Arizona Allows Partnership/Corporate Electronic Filing for 2019 Returns, Will Be Mandatory for 2020 Returns

The Arizona Department of Revenue announced that the agency is now accepting electronically filed corporate and partnership income tax returns.[1]  Arizona had been one of the few states, if not the only one, that could not accept electronically filed entity returns.

The news release on the website notes that while the program is voluntary for 2019 returns, beginning with 2020 returns these entities will be required to file return electronically.  The statement provides:

Legislation signed into law in 2017 gives companies an e-file option in 2020 for tax year 2019 and becomes mandatory for corporations starting in 2021 for tax year 2020 returns.
The 2017 legislation also initiated a multi-year phase-in period for businesses required to file and pay transaction privilege tax (TPT) electronically. In 2019, the e-filing threshold was $10,000 with 77 percent of the more than 2.1 million TPT returns filed electronically. For 2020, businesses with an annual transaction privilege tax and use tax liability of $5,000 or more during the prior calendar year, will be required to file and pay electronically. In 2021, the threshold is reduced to $500 or more during the prior calendar year.

Arizona Department of Revenue News Release – January 6, 2020

[1] “Electronic Filing Now Available for Corporate Taxpayers in 2020,” Arizona Department of Revenue website, January 6, 2020, (https://azdor.gov/news-events-notices/news/electronic-filing-now-available-corporate-taxpayers-2020  Retrieved January 7, 2020)

Screenwriter Subject to California Tax Even Though All Work Done in Arizona

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The California Office of Tax Appeals in the Matter of the Appeal of Blair S. Bindley, OTA Case No. 18032402[1] ruled that an Arizona individual who had a contract for screenwriting services for two California LLCs had California source income on which he had to pay tax, even though all services were performed in Arizona.

California, like many other states, has moved to pure market-based sourcing for apportioning sales in a business setting.  Under California Revenue & Taxation Code (RT&C) §25128.7, apportionment for the vast majority of businesses with California operations is based solely on the sales factor.  RT&C §25136(a)(1) assigns a sale to California to the extent that the purchaser of a service received the benefit of the service in California.

In this case the taxpayer argued that he had performed all of the services in California Arizona, so he did not have a sufficient connection with California to trigger a requirement to file a return and report the income to the Franchise Tax Board.[2]

California imposes its tax on any nonresident carrying on a business within the state of California (RTC §18501(a)).  The OTA opinion notes that nothing in the statute requires that the taxpayer be physically present in the state of California.[3]  The Court found that the taxpayer received income from California LLCs, with he and his sole proprietorship deemed to be conducting business in California, making the proprietorship’s income subject to apportionment under California’s apportionment rules.[4]

So now the question becomes where did the taxpayer’s buyer receive the benefit of the services provided, not where the taxpayer performed such services.  Under Reg. §25136-2(c)(2) provides that where a business is the taxpayer’s customers, the place where the customer receives the benefit of the services is determined under the following rules:

(A)The location of the benefit of the service shall be presumed to be received in this state to the extent the contract between the taxpayer [i.e., appellant] and the taxpayer’s customer[s] [i.e., Mindbender and Lakeshow] or the taxpayer’s books and records kept in the normal course of business, notwithstanding the billing address of the taxpayer’s customer, indicate the benefit of the service is in this state. This presumption may be overcome by the taxpayer or [FTB] by showing, based on a preponderance of the evidence, that the location (or locations) indicated by the contract or the taxpayer’s books and records was not the actual location where the benefit of the service was received.

(B) If neither the contract nor the taxpayer’s books and records provide the location where the benefit of the service is received, or the presumption in subparagraph (A)is overcome, then the location (or locations) where the benefit is received shall be reasonably approximated.

(C) If the location where the benefit of the service is received cannot be determined under subparagraph (A) or reasonably approximated under subparagraph (B), then the location where the benefit of the service is received shall be presumed to be in this state if the location from which the taxpayer’s customer placed the order for the service is in this state.

(D)If the location where the benefit of the service is received cannot be determined pursuant to subparagraphs (A), (B), or (C), then the benefit of the service shall be in this state if the taxpayer’s customer’s billing address is in this state.

The OTA opinion applies these rules, coming to the determination that since the LLCs are registered and located in California, the second test is met, with the benefit received in California:

Public records from the California Secretary of State provided by FTB show that both Mindbender and Lakeshow are registered and located in California. Moreover, appellant’s contracts with Mindbender and Lakeshow both list California addresses. Appellant also concedes that Mindbender and Lakeshow are California LLCs. Based on the evidence in the appeal record, we find that it was both reasonable and rational for FTB to conclude that both LLCs received the benefit of appellant’s services within California. Because we have determined that the LLCs received the benefit of appellant’s services in California under Regulation section 25136-2(b)(2)(B), there is no need to discuss the remaining cascading rules.[5]

The opinion summarized the findings as follows:

In sum, pursuant to the provisions of the UDITPA relating to the sale of services and the regulations thereunder, appellant’s physical presence does not determine whether he had income derived from California, but rather it is determined by where the benefits of appellant’s services were received.[6]


[1] https://ota.ca.gov/wp-content/uploads/sites/54/2019/08/18032402_Bindley_Decision_OTA_053019.pdf, May 30, 2019

[2] Ibid, p. 4

[3] Ibid, pp. 4-5

[4] Ibid, pp. 5-7

[5] Ibid, p. 9

[6] Ibid

Tax Analysts Reports That Conformity Bill Has Been Signed Into Law

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Not there was much question about the issue, but State Tax Notes (“Arizona Enacts Remote Seller, IRC Conformity Law,” State Tax Notes, June 4, 2019) reported this morning that Governor Ducey signed the income tax conformity/nexus tax bill (HB 2757) into law. The law, now designated as Chapter 273, Session Laws, 54th Legislature, First Regular Session, will go into effect absent the highly unlikely situation that a referendum petition is taken out and is successful regarding this law.

