anyone have a referral source

i did with someone's help come across that artists are not deemed manufacturers. That same person had mentioned to me that 86-272 could be applicble.

In year 1 taxpayer went down into NC to make a sales pitch for her sculpture

The offer was accepted and she got a 10k deposit.

Year 2 - cleint got more money; but did all work in NY

Year 3 - got another installment of funds - did all work in NY

Year 4 - which is 2022 - client will deliver and install to North Carolina

Pursuant to 86-272 and since not a manufacturer and not use percentage of completion; was going to only
pick up income in Year 4 to North Carolina.

I don't know that 86-272 plays any role here. How does it play a role in year 2? If you're picking up income in year 2, the charge is for the sale and installation of TPP. Since installation is not protected, PL 86-272 doesn't protect the taxpayer.

year 1 is 86-272 i'm thinking - so no income attributed to north carolina that year
year 2 - they didn't go into north carolina, they were must manufacturing the sculpture
this year - they are going into north carolina and will install the scultpture

These are three separate concepts that you need to differentiate:
1) Sourcing - where receipts should be sourced. You need to look at both the rules where the product or service is being delivered to, and the rules where the product is made/ the service is physically being performed. Then you determine sourcing of the receipts under each of those rules separately.
2) nexus - is there enough of a connection with North Carolina that NC can statutorily and constitutionally impose an income tax on the taxpayer. You can potentially have receipts that are sourced