CorporateDIrect FullLogoWhiteLetter


New Laws Upend Property and Privacy Rights

  • You can’t do a criminal background check on a tenant!
  • You must rent out your property or pay a fine!
  • You must report all of your company’s beneficial owners!

Do these exclamations ring of an authoritarian bureaucracy? That bell is ringing louder in the last year as local, state and federal agencies have approved new restrictions on property and privacy rights.

In California, the Oakland City Council outlawed criminal background checks on prospective tenants. The stated purpose is to allow the formerly incarcerated to compete for housing and avoid homelessness.

Any housing provider and any person aiding a housing provider (i.e. a management company) face stiff penalties for doing a criminal check. Liability can be three times the greater of a) one month’s rent or b) actual damages, including damages for mental or emotional distress. A court may award punitive damages and attorney’s fees. Criminal penalties may also be asserted. Tenant’s rights attorneys could make hay with this ordinance.

If you own a rental property in Oakland you most certainly want it titled in the name of an LLC, shielding yourself from personal liability. And rather than screening tenants personally (for which the high penalties again apply) you will want to use an independent management company for that task. If there is an accidental criminal background check on a prospective Oakland tenant, the management company will suffer the consequences, not you.

But while the new law allows criminal offenders to rent in Oakland, it doesn’t change a duty that is required across the Country. Landlords have a duty to protect the neighborhood of the rental property from the criminal acts of their tenants. Landlords are routinely held responsible for their tenants dealing drugs on the property. Other tenants, or anyone in the neighborhood, can sue the landlord for the rental property being a public nuisance that threatens public safety.

So in Oakland you have to rent to criminals but you are still responsible if they engage in crime. If one of your investing guidelines is to avoid nonsensical Catch-22s, you may want to sell your Oakland properties and never invest there again. Please note that several other cities in the San Francisco Bay Area are also considering legislation to ban criminal background checks. Accordingly, you may need to reinvest farther away.

Across the Bay, San Francisco voters just approved two measures affecting real estate rights. The first one aims to deal with the “blight” of empty storefronts. The owners of retail spaces remaining vacant for six months or more will now pay a tax of $250 per foot of linear frontage. The tax can rise to $1,000 a foot in later years. New York City is considering a similar tax.

Supporters claim landlords don’t care about local neighborhoods and only want more rent. (Of course, leaving a storefront vacant for years does not really constitute more rent). Opponents argue the measure ignores current realities. San Francisco’s permitting process for tenant improvements and alterations, as well as new business approvals, is notoriously byzantine and can take a year or more to complete. Bank financing requirements for expensive neighborhood retail spaces feature covenants calling for only the most credit worthy tenants, limiting the pool of prospective users. And, the rise of e-commerce has certainly not benefitted anyone in the brick and mortar space. The unintended consequences of this ordinance will be interesting to watch from a distance.

San Francisco voters also passed a measure tying office development permits to affordable housing goals. The city builds an average of 712 affordable housing units per year. The new law asserts that 2,042 units must be built every year and if not the annual 875,000 square feet allocated for office uses must be reduced accordingly. So if 1,024 affordable housing units are built (which never happens) then using the same 50% figure only 437,500 square feet of office space can be approved.

San Francisco’s chief economist wrote:

“By tying future office development to an affordable housing target that the city has never met, the…measure is likely to lead to high office rents, reduced tax revenue, reduced incomes and reduced employment across the city’s economy.”

But that didn’t stop San Francisco’s voters. It is indubitable that Adam Smith is not taught in their schools. The invisible hand, as put forth by Adam Smith’s “The Wealth of Nations” in 1776, describes the unintended social benefits of an individual’s self-interested actions. If the market needs affordable housing and the government gets out of the way, affordable housing will be built. But government in San Francisco and in California are in the way. Some find it very easy to dismiss the ancient teachings of Adam Smith, but in doing so they never fully and critically examine why affordable housing is not being built. Virtue signaling is so much easier. It is certain that this new measure will only further clog the natural arteries of commerce.

The state of California has also inserted their own very visible hand into the real estate market. State wide rent control has arrived.

