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What is the Carbon Tax?

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What is a carbon tax?

A carbon tax is a tax based on the use of carbon fuels including coal, petroleum and natural gas that when burned gets released as carbon dioxide into the atmosphere. It’s a form of carbon pricing to counteract the effects of global warming triggered from the burning of fossil fuels. Renewable energy resources such as wind, sunlight, and hydropower do not convert to hydrocarbon and don’t harm the environment. Carbon dioxide is considered a greenhouse gas that gets trapped in the atmosphere and contributes to global warming.

A tax on these gases is used to discourage the use of nonrenewable fuel resources and is a tax effective means of reducing greenhouse gas emissions. Furthermore, it’s a regressive tax that may disproportionately affect low income groups. Numerous countries in the world have implemented a carbon tax on energy consuming products and motor vehicles; however, many large users of energy including the United States, Russia and China have not implemented a nationwide policy of carbon taxing.

In America

While there is no nationwide carbon tax in the United States, several states have implemented their own carbon tax policies including Colorado, California, and Maryland. Voters in Boulder, Colorado passed the first municipal carbon tax on carbon emissions in November 2006, which was implemented in residential utility bills. The goal was to reduce emissions and promote renewable energy resources. In May 2008, the San Francisco Bay Area passed a carbon tax on businesses that was 4.4 cents per ton of carbon dioxide emissions. In 2006, the whole state of California proposed a law for carbon tax emissions called AB-32 that has yet to be implemented. Finally, in May 2010, Montgomery county in Maryland passed a carbon tax law of $5 per ton of CO2 emissions.

Supporters of a Carbon Tax

There are several advantages to a carbon tax, but most importantly, it will lower the rate of greenhouse gas emissions released into the atmosphere. Imposing a carbon tax incentivizes individuals to find alternative energy resources and lower their energy consumption rate. Additionally, the use of a carbon tax incentivizes companies to research renewable energy resources because energy derived from fossil fuels becomes far too costly. Furthermore, the money raised from carbon taxes may be used for environmental initiatives such as planting more trees that will reduce CO2 emissions in the long run.

Opponents of a Carbon Tax

There are many opponents to carbon taxes who often cite that it’s difficult to measure the amount of carbon a company or individual produces and the amount of greenhouse gases released into the atmosphere from these emissions. Others believe that it’s difficult to calculate the environmental cost of these carbon emissions for future generations when all theories are still hypothetical.

Other problems include the high possibility of evasion of these taxes. Another criticism is the fairness of subjecting all countries equally to a carbon tax considering most developed countries are responsible for CO2 emissions and that income welfare is higher in developed than developing countries. Finally, without worldwide participation on carbon taxes, some countries are sure to free ride without contributing their fair share of carbon taxes.

In the End

Most of the scientific community agrees that the use of burning fossil fuels is altering the climate and may have serious impacts in future generations. While it’s impossible to accurately calculate the effects of climate change, a carbon tax may be a way to reduce the detrimental impact of greenhouse gas emissions and prevent future environmental disasters.

The Double Irish Tax Dodge

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In recent years, some of the biggest corporations around the world have been utilizing tax strategies that help to minimize the amounts that have to be paid each year in corporate tax. With tax rates around the world getting higher every year, corporations have a higher incentive than ever to find ways to avoid certain tax liabilities. In the United States, corporations like Google and Apple have been successfully using a tax strategy that legally avoids a second layer of corporate tax. This article will explain how the double Irish tax arrangement works.

What Businesses Gain

Under normal circumstances, shareholders are subjected to at least three layers of income taxation when doing business in the European Union. First, the entity doing business in the European Union would pay the domestic corporate income tax rate. In France, this is 33.33 percent. Next, the parent company in the United States would pay a 35 percent tax on repatriated profits. Finally, shareholders would pay at least 43.4 percent in United States federal income tax and net investment income tax. This means that profits derived from the sale of a widget at a $100 profit would net less than $24.52 after taxes. However, the double Irish enables shareholders to net $32.19 or more. Therefore, this can potentially be a very lucrative tax arrangement.

Necessary Arrangements

Before the double Irish tax strategy can be implemented, it first requires that corporations have a network of subsidiary entities. Before starting the tax strategy, most businesses will already have their base operations in the United States and in the European Union country that they are doing business in. The double Irish requires that businesses legally incorporate in Ireland. However, these businesses then maintain their headquarters in the United States to prevent being considered an Irish tax resident. Businesses will also need to open new subsidiary operations in Bermuda and the Netherlands. Finally, businesses will need to form a second entity in Ireland. All of this can be done for a few thousand dollars.

