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THE GOVERNOR ATTEMPT TO REACT TO THE NEW FEDERAL TAX LAW

April 18th, 2018

Depending on how you count, New York residents appear to face the highest tax burden in the nation.  Between state and local taxes, approximately 12.7% of a New Yorker’s income goes to taxes. President Trump signed a tax reform bill on December 22, 2017.  For income earned prior to December 31, 2017, all state and local income and property taxes were deductible as an itemized deduction on one’s federal income tax return. Under the new tax law, deductions for state and local income and real property taxes are limited to $10,000.00 each year.  According to IRS data, heretofore New York residents took the highest average deductions for state and local taxes with an average deduction of just over $21,000.00.  Consequently, the new law will reduce the average deductions taken by a New York taxpayer who itemizes deductions by $11,000.00.

In an attempt to offset this anticipated loss, Governor Cuomo has included a series of proposals in his latest budget proposal. Whether these proposals will pass the legislature and whether they will be accepted by the Internal Revenue Service, remains to be seen. However, the proposals are interesting.

First the Governor proposes a new voluntary Employer Compensation Expense Tax (“ECET”). The Governor reasons, that even though the new tax law eliminates from itemized deductions a large portion of the state income taxes, employer-side payroll taxes remain deductible. The proposed legislation will phase in a plan over three years beginning on January 1, 2019.  When fully functional, the plan will allow employers to voluntarily enter into a system in which the employer pays 5% of all annual payroll expenses in excess of $40,000 per employee. The New York income tax will remain in place. The employees of an employer that pays into the ECET system would receive a corresponding tax credit on her wages. From a New York State point of view, the proposal is revenue neutral.  The employer pays the tax and the employee gets the credit.

The summary of the proposed tax reform states, “When fully phased in, the new system could generate up to roughly $4 billion in federal tax savings for New Yorkers per year. The Department of Taxation and Finance estimates that a taxpayer (married filing jointly) making $150,000 in wage income would see a federal income tax reduction of roughly $1,200 as a result of the ECET.”

However, what is not explained in the proposal is what benefit there is for an employer to opt into such a system or how the system helps with the employee’s federal income taxes.  An employer that opts into the plan has a new expense and a corresponding deduction. The employee does not receive a credit against her federal income taxes, only her state taxes, so her state taxes go down, but her income remains the same as does her federal tax burden.  It appears that unspoken in the plan is that the employer will reduce the employee’s overall compensation by 5%. The employee will then have a lower federal income tax because she has lower income. The credit against her state and local taxes will reduce state taxes paid by the employee.  Assuming all of this is worth the time and attention of the employer and employee, there is still a question as to whether the IRS will consider the employer’s voluntary payment “ordinary and necessary.” The Internal Revenue Code requires an expense to be “ordinary and necessary” for it to be deductible for federal tax purposes.  The IRS could find that a voluntary payment of this kind of this kind is not ordinary and necessary. In addition, the IRS could determine that such a system results in a benefit to the employee. Only time will tell.

The Governor also proposes two new state operated Charitable Contribution Funds that will accept donations for the purposes of improving health care and education in New York. The hope is that taxpayers who itemize deductions would be permitted to claim these charitable contributions as deductions on their federal and state tax returns. New York State would then give any taxpayer making a donation a state tax credit equal to 85 percent of the donation amount thereby converting a tax into a charitable donation. The legislation would also allow school districts and local municipalities to create charitable funds for education, health care and other charitable purposes. Donations to the fund would be offset by a credit against local property taxes. Here, the idea is to convert non-deductible state and local taxes into deductible charitable donations.  This too may run into opposition from the IRS. In order to be considered a charitable deduction under the Internal Revenue Code, a gift must be made out of “disinterested generosity.”  A gift given to a charity that results in an almost corresponding real estate tax credit can hardly be said to be given out of disinterested generosity. The IRS may well take the position that only the 15% that does not result in a credit is deductible from the donor’s income taxes.  Again, only time will tell.






RETURNING GOODS

April 18th, 2018

Under both Federal and State Law, consignment sales of beverage alcohol are illegal. Section 205 of the Alcoholic Beverage Control Law of the United States make it unlawful for a manufacturer, importer or wholesaler of distilled spirits, wine or malt beverages, to sell, offer for sale, or contract to sell to any wholesaler or retailer engaged in the sale of distilled spirits, wine, or malt beverages, or for any such wholesaler or retailer to purchase, offer to purchase, or contract to purchase, any such products on consignment or under conditional sale or with the privilege of return or on any basis otherwise than a bona fide sale.  The subsection does not apply to transactions involving solely the bona fide return of merchandise for ordinary and usual commercial reasons arising after the merchandise has been sold.

Ordinary and usual commercial reasons for the return of beverage alcohol include returns because of defective products, shipping errors, a change in the law preventing the product from being sold, termination of the buyer’s business or license.  It is also permissible for a wholesaler to return to the supplier any of the supplier’s products when the supplier and wholesaler’s relationship is terminated.