  • Properties older than 15 years are limited to annual rent increases of 5% plus an inflation rate or 10%, whichever is less. Owners cannot raise the rent above the new limits to cover capital improvements on these older buildings, which means the Golden State will now shine with deferred maintenance.
  • The new California law also restricts landlords’ ability to evict tenants. If a tenant has occupied a unit for at least 12 months evictions can be for “just causes” (where the tenant is at fault) and a limited number of cases where they are not at fault (such as the owner moving in or taking the unit off the market).
  • When evicting any tenant a landlord must now provide written notice and state whether it is an at fault or no fault issue. If there is no fault on the tenant’s part, the landlord must provide one month’s rent money to cover the tenant’s relocation expenses.

Will even more people reinvest further away from California?

No matter where you invest it is important to take title to real estate in the name of a limited liability company (or LLC). As I wrote in my book “Loopholes of Real Estate” there are too many legal loopholes allowing tenants and others to sue property owners. You can close that loophole of unlimited personal liability by holding real estate title(s) in one or more LLCs.

We always recommend taking title in an LLC or, in some cases, a limited partnership (LP). But the two main benefits of forming such entities, limited liability and privacy, are under attack by certain governments.

The attacks come under the nobility of expanding virtue and punishing evil. Who can argue that employees shouldn’t be paid what they are owed? Of course they should. But this must be balanced so that employers want to hire workers.

California and New York now hold corporate owners responsible for wage and hour law violations. In California, corporate officers and managers can now be held personally liable for civil penalties resulting from minimum wage violations. Personal liability gets your attention. Either the company follows the rules or, with personal liability hanging over your head, you quit.

New York has gone even further. And in further we mean it has upset the balance between productive employment and limited liability protection. The top ten owners of an LLC can now be held personally responsible for violating New York’s wage and hour laws.

Consider the following example: You invest $10,000 into an LLC doing business in New York. In exchange, you receive a 1% interest in the LLC. Nine other investors hold the remaining 99% and three of them conduct the LLC’s business operations. You are a passive investor with no management control or authority. You like it that way. You invested into a limited liability company because your liability is limited to the $10,000 you invested, and nothing more.

But New York has now changed the rules. If the three managers don’t pay, for example, $100,000 in wages, you are now on the hook for the payment. Even though you only own 1% of the LLC and had no management authority you are now ‘jointly and severally’ liable for the money. This means that if the other nine owners flee, or are bankrupt, you now owe the entire wage claim amount. What if people turn in their shares and all of a sudden, without your knowledge, you are a top ten owner? You are responsible for the whole claim.

New York’s law totally upends the concept of limited liability. Attorneys will be counseling clients to think long and hard about doing business in New York. Mind you, all this disruption is in the name of protecting workers.

The District of Columbia is also demanding more from LLCs. Their government, with the stated virtuous goal to “expose bad landlord(s) hiding behind an LLC”, now wants ownership information on all LLCs (whether for real estate or business) formed in D.C. or doing business in the District.

Now, in all filings, the name, state of residence and business address of every person with either a 10% or greater ownership in the LLC, or who controls day to day operations of the entity, must be provided.

It is not hard to visualize the next step from this collection of information. Plaintiff’s attorneys will be suing not only the LLC, but also the LLC’s individual owners. In some cases, the courts will dismiss any personal claims when the liability rests with the LLC. But in many cases the suing of individuals will be used to gain leverage in the litigation. And again, the limited liability protection of the LLC will be diminished through government regulation.

At the federal level, the U.S. House of Representatives recently passed the Corporate Transparency Act of 2019. The bill, which requires the disclosure of beneficial owners of corporations and LLCs, is now before the Senate. If enacted, every entity filing under “the laws of a state or Indian Tribe” shall file a report with FinCEN containing the name, date of birth, address and passport or personal ID number of every beneficial owner.

FinCEN stands for the U.S. Treasury’s Financial Crimes Enforcement Network. Founded in 1990 and broadened under the Patriot Act in 2002, the agency tracks suspicious currency activities and other illicit financial activities.