How It Works

Now that the business has all of its subsidiaries set up, it can now begin using the tax strategy. For example, assume that a company made a $100 profit in France. Normally, the business would be subject to French corporate tax. However, laws in the European Union only apply corporate tax in the jurisdiction where the company is headquartered and where the intellectual property is owned. In Ireland, corporate taxes are 12.5 percent. However, the tax strategy mandates that the intellectual property owned in Ireland is only held under a lease contract. This means that a tax-deductible royalty payment must be paid to the subsidiary in the Netherlands. As soon as the funds arrive in the Netherlands, they are immediately sent to the second entity in Ireland. To avoid transfer pricing laws, the funds are then stored in Bermuda. These funds can then be reinvested into any European Union business operation without any additional taxation.

After the Process

The double Irish enables businesses to reinvest European Union profits without having their growth rates hindered by corporate taxation. However, receiving any personal benefits from these profits still requires that taxation be paid. Once shareholders decide to issue a dividend to themselves, the funds are transferred to the United States, where ordinary corporate and personal income taxes apply.

The Crack Down of Corporate Inversion

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The term “corporate inversion” has been in the news, with the recent announcement of Burger King buying a Canadian company called Tim Horton’s. The deal brought to light the corporate tactic of purchasing another company to acquire its favorable tax status, and has provoked considerable discussion about whether the practice should continue to be permitted.

Understanding Corporate Inversion

Corporate inversion sounds like an exercise practiced in the company gym, but in fact, it is a financial term that is used to describe the process of purchasing a company in a foreign country to access that company’s favorable tax status. The “inversion” aspect can occur when a larger company buys out a smaller firm and changes its headquarters to the country of the smaller firm. Generally, in a corporate inversion, one company purchases a smaller company in a country that has a lower corporate tax rate. Although the practice isn’t currently illegal, many people feel that corporate inversion smacks of a lack of patriotism, at best, and a slick method of tax evasion, at worst.

History of Corporate Inversion

The practice of corporate inversion has gone on for at least thirty years. It is believed that McDermott was the first company to engage in the practice, announcing it would become a part of a Panamanian corporation. It subsequently re-incorporated in Panama and moved its headquarters there, allowing the company to avoid paying U.S. taxes. Since that time, the number of U.S. companies that chose to implement the practice has steadily increased. As many as 76 companies have employed corporate inversion since 1983, and 19 companies have announced their intentions to re-incorporate overseas since January 2013 alone. This exodus of American companies to foreign countries has prompted the U.S. Treasury and U.S. Congress to consider revising the laws governing corporations to limit the practice.

Why Corporate Inversion Is Bad

As a result of these companies changing their incorporation to other countries, less tax is collected, increasing the burden on other U.S. taxpayers. Meanwhile, these corporations reap the benefits of lower taxes and higher returns on investment. The Congressional Joint Committee on Taxation estimates that these inversions would have brought in an estimated $19.5 billion to the U.S. Treasury over the next decade. In addition, tax experts note that the corporate inversion process itself causes a taxable event that could affect shareholders. Even holders of mutual funds that include stock from the company could take a sizeable tax hit. These problems have prompted the U.S. Treasury to begin looking into corporate inversions.

The Crackdown on Corporate Inversions

In September of 2014, the U.S. Treasury, in cooperation with the Internal Revenue Service, announced steps targeting the practice of corporate inversion. They hope to eliminate the specific techniques that allow companies to make the inversions, as well as diminish the ability to avoid taxes by doing the inversion. They intend to strengthen the requirement that former owners of the U.S. company own less than 80 percent of the new, combined entity. These actions will make inversion less financially lucrative.

In his budget for 2015, President Obama included a legislative plan to help curtail the practice of corporate inversion and make such inversions much more difficult to accomplish. Recent efforts by the Democrats in Congress have initiated legislation to stop the practice, but it is unclear whether Republicans will support such legislation.

Property Tax on the Rise

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The good news is that businesses are moving in to Austin, which will create new jobs and improve our Texas economy. Austin’s population has exploded over the last ten years, bringing in people of all kinds to this city of cultural attractions. But there is a flip side to that coin and it looks like it’s going to fall into the laps of longtime Austinites to pay the bill.

Property taxes in Austin have gone up significantly over the past ten years at the rate of 38 percent.  People living near the trendiest parts of Austin are looking at paying exceptionally high taxes on their homes and are almost at the point of being forced to sell their homes because they can’t afford to pay.

During City Council campaigns earlier this spring, the voice of the people seemed to get louder. Their chief complaint is that the growth that their city is in the midst of isn’t exactly paying for itself. There are several theories about what factors are driving the cost of taxes up, but the main concern is that all of the jurisdictions share the tax burden rather than it falling on the few who live in the areas neighboring the action.

Former tax-assessor collector and county judge is now taking on the voice of the people. It is his voice that rings loudest against local government spending. “There is no taxpayer advocacy group monitoring the (overall) cost of our government, inside or outside the government,”  Aleshire. “That said, voters also do it to themselves. I don’t know that voters really understand the cumulative impact of the things that they approve.”

See full article here.

Audits Up in Upper Tax Brackets

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The fear of the audit may be diminished for those in the lower tax brackets as the upper brackets are seeing a rise in their chances. At least that’s what  statistics seem to reveal. So if you make less than $200,000 per year, you may be able to breathe a sigh of relief.

