Local gov’t taxation

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Local gov’t taxation

Topic |  
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jayWhat I found to be an unassuming area of litigation practice is  local government taxation.

Local governments are authorized by the local government code to impose taxes on businesses within its area of jurisdiction.

It becomes natural that  the taxes imposed by the local governments become fertile areas for legal issues to sprout.

Businesses question the  manner they are assessed by the treasurer’s office.

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The local government on the other hand, will maintain the correctness of their assessments.

In a moment of stalemate, one has to take the cudgels of bring an unresolved tax matter to court.

The usual question raised by tax lawyers representing businesses is the computation of the tax assessment.

The local treasurer’s office begins by sending the business taxpayer a tax assessment.

The business entity will question the tax assessment by the local government.

Usually, the business invokes the provisions of the  local government code, and the tax ordinance to back up their protest.

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A common example of a tax protest is the the difference between “gross revenue”, “gross sale”, and “gross receipts.”

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These are the ‘rocks of refuge’ invoked by tax lawyers representing businesses in protesting tax assessments.

Among the cases I handled, businesses make a difference between taxes imposed based on “gross revenue” and taxes based on “gross sales” or “gross receipts,”

Business will point out that the local government erred in basing tax assessments upon gross revenues, and not on actual gross sales or the gross receipts.

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Simply explained, local government tax reviewers  are accused of basing the tax on all the revenues, without distinguishing whether these revenues are actual revenues, or still collectible or receivable.

If a business has a contract where it is to receive revenues over a span of many years, how will this type of revenue be booked in the records?

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If the government imposes the tax on the entire contract, business questions it because some of the revenues in the contract have yet to be actually received in the coming years.

Sounds logical?

However, how do businesses report their finances?

If government examines the records submitted by businesses in the Securities and Exchange Commission, businesses tend to bloat (deodorize) their finances.

When the resourceful local government uses SEC records of private business as basis for tax assessments, business will howl in protest for assessing even collectible revenues.

The position of the government is, whatever business entities report to any government agency can be a basis for tax assessment.

Businesses cannot choose which financial records government can use as basis for taxation.

On the other hand, businesses will invoke the local government code and the tax ordinance in insisting that only revenues actually received should be taxed.

Litigation.

There you go. (By Atty. Jay I. Dejaresco)

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