Congress justifies the need for beneficial ownership information under the following finding:

“Criminals have exploited State formation procedures to conceal their identities when forming corporations or limited liability companies in the United States, and have then used the newly created entities to commit crimes affecting interstate and international commerce such as terrorism, proliferation financing, drug and human trafficking, money laundering, tax evasion, counterfeiting, piracy, securities fraud, financial fraud, and acts of foreign corruption.”

If the Senate passes it, the bill would also require entities to file an annual report containing the current owners and any changes in beneficial owners during the previous year. As well, the law would prohibit the issuance of bearer shares, whereby the owner is not identified as a shareholder on a share or membership certificate.

The act defines beneficial owner as a natural person who directly or indirectly owns 25% or more of the entity’s equity, or who exercises substantial control or who receives substantial economic benefits from the entity. As to the last standard, the Treasury Secretary gets to determine what percentage of ownership equates to substantial benefit. Conceivably, every entity owner, no matter how small their ownership, could be required to disclose their personal information.

Would criminals provide false beneficial ownership information anyway? Perhaps. The penalty for doing so is a fine of up to $10,000 and prison time of up to three years. But an offshore straw man with no U.S. contacts could certainly, for the right price, put forward their passport and personal information for the benefit of a real bad guy.

Of course, as a consequence of trying to catch some criminals, every single American business, every single entrepreneur and real estate investor using a corporation or LLC, millions and millions of them, must now file initial and annual reports – forever!

  • Can FinCEN handle that much reporting?
  • Can they handle the responsibility to keep all that information private?
  • Should you ask your U.S. Senate candidates if they support this bill?

The Electronic Frontier Foundation in San Francisco has questioned the benefits of FinCEN compared to the loss of individual privacy. They question the effectiveness of FinCEN’s “Suspicious Activity Reports”, and why no studies have identified how many reports are filed on innocent people. If the Senate passes the Corporate Transparency Act of 2019, the Foundation’s long-time concerns of Fourth Amendment protections against unreasonable searches and seizures will come again to the fore. Any government investigator will be able to use FinCEN’s database to investigate people instead of crimes.

Governments offer less protection and want more information about LLCs and corporations. Where does it lead?

Why Wyoming Will Become the New Blockchain Mecca

Investing In Digital Assets: The New Wyoming Blockchain Mecca

Blockchain technology is becoming ever more prevalent in today’s highly technological world, and Wyoming has recognized this. The Wyoming State Legislature has passed 13 bills that will allow it to become the gold standard for blockchain technology, far outpacing the other 49 states. From these bills, there are several noticeable advantages to both cryptocurrency investors and blockchain technology companies.

On September 1, 2019, Wyoming will authorize banks to be “qualified custodians” for digital assets. These custodians are unique because they will respect the investors’ direct ownership of digital assets. Unlike the counterparties that exist with other asset management structures, these digital asset custodians will only be service providers to the investors. It is also worth noting that rehypothecation is illegal in Wyoming. This means that investors can be sure that all of their cryptocurrency investment will be theirs alone, not divided up into interests. All of these laws will ensure that digital asset owners have a legal certainty to know the nature of the custodial relationship and how their assets are treated.

On top of allowing current banks to be qualified custodians, Wyoming will also be the first state to authorize a depository institution to exclusively provide banking services to blockchain and other cryptocurrency businesses. These banks are allowed to start operating as soon as March 31, 2020.

Attracting New Business

To attract business to these institutions, the Equality State has crafted laws that are very favorable to cryptocurrency investors. Wyoming has become the first state to recognize both certificated and uncertificated shares of blockchain stock. The state’s money transmitter law has exempted crypto-to-crypto transactions, and the state’s securities laws have exempted utility tokens. All of this will allow cryptocurrency trading to thrive in Wyoming.

In order for these accounts to gain Wyoming’s legal protections, all that is needed is a Wyoming LLC to hold digital assets. With this easy structure, Wyoming’s favorable laws can apply. For extra protection, Corporate Direct provides a service called Armor-8. We set up the Wyoming LLC and store the LLC certificate in a safe at a Wyoming bank. Because the personal property (the LLC certificate) is in Wyoming, aggressive states like California will have to acknowledge Wyoming law.

