Tax Research: Maryland State Research Paper.
According to state law businesses are expected to register with the county where they will operate from (Coffee Jr, Sale & Henderson, 2015). This will be done through the issuance of a registration certificate recognizing the business as a sole proprietorship, partnership or even a corporation. A sole proprietorship is where the owner of the business is personally responsible for all the actions of the business and he enjoys the profits and losses generated by the business. Tax Research: Maryland State Research Paper.A general partnership on the other hand is where two or more people come together to do business. They enjoy responsibility to the business in accordance to their contribution or as mentioned in the partnership deed. A partnership deed is a document that clearly states the roles and responsibilities of each partner as well as how they will share profits and losses.
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To register a general partnership or a sole proprietorship in the state of Maryland one needs to fill out a certificate of assumed name also referred to as DBA with the county register of deeds. One could also choose to register the business as a corporation which basically means that the business becomes a separate entity from the owners of the business. Legally this means that the business can own property, sue and be sued thereby translating that owners are indemnified from personal liability.Tax Research: Maryland State Research Paper. To register a corporation in Maryland you need to fill forms known as articles of incorporation. The final business that a businessman could choose to operate in Maryland is a limited liability company (LLC). Just as a corporation the owners of the business are indemnified from personal liability as the business is taken to be separate from its owners. A LLC business has the benefits of giving the owners a special tax treatment where they are able to thwart cases of double taxation on their income (Kuhns, 2016). To register an LLC the owners need to fill articles of incorporation. The owners also need to file articles and memorandum of association with the county. These documents provide more information about the business.Tax Research: Maryland State Research Paper.
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One of the tax issues discovered during this research is state privilege tax which is needed to be collected before the business starts operations. The tax is applicable to certain professionals in Maryland. This license together with other state business licenses are obtained from clerks of the circuit court which are found in the county where the business will be operated in. When applying for licenses for the first time, one is expected to first of all register with the Maryland department of assessments and taxation before making an application to the local clerk of the court. To enforce and monitor the use of business licenses is a responsibility of the state license bureau. State privilege tax once issued does not certify that the holder is qualified to do certain tasks within the said profession. What this license covers includes taxes that give one the privilege of doing business in Maryland State. Additionally the researcher discovered about franchise tax which is imposed on businesses to have the privilege of doing business in Maryland. Tax Research: Maryland State Research Paper.This tax is renewed annually so long as the business is incorporated and continues to do operation in Maryland.
Another issues discovered about taxation that a business owner needs to be aware of is the issue of personal property. The business owner is expected by the state to file a listing of their business personal property with the office of the County Tax Assessor. Any improvements to the property e.g. new building structures need to be made available to the assessor at all times. The reason for filing of these listings is due to the fact that there is business personal property tax that needs to be paid. This tax is imposed and collected by the local governments. The assessment of the personal property in the entire Maryland is a responsibility of Department of Assessments and Taxation. Personal property generally includes fixtures, furniture, industrial equipment, inventory, supplies, machinery, tools and any property that has not been classified at real property.Tax Research: Maryland State Research Paper. To file for this tax one needs to download forms from the personal property division information page of the Maryland state government website. The page also includes tax rate charts, brochures instructions and exemptions. There are many issues that are unique to Maryland in regards to taxation however these two stood out from the rest.
Application of Cash Accounting Method
Cash accounting method has been defines as one of the easiest way of accounting to small businesses. This fact has made this method to become very popular more so with sole proprietorships. Sole proprietors are known to use this method due to its ability to help them keep and manage good records for their business (Accounting periods, n.d.). Most businesses deal with inventory which is then sold to make sales. From the sales it’s what the business uses for expenses and further profits to the owners. Where a business operates this way accrual method of accounting is advised especially in recording purchases and sales thereafter (Accounting periods, n.d.). Cash accounting method is not only used by sole proprietorships as other business types can use it as well. Partnerships which lack corporate partners have also been known to use the cash method of accounting (26 U.S. Code § 448. n.d.). This method is however not allowed to be used by certain types of partnerships. This includes the partnerships that have been considered to be tax shelters as they are not allowed to use the cash accounting method. Partnerships that can be defined as tax shelters are not eligible to use the cash method of accounting (26 U.S. Code § 448. n.d.).Tax Research: Maryland State Research Paper.
Some partnerships allocate more than 35% of the losses to limited partners or even entrepreneurs. In this cases this is done to partners who are not active members of the partnership. Partnerships that have set up their businesses in this way are not allowed to use the cash accounting method (26 U.S. Code § 448. n.d). In the case of Tally Industries its case is unique. They have one partner who is not active in the management of the business. This partner also gets 25% of the profits and losses same as the other partners who are involved in the management of the business. The member who is not involved in the management of the business only gets 25% of the losses. This is low than the set 35% as per the legal provisions. The business on the other hand also does not have a corporate member. Factoring all these issues one can come to a conclusion that Tally Industries is able to use the cash accounting method. They have a non-active partner, however they lack a corporate partner who is allocated 35% or more of the profits or losses and therefore do not meet the threshold of stopping them from using the cash accounting method.
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References
26 U.S. Code § 448. (n.d.). In Cornell University Law School Legal Information Institute. Retrieved on October 09, 2018 fromhttps://www.law.cornell.edu/uscode/text/26/448
Accounting Periods and Methods. (n.d.). In Internal Revenue Manual. Retrieved on October 10,2018 from https://www.irs.gov/publications/p334/ch02.html
Coffee Jr, J. C., Sale, H., & Henderson, M. T. (2015). Securities regulation: Cases and materials.
Kuhns, A. M. (2016). Recent Development: A Guy Named Moe, LLC v. Chipotle Mexican Grill of Colo., LLC: A Foreign Limited Liability Company Lacking Compliance with State Registration Requirements May Maintain Suit After Infirmity is Cured; The Company Must Also Meet the” Person Aggrieved” Requirement of Standing. In University of Baltimore Law Forum (Vol. 47, No. 1, p. 5).Tax Research: Maryland State Research Paper.