Generally speaking, consignments sales are also banned under New York law.  The basic exceptions are outlined in Bulletin No. 251 (July 19, 1965).  Where a manufacturer or Wholesaler made an error in a sale or in a delivery to a retailer, the error may be corrected without notice or application to the Authority within fourteen days of delivery and within the same calendar month. It is worth noting that the return requires a genuine error. A retailer may not return goods she ordered either because she later discovered that she could have received a better discount had she ordered a larger quantity or because she discovered she could use more of the goods and there was a quantity discount available for the additional amount. In addition, a manufacturer or wholesaler may exchange liquor or wine in the same quantity, brand, type, size or container and proof for liquor or wine, which is to be returned by the retailer, without notice to the Authority, provided it makes similar exchanges for all retailers who request them. Pursuant to Advisory 2016-8, the Authority permits a seasonal retail licensee to return unsold beer and cider to the manufacturer or wholesaler.

When a retail licensee goes out of business, surrenders its license or has its licensed revoked, it is permitted to obtain a liquidator’s permit. With such a permit, the licensee is permitted to sell its remaining inventory to the supplier or wholesaler from which it was purchased or to another retail licensee.

Except as permitted by Bulletin No. 251 and Advisory 2016-8, as a general rules a manufacturer or wholesaler may not accept the return of goods without either a court order or permission from the Liquor Authority.






NEW YORK’S FAMILY MEDICAL LEAVE ACT

February 12th, 2018

Effective January 1, 2018, almost all non-government employees in New York State are eligible for paid family leave. The leave is paid for through employee payroll contributions and are provided by the employer’s existing disability benefits insurance policy.

Employees with a regular workweek of 20 or more hours per week are eligible after 26 weeks of employment. Those employees with a regular work schedule of less than 20 hours are eligible after 175 days worked. Neither citizenship, nor immigration status have an impact on a worker’s eligibility for paid family leave.

A parent is eligible for paid family leave to bond with a newborn child during the first twelve months following birth, adoption or a foster care arrangement. Spouses with different employers can both take paid family leave at the same time. However, if both spouses work for the same employer, the employer can deny leave to one of them if they ask for the leave, to bond with the child, at the same time.

An employee can also obtain paid family leave to care for an eligible family member with a serious health condition. Family members include a spouse, domestic partner, child, parent, in-law, grandparent or grandchild.

Employers with one or more employees are required to obtain paid family leave insurance. This insurance is generally added to the employer’s existing disability policy.  Current employee handbooks should be updated to describe these new employee rights.   In addition, employers, who have not yet done so, should update their payroll deduction process and begin to collect the employee’s contribution to pay for the new benefits. The best practice is to notify the employee before beginning to take the new payroll deductions. In 2018, the employer should deduct 0.126% of the employee’s weekly wage. There is a cap so not deduction is taken against any portion of the weekly wage  in excess of  $1,305.92.

Where the event which will give rise to a claim for paid family leave is foreseeable, the employee is supposed to notify her employer thirty days prior to taking leave. The request is made with a form issued by the employers insurance company. The employee will also be required to provide the insurance carrier with documents supporting her qualification for leave.  The type of proof will vary depending on the reason for the leave. For instance, in the case of a newborn child, the insurance company will require a birth certificate.

A qualified employee will be entitled to half of her average weekly wage up to a maximum of $652.96.

 

Employers who have not done so, should contact their insurance brokers, obtain the necessary insurance and begin deducting the employees contribution from their employees’ pay.

 

THEY ARE BACK

 

For years, the TTB has been underfunded and has receded from the front lines in the fight against violations of the trade practice rules applicable to manufacturers, suppliers and wholesalers.  However, in 2017, the TTB returned to the front lines. Congress provided $5 million in new funding to the TTB for fiscal years 2017 and 2018 for “the cost of programs to enforce trade practice violation of the Federal Alcohol Administration Act.”  We can expect to see more TTB investigations into  tied house violations, commercial bribery and schemes to pay retailers to carry the supplier or wholesaler’s products.

 

IT TAKES LONGER TO BE GET OLDER

XO is the designation for “Extra Old” cognac. The Bureau National Interprofessionnel du Cognac (“BNIC”) which regulates cognac has increased the minimum age to qualify for an XO label from six years to a minimum of ten years.  BNIC will allow the XO designation on beverages aged six, seven, eight and nine years that are packaged before March 31, 2018 to be sold until March 31, 2019.






THE RENAISSANCE OF FEDERAL UNFAIR TRADE PRACTICES – CURRENT ISSUES AND STRATEGIES (Excerpt)

February 12th, 2018

Source: http://www.beveragelaw.com

John Hinman

By: Robert Tobiassen, Compliance Consultant and Former Chief Counsel (TTB)

January 29, 2018

 

Introduction by John Hinman, Senior Partner, Hinman & Carmichael LLP

 

Rob Tobiassen has prosecuted, and advised on, hundreds of alcoholic beverage industry trade practice cases since 1978 when he first joined the Bureau of Alcohol Tobacco and Firearms. Rob rose through the ranks at the BATF (and then the TTB) to Chief Counsel before retiring in 2012. Rob is now providing his significant expertise to those of us engaged in advising our clients how to comply with the trade practice laws, and defending cases when circumstances dictate. This article is a primer on TTB Trade Practice enforcement principles and policies.  Rob and I will be on a panel discussing trade enforcement issues at the upcoming NABCA Legal Symposium in Arlington VA on March 18-20, 2018.