Wyoming is at the forefront of something that could have a significant impact on the rest of the 21st Century. If you invest in digital assets, now is the time to set up a Wyoming LLC for maximum protection.

Are Individuals Protected Within Their LLC?

New Texas Case Sends Shock Waves

LLCs are set up to make personal assets inaccessible for any obligations of the entity. Protection may be lost, however, if you are not aware of your personal conduct when managing business through your LLC. The case below deals with water and environmental issues, an area where governments like to hold individuals liable.

In State v. Morello, the Texas Supreme Court recently found that an agent or a member of an LLC can be found personally liable for any violation of statutes or regulations.

In Morello, the State of Texas brought a civil action under the Texas Water Code against both Bernard Morello and his single member entity, White Lion Holdings, LLC (White Lion).

In 2004, Morello purchased a piece of property that was subject to a hazardous waste permit and compliance plan under the Texas Commission of Environmental Quality (TCEQ). After the purchase, Morello assigned the TCEQ compliance plan and all other property interests from his own name into White Lion.

In hindsight, Morello should have first taken title in the LLC, as he would have removed his individual name from the chain of title. Once your name is associated with the title to environmental problems, you can be held personally responsible for the remediation and cleanup.

Over time, the obligations were not performed, and the state decided to press charges against both White Lion and Morello for violating the TCEQ compliance plan.

The state’s argument for targeting Morello as an individual rested on section 7.102 of the Texas Water Code stating that any “person who codifies, suffers, allows, or permits a violation of a statute…within the [TCEQ’s] jurisdiction…shall be assessed” civil penalties.

Morello’s argument depended on a section of the Texas Business Organizations Code which states that, “a member…is not liable for a debt, obligation, or liability of a limited liability company.”

Morello eventually worked its way up to the Texas Supreme Court. The high court ultimately ruled in favor of the State, writing that “the State’s position is not based on the Business Organizations Code; it is based on the Water Code.” The Texas Supreme Court also found Morello personally liable on three primary arguments.

First, the Court found no reason whatsoever to exclude an individual from the term “person” from section 7.102. Second, the Court found that White Lion being the sole owner and being solely responsible for the compliance plan was immaterial. Third, the Court cited cases stating that a corporate agent may not escape individual liability where that agent “personally participated in the wrongful conduct,” citing that Morello’s actions were in his capacity as an agent and member of White Lion.

The Court’s opinion stated that where a statute applies to any “person,” an “individual cannot use the corporate form as a shield when he or she has personally participated in conduct that violates the statute.”

Haven’t We Seen This Before?

Federal and state courts have consistently rejected the position that where an environmental statute applies to a “person,” corporate officers can avoid individual liability for violating a statute if they personally participated in the wrongful conduct:

Riverside Mkt. Dev. Corp. v. Int’l Bldg. Prods., Inc., 931 F.2d 327, 330 (5th Cor. 1991) (concluding that the federal act “prevents individuals from hiding behind the corporate shield” when they “actually participate in the wrongful conduct”)
U.S. v. Ne. Pharm. & Chem. Co., 810 F.2d 726, 745 (8th Cir. 1986), cert. denied, 484 U.S. 848 (1987) (“[I]mposing liability upon only the corporation, but not those corporate officers and employees who actually make corporate decisions, would be inconsistent with Congress’ intent to impose liability upon the persons who are involved in the handling and disposal of hazardous substances.”)
T.V. Spano Bldg. Corp. v. Dep’t pf Natural Res. & Envtl. Control, 628 A.2d 53,61 (Del. 1993) (concluding that the State could impose personal liability on an officer who “directed, ordered, ratified, approved, or consented to the improper disposal”)
People ex. Rel. Burris v. C.J.R. Processing, Inc., 647 N.E.2d 1035, 1039 (Ill. App. Ct. 1995) (“[C]orporate officers may be held liable for violations of the [state environmental act] when their active participation or personal involvement is shown.”).

While these cases involved different statutes than the one at issue here, it is important to know that under an environmental regulation applicable to a ‘person,’ an individual cannot use the corporate form as a shield when he or she has personally participated in conduct that violates the statute.

