and those who believe that corporations are conduits to real people think that corporations should pay little or no tax. I understand that corporations are mere conduits to real people and that ultimately real people own all property. Therefore people should pay the taxes. However, I recognize that without some limitations, corporations could hold profits inside the corporations, avoiding taxes for a very long time. In the Great Depression Congress realized that public policy is best served if corporations distribute any profits not needed for normal business operations and planned expansion, so they passed the Excess Profits Tax to tax corporations at a punitive rate if they hold onto profits that they do not need in the business. The Excess Profits Tax needs to be beefed up to insure that all un-needed funds are distributed to their owners, and if this is done, the corporate tax rates should be lowered. Lower rates will make us more competitive on the world market and will put more return in the hands of the shareholders who will pay the taxes owed.
I believe that some of the demand for high corporate tax rates is a response to the bad behavior of some corporate managers. I believe that corporate managers should be held more responsible for their actions. If corporate managers act illegally or unethically they should be held accountable and should not be able to hide behind a corporate shell. But the tax system should be used as a source of revenue, not a means of punishing bad managers. We have tried to regulate so many aspects of society with the tax code that we have created an unbelievably complex system. Let’s put the tax burden on people, the real owners of property, and regulate bad behavior within other areas of the law.
Loren L McCann, CPA, MS (TAX)
Friday, August 2, 2013
One of my desk drawers at home is devoted to important stuff. It’s not that big of a drawer, but it has a very critical purpose… and that is to keep me out of trouble! This is the place the vehicle title rests until we make the next trip to our safe deposit box. It’s the place my paid medical and dental bills go, especially if I want to get reimbursed from my Health Savings Account. It’s also where I put any letters and receipts I receive for charitable contributions. During tax season all of the envelopes marked “Important Tax Documents Enclosed” wait in there until I have time to deal with them.
This drawer does not get cluttered with bills to pay, magazine subscription offers to consider, or invitations to respond to. However, I do stick vacation reservation confirmations in there. And vehicle tab receipts that I have paid for online but not yet received.
Since going to the drawer system I have greatly reduced my time looking for important papers. I strongly encourage you to consider such a system. You could use a file box, tray, file folder, or large envelope. It makes preparing for income tax season so much easier. Also, it relieves stress when you are heading out the door for a much needed vacation!
Sharon Holcomb, EA