 

The TTB has Substantially Picked up the Pace of Unfair Trade Practice Enforcement-and Pay to Play is at the top of the Agenda

 

TTB is making its presence known in the unfair trade practice arena.  In July 2017, it announced a joint investigation by TTB and Florida State Authorities in the Miami area and then in September it followed with a joint investigation by TTB and Illinois State Authorities in Chicago, the Quad Cities, and Peoria.  Both press releases from TTB emphasize these investigations are focusing on “pay to play” schemes.  According to the press releases, “Pay to play,” also known as “slotting fees,” is an unlawful trade practice that hurts law-abiding industry members and limits consumer choice.[1]

 

The TTB Now has the Money to Investigate, and has reorganized to use the new budget cost effectively

 

Congress gave TTB $5 million of specific funding for fiscal years 2017 and 2018 for “the costs of programs to enforce trade practice violations of the Federal Alcohol Administration Act.”  This appropriation reflected an effort by many industry groups to ensure that TTB has adequate resources to enforce the unfair trade practice provisions of the Federal Alcohol Administration Act (FAA Act), Title 27, United States Code, Section 205(a) through (d).  Trade practice investigations are extremely resource intensive.  They are conducted by investigators and auditors who must obtain evidence through extensive field investigations involving interviews and analyses of business records, and significant attorney support from the Office of the Chief Counsel.

 

To position itself to conduct these investigations, TTB has reorganized the Trade Investigations Division (TID), Office of Field Operations.  Since the TTB’s inception in 2003, the Trade Investigations Division has been charged with enforcing the unfair trade practice provisions.[2]  TID has six districts around the country.[3]  The Market Compliance Office (MCO), Office of Headquarters Operations was moved to TID and monitors trade practice matters.  MCO has an Advertising and Trade Practices Program Manager, Lisa Gesser, who is available to answer your trade practices questions at  TradePractices@ttb.gov.  A new Office of Special Operations was established in TID.  It is charged with initiating, conducting, and overseeing trade practice investigations.  Staffing of that office includes nine Special Operations Investigators (SOI) and a supervisor.  The SOIs are positioned around the country.  TID investigators from the field district offices will be assigned to assist in investigations.  Under this reorganization both monitoring and enforcement is centralized in one program division.

 

Looking back at what TTB has done in the past several years in enforcement of unfair trade practices provides a guidepost to the current and future investigations.  Essentially, TTB has focused on two areas:  the “slotting fee” payments for product placement and consignment sales for malt beverages (beer) in the context of “freshness dating” returns.  An examination of the statutory requirements for a trade practice investigation sheds light on why TTB may be focusing on these investigations.

 

The reason for the appropriation and the reorganization is because the industry asked for the trade practice laws to be enforced. A permissive climate where enforcement is hit or miss encourages corrupt activity, and it is the TTB’s mission to root out corruption wherever it can.

 

Federal Unfair Trade Practices Under the FAA Act – What are they and how is a case made?

 

There are four unfair trade practices:

 

Exclusive Outlet (Section 205(a))

Tied-house (Section 205(b)) with seven specific types of means to induce.

Commercial Bribery (Section 205(c))

Consignment Sales (Section 205(d))

“Pay to play” schemes can fit under the first three practices.  Here is how a violation is proven:

 

There are three statutory elements for a violation.

 

http://www.beveragelaw.com/booze-rules/2018/1/29/the-renaissance-of-federal-unfair-trade-practices-current-issues-and-strategies

 






XO Cognac classification increases to 10 years

February 12th, 2018

 

Source: The Spirits Business

by Amy Hopkins

12th January, 2018

 

All XO Cognac must be aged for a minimum of 10 years, as opposed to six, under new industry regulations, which will come into force in April.

 

The Cognac industry has increased its XO age classification in order to “extend the quality positioning” of the category.

 

Trade body the Bureau National Interprofessionnel du Cognac (BNIC) also said the change “aims to align the regulation and the market reality”, since many XO blends on the market are made with eaux-de-vies exceeding 10 years of age.

 

The BNIC first announced the amended law in 2011, but is implementing the change this year in order to give producers longer to mature their stocks.

 

However, the BNIC is allowing XO Cognacs aged for six, seven, eight and nine years, and packaged by 31 March 2018, to be sold as XO until 31 March 2019.

 

Brands that want to use this lead-time must send a stock declaration form to the BNIC outlining the pre-packaged XO eaux-de-vie stocks concerned by 1 March 2018.

 

Despite being hit by China’s long-running austerity campaign in recent years, older expressions of Cognac continue to rebound in terms of export sales – recording 24.2% growth in 2016/17.

 

Towards the end of last year, the BNIC unveiled a new visual identity for the Cognac appellation, which is rolling our across all communication for the organization.






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