And Morello was not held liable for a debt, obligation, or liability of White Lion as he asserts is prohibited by the Business Organizations Code. See Tex. Bus. Orgs. Code § 101.114. Rather, he was held individually liable based on his individual, personal actions.

The Morello case is groundbreaking and could have a ripple effect across Courts in the United States. It is important for people to be aware of their behavior when acting as a member or an agent of an LLC, even before the entity is formed. This recent Texas case demonstrates that in certain specific circumstances individual persons may be found personally liable for any wrongdoing.

Ted Sutton is a graduate of the University of Utah. He will be attending Law School at the University of Wyoming in the Fall of 2019.

Case Study: Florida Single Member LLC’s and Charging Orders

When it comes to charging orders, the key asset protection feature of LLC’s and LP’s, there are two opposing trends.

First, some states do not provide charging order protection for a single member (one owner) LLC. The rationale is that the charging order exists to protect innocent partners, the people who were not sued by someone trying to reach their partner’s assets.

The second trend is to protect even single owners from an outside attack with a charging order. The states of Wyoming, Nevada and Delaware offer this strong protection in their state statutes. Everyone thought Florida offered strong protection until the Olmstead case was decided. The federal government was going after the single member LLC assets of a scamster named Olmstead.

The Florida Supreme Court, wanting to accommodate their government brethren found a way to declare multi member LLC’s protected by the charging order but not single member LLC’s. And so the feds were able to reach Olmstead’s assets.

But Florida law has been a bit confused ever since.

The Pansky Case

In Pansky v. Barry S. Franklin & Associates, P.A. (Fla. 4th DCA, Feb. 13, 2019), a judgment creditor brought a motion for a charging order and for transfer of the judgment debtor’s interest in an LLC. The trial court authorized both the charging order and transfer of the judgment debtor’s interest. The judgment debtor appealed, and the District Court of Appeal for the Fourth District reversed and remanded, holding that the exclusive statutory remedy available to a judgment creditor as to a judgment debtor’s interest in the LLC was a charging order.

More specifically, the Court of Appeal concluded that the exclusive statutory remedy available to a judgment creditor as to a judgment debtor’s interest in an LLC was a charging order, and that the trial court’s order transferring right, title, and interest in the LLC to the judgment creditor exceeded the allowable scope, at least where there was a factual dispute was whether judgment debtor was the sole member of the LLC.

The Facts of Pansky

The underlying facts in Pansky show that the law firm had previously represented Pansky in a divorce proceeding. The law firm withdrew as counsel, claiming it was owed attorney’s fees that Pansky had not paid. The law firm obtained monetary judgments for the claimed fees and attempted to collect on the judgments by filing a motion for a charging order against Daniel Pansky, LLC, in which Pansky had an ownership interest.

The law firm also sought transfer of Pansky’s ownership interest in the LLC to the law firm. Pansky conceded that the law firm was entitled to entry of a charging order, but objected to any transfer of his ownership interest in the LLC.

The trial court held a hearing on the law firm’s motion and orally ruled that, based on Pansky’s concession, an agreed order granting a charging order would be entered. The court stated that it would reserve ruling on any additional relief beyond a charging order that the law firm requested. The trial court entered a written order granting the charging order; however, the trial court also transferred Pansky’s “right, title, and interest” in the LLC. It is from this latter order that Pansky appealed.

The Rationale in Pansky

The District Court of Appeal for the Fourth District noted that above-quoted Section 605.0503(3), Florida Statutes, provides that a charging order is the sole and exclusive remedy by which a judgment creditor of a member or member’s transferee may satisfy a judgment from the judgment debtor’s interest in a limited liability company or rights to distributions from the limited liability company; and that above-quoted Section 605.0503(1) provides that a charging order constitutes a lien upon a debtor’s transferable interest and requires the LLC to pay over to the judgment creditor a distribution that would otherwise be paid to the judgment debtor.[1]

The Court of Appeal found that a factual dispute existed as to whether Pansky was the sole member of the LLC. Pansky maintained that it was a two-member LLC, such that only a charging order was authorized, and the law firm contended that Pansky was the sole member.

The Court of Appeal observed that, at the hearing on the law firm’s motion, the trial court stated, “I don’t have enough in front of me to show it’s a one-member LLC that I can give you-all [sic] that other relief. But since there’s no opposition to the entry of the charging order, that’s granted.”

As such, the trial court stated it would “reserve jurisdiction on the other prayers for relief, such as [a freeze order] and transferring Mr. Pansky’s ownership interest” until the factual disputes were determined at a later proceeding. The law firm contended that the trial court’s order did not make a transfer of conveyance of property or assets.

The firm asserted that the order merely adjudicated the law firm’s entitlement to a charging order. The Court of Appeal found this argument unconvincing, and stated that the trial court’s order plainly contained language transferring Pansky’s “Right, title and interest” in the LLC to the law firm.

The Court of Appeal disagreed with the trial court, and concluded that the trial court’s order plainly contained language transferring Pansky’s “right, title, and interest” in the LLC to the law firm and went beyond granting a charging order–as was agreed to by the parties and authorized by statute. The Court of Appeal noted that in Abukasis v. MTM Finest, Ltd., 199 So.3d 421, 422 (Fla. 3d DCA 2016), the District Court of Appeal for the Third District reversed a trial court’s order which transferred the appellant’s “membership interest” in an LLC toward the satisfaction of a debt, finding no authority for an order directly transferring an interest in property to a judgment creditor in partial or full satisfaction of a money judgment, and stating that the trial court failed to conform with even the most rudimentary requirements of Section 605.0503.

The Court of Appeal further noted that, in McClandon v. Dakem & Assocs., LLC, 219 So.3d 269, 271 (Fla. 5th DCA 2017), the District Court of Appeal for the Fifth District explained that a charging order should only divest a debtor of his or her economic opportunity to obtain profits and distributions from the LLC, and should charge only the debtor’s membership interest, and not managerial rights. The Court of Appeal further noted that, in Capstone Bank v. Perry-Clifton Enter., LLC, 230 So.3d 970, 971 (Fla. 1st DCA 2017), the District Court of Appeal for the First District explained that a charging order instructs the entity to give the creditor any distributions that would otherwise be paid to the member of the entity.

Because the Court of Appeal found that the trial court’s order went beyond granting a charging order, as was agreed to by the parties and authorized by statute, the Court of Appeal reversed and remanded the case to the trial court.


It would appear that the opinion of the District Court of Appeal for the Fourth District did not go far enough. Section 605.0503(4), Florida Statutes, provides:

“(4) In the case of a limited liability company that has only one member, if a judgment creditor of a member or member’s transferee establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time, a charging order is not the sole and exclusive remedy by which the judgment creditor may satisfy the judgment against a judgment debtor who is the sole member of a limited liability company or the transferee of the sole member, and upon such showing, the court may order the sale of that interest in the limited liability company pursuant to a foreclosure sale. A judgment creditor may make a showing to the court that distributions under a charging order will not satisfy the judgment within a reasonable time at any time after the entry of the judgment and may do so at the same time that the judgment creditor applies for the entry of a charging order.”

If the trial court truly believed that the LLC had only one member, rather than two members, and relied upon the provisions of Section 605.0503(4), then the trial court perforce should have adduced evidence that distributions under the charging order would not satisfy the judgment within a reasonable time. The trial court did not do so.

Although the Court of Appeal tacitly concurred with the District Court of Appeal for the Third District in Abukasis, supra, 199 So.3d at 422, that the trial court failed to conform with even the most rudimentary requirements of Section 605.0503, the Court of Appeal failed specifically to note the trial court’s failure to comply with the explicit provisions of Section 605.0503(4).


Thus, in Florida, it is safe to say that charging order protection is the exclusive remedy available to a judgment creditor of an LLC, at least where there is a factual dispute as to whether the judgment debtor is the sole member of the LLC.

[1]The Court of Appeal carefully distinguished single-member LLCs, and pointed out that above-quoted Section 605.0503(4) provides that, for single-member LLCs, a charging order is “not the sole and exclusive remedy by which the judgment creditor may satisfy the judgment”; rather, in the case of a single-member LLC, “if a judgment creditor of a member or member’s transferee establishes to the satisfaction of a court of competent jurisdiction that distributions under a charging order will not satisfy the judgment within a reasonable time … upon such showing, the court may order the sale of that interest in the limited liability company pursuant to a foreclosure sale.”

Sales Taxes are a Big Issue in 2019

Businesses With E-Commerce, We’re Talking To You

What You Should Know About Internet Sales and the South Dakota v. Wayfair, Inc. Case

Sales tax policy has changed dramatically within the past year, thanks to the Supreme Court ruling of South Dakota v. Wayfair, Inc.  The Court overruled a ‘physical presence’ rule that prevented states from taxing remote sales, such as internet purchases. The standard now is ‘economic nexus’, or how much is sold into a state whether there is a physical presence (i.e. stores or employees) or not. Given the rapid increase of e-commerce within the past decade, this ruling will have a monumental impact on state sales tax revenue in the near future.  It will also require all online sellers to collect and remit sales taxes to states across the country.

In December of 2017, the U.S. Government Accountability Office (GAO) released a report which estimated that only 14%-33% of online marketplace transactions are subject to sales tax. Under the Wayfair ruling, states should see a large increase in their sales tax revenue once states start taxing online purchases.

The Wayfair ruling has resulted in a snowball effect, where state legislatures have acted quickly to implement remote sales taxation. In 2017, only nine states had remote taxation laws. By the end of 2019, that number will swell to 31 states. By 2020, there is a possibility that all 50 states will have remote taxation laws.

If you sell anything over the internet this new standard affects you and your business.  It is important to note that each state will allow exemptions to smaller out-of-state sellers, with most states exempting remote sellers with fewer than $100,000 in sales or fewer than 200 transactions in the previous calendar year.  But some states hold that once you cross their threshold you must start collecting their sales tax the very next day.

Given how technology has grown rapidly and sales tax collection has not, the Wayfair case will be a benchmark as it will inevitably bridge the gap between the two.

In other related developments, Ohio now allows taxpayers to pay any taxes with bitcoin, with other states considering cryptocurrency payment options. Chicago now taxes streaming services such as Netflix and Hulu. Iowa is beginning to tax digital products, such as digital audio, digital books, and pay television. Iowa also taxes personal transportation services such as Lyft and Uber.

As tax policy is ever changing, we will keep you updated on future developments.

Are You Buying A Home With All Cash? Here’s Why You Should Reconsider

Are You Buying A Home With All Cash?  Prepare to Be Scrutinized

Buying a home with all cash has become more difficult. Blame the drug dealers, criminal networks and tax evaders for new rules put forth by the U.S. Treasury Department’s Financial Crimes Enforcement Network (or Fincen).

Title insurance companies must now identify a 25% or greater owner of an LLC or corporation that purchases a home for at least $300,000 using all cash or crypto currency. The rule applies to 22 counties nationwide, and the list keeps expanding. It started in Manhattan and Miami. Now the counties in and around Los Angles, San Francisco, Boston, Seattle and San Diego, among others, are also included.

Of course, there are good and legal reasons for using an LLC to hold title to real estate, including limited liability, privacy and estate planning strategies. And many will use bank financing to leverage the advantages of real estate investment. Using a mortgage as part of the purchase does not subject one to the new rules.

Another gap in the law involves the use of trusts. Holding title in the name of a revocable or irrevocable trust is not subject to reporting either. While using an irrevocable trust for real estate holdings may not be the best tax planning strategy (talk to your CPA) many targeted persons may consider this option.

Another strategy will simply be to purchase real estate outside one of the 22 identified counties. Drug dealers already like Eureka, California, in the heart of the marijuana grow zone. The rules don’t apply there. Yet. Experts expect that the rules will someday apply to all real estate throughout the United States.

If you are not engaged in any sort of criminal activity should you be bothered by these rules?

Fincen collects the information on true ownership of the LLC or Corporation. This is added to their database, which they assert is not public. However, once you are in the database anything they deem as “suspicious activity” is scrutinized. Using cash transactions of over $10,000, or a number of $9,000 cash transactions, can put you in Fincen’s crosshairs. What then?

The government certainly has an interest in going after criminal activity. But, as always, broad rules can lead to unintended consequences.