Arizona Legislature Passes IRC Conformity Bill, Awaits Governor’s Signature

person holding black pen
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Although it took much longer than normal, and there was much uncertainty about what the Legislature would ultimately do in the end, the Legislature managed to pass an IRC conformity bill as part of the budget process.

HB 2757 scraped through both chambers with the bare minimum number of votes to clear each chamber.  It is expected that the Governor will sign this bill.[1]

Continue reading “Arizona Legislature Passes IRC Conformity Bill, Awaits Governor’s Signature”

iPad As A PDF Device For Continuing Education

I wrote last year about using the Kindle DX in CPE presentations. The DX was the a device that allowed full page viewing of PDFs, which eliminated the need for me to carry around printed manuals. It also suggested that participants might eventually have devices available that would allow the elimination of printed manuals without requiring having electric outlets available for each class participant

Continue reading “iPad As A PDF Device For Continuing Education”

Kindles and CPE Presentations – Some Thoughts

A bit of a Twitter conversation got started on using the Kindle for continuing education materials for CPAs. As I’m a CPE instructor that is actually using a Kindle DX for the presentations I give, I thought a share a few additional thoughts in a forum that allowed more than 140 characters.

I use the Kindle DX to hold the manuals I use during a full day CPE presentation. The Kindle 2, which is a smaller form factor like the original Kindle, does not show PDF files in their native format. That poses a major problem for me, since participants often want a reference to the page in their printed copy. Since the participants are still using a paper manual, I need a device that will let me see exactly what the participants see.

As well, any fancy formatting (such as tables or government forms) won’t tend to survive the reformatting when sent to the smaller device. Considering that one of Amazon’s target markets for the larger Kindle DX is the textbook market, it seems clear that, at least today, it’s the more reasonable device from a features standpoint.

That said, the support for PDF is not as robust as the support for standard Kindle books. You cannot create notes to attach to PDF files, and the Kindle reader doesn’t pay attention to bookmarks in the PDF file for navigation. As well, there is no built in zoom function. The best that a user can do is turn the device sideways, when it will go from showing a full page to showing the page full width in landscape mode. The device is built to automatically sense when the device is turned sideways, but it only reacts to such turns very slowly-at times so slowly as to make a user believe the device won’t recognize the rotation.

For participants the device would pose a couple of problems. A key one is that the Kindle DX costs $489-a significant cost that someone would have to absorb. Aside from use for CPE style textbooks, most CPAs would not have a reason to acquire the DX rather than the smaller (and cheaper) device. The Kindle 2 sells for $190 less than the DX.

As well, it’s probably only reasonable to use the Kindle for distributing CPE materials if all participants are using a Kindle. I doubt it would be practical for some participants to be using a Kindle and others to use a paper manual, at least unless the Kindle was a DX showing PDFs.

Getting materials on the Kindle also would be a bit troublesome with the current structure. There’s no easy way to “push” materials to a Kindle-remember it was designed by Amazon as a way to buy books from them. Materials that don’t originate with Amazon have to be loaded manually onto the Kindle either by emailing them to the user’s special address (for which there will be a charge) or by copying the file to the device after hooking it to the computer.

Copying a file is simple, but I doubt it will be obvious how to do it for users that aren’t computer savvy. You have to mount the Kindle as a drive using a USB connection. On Windows that means it will end up being given a drive letter that can’t be easily predicted, making “pure” step by step instructions impossible to write (on a Mac it will show up as a drive named Kindle in the Finder). As well, the PDF or Amazon book formatted file has to be copied into the documents directory on that drive.

I suspect that CPE administrators would end up spending considerable time, with the current structure, supporting participants who could not get the manual loaded onto their Kindle (presuming we’ve somehow solved the problem of getting them a device). Hopefully Amazon will come up with a “simplified” method for pushing out such materials, but for now it won’t be easy.

That said, the Kindle is a far superior device for viewing texts than a laptop. First, and most important, it doesn’t run out of power five hours after a full charge. A Kindle, because it uses e-ink, only chews up power when you turn a page-keeping a page displayed burns no power. Thus you don’t need power outlets at each desk.

Second, the display is much easier on the eyes than staring at a backlit laptop display all day for reading. Eye fatigue is a major problem when reading from backlit displays for a long period of time.

Third, the display does not wash out in bright light. Rather, it is virtually like paper in how it reacts to light-and, of course, the rooms currently being used for courses have to be ones in which paper manuals are readable.

We also have to remember that not all CPAs have laptop computers, even today. So even if texts were provided in computer friendly formats, there would be some participants that would not be able to “bring along” their computer to the course. Even for those with laptops, some are clearly not very portable. A power outlet has to be provided to each participant.

In Phoenix, another side effect that would not necessarily be very positive, is that a room full of laptops is going to generate a bunch of extra heat in the room (just touch the bottom of your laptop to see what I mean). Kindles don’t do that.

I suspect some sort of ebook reader is likely the future of all training materials. But I’m not sure we’ve yet hit the point where we have a fully workable solution-but it is one that those of us involved in CPE probably need to keep our eyes on.

We may soon, however, be at the point where it might be possible to offer an ebook manual as an option for participants. That is, they could optionally get a PDF manual in lieu of paper. The advantage to participants is they could have the material before class. And, for the organizations presenting, the advantage would be eliminating the cost of printing a physical manual.

I’m certainly not going back to hauling paper manuals in suitcases for when I am traveling to give CPE presentations. But I doubt I’ll be staring at a room full of CPAs holding Kindles looking back at me anytime soon.