The rate for audits by the Internal Revenue service were up 11 percent in 2010 from the previous year and more than double those done in 2001. The 11 percent increase means that about 1.6 million taxpayers were audited, a pittance in the grand scheme of things. Still, those in higher income brackets are at greater risk of audit than those in lower brackets.

Overall, the odds of being selected for an audit are almost as good as your chances of winning the lottery, although thoughts of winning the lottery don’t generally include a sense of fear and dread. Each year tax payers across the country wonder if they’re next to be drawn. The chances seem random, but it does appear that as your income goes up, your risk of audit also is on the rise.

Also those who are self-employed are at risk of being audited as the tax system makes underreporting and falsification of deductions easier than those with average jobs. The IRS takes extra precautions in making sure that the self-employed sector tows the line.

Other red flags can be those who claim car expenses as a deduction, so be sure to keep a meticulous log of daily business mileage, including odometer readings, dates, locations and meeting details. Keeping itemized deductions to a minimum depending on your income group, can keep the tax man at bay. Also, home office tax deductions should only be taken if you use your home as a principal place of business, not the occasional work-from-home scenario.

There are many other causes for the IRS to take note of your tax returns. If you happen to draw the audit straw, be sure to have good records and good representation.

Travis County Tends to Pocket Overpaid Taxes

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Taxpayers in Travis County, Texas, may not be too pleased to know that the county has been keeping money that should be given back to the taxpayers.

An American-Statesman analysis has found that for years, Travis County has kept millions of dollars in overpaid taxes instead of refunding the money to taxpayers.

Thousands of homeowners, mortgage lenders, commercial developers and businesses hurry to pay their taxes before the December 31st deadline and sometimes in the frenzy to pay these taxes on time, they make errors and pay to much money.  Being in too much of a hurry and thus making errors is to blame, according to officials, for bringing in about $21 million in mistaken payments over the past three years.

Nevertheless, the Statesman found that the county tax office doesn’t try as hard as other taxing entities in the region to try and make sure the overpayments make it back to property owners.  And after three years if the money isn’t returned, the county gets to keep the money.

These overpayments have added about $1 million each year to the county’s $541 million general fund since 2009, which provides a tiny but legally allowed revenue  to a pool of money used to pay for employee salaries, computers, equipment and general office supplies.

The county was holding, as of March of this year, about $6 million of property tax money that had not been refunded, and some of it is expected to eventually be turned over to the general fund.  County officials do say they try to return the money and also that the amount they have kept in recent years has decreased by more than half as they have put more effort to make refunds.

Nevertheless, the county still follows several  long-standing practices that result in it keeping a higher percentage than some other Central Texas tax offices, the analysis found.

A letter is sent by tax office workers to property owners and lenders alerting them to the mistakes almost immediately after they happen.  Tax office workers say they may take additional steps to find property owners, but they have no formal process to do so and their efforts often depend on workload.  Travis County officials add that property owners and lenders also have a responsibility-first to make sure they pay correct amounts, and then, to act on notices from the tax office.

State law does not set out how taxing authorities must notify property owners of mistaken payments, and agencies across the state of Texas handle it differently based on their interpretation of the law, said Scott Porter, president of the Tax Assessor-Collectors Association of Texas.  The law has no provision allowing tax offices to credit a property owner’s account for the next year’s taxes.

While other county tax offices automatically send refund checks when they receive duplicate payments and overpayments, Travis County’s tax office requires property owners to write a request for these payments.

Of the $21 million in overpayments made to Travis County since 2009, property owners are still owed $5.6 million from duplicate payments and $328,602 from single overpayments.  According to county officials, $4.5 million of those payments happened in 2011, so they still have two more years to get the money back to taxpayers before it is becomes county money.

The moral to this story is that if you live in Travis County, Texas, make sure your tax payment is correct before you submit it to the county!

The original article can be read here.

Musicians and Tax Trouble

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Tax liens are something to be avoided, if possible.  Even when the IRS has already started collection proceedings, a tax lien may still be avoided, if you involve the right attorney, and early enough.  Our firm is located in Austin, Texas – a very active center of arts and music.  The economics of the music business, combined with the temperament of artists, can result in tax problems.

USA today recently reported on the tax troubles of Texas resident Rex “Rocker” Brown, bassist for the heavy metal band Pantera, and several other well-known music artists.  It cites five tax liens files by the IRS against Brown, totaling almost half a million dollars.   Glen Campbell is touring and raising money to pay overdue taxes.

Some people take glee in watching celebrities and their troubles.  That’s not what this article is about.  Musicians are self-employed, and they are entrepreneurs, creators and risk-takers in a very fickle business.  They rely on management firms and accountants to handle the details.

If your property is already under a tax lien, or if you think you may be facing one, the time to contact an experienced attorney is now.  Visit our page (linked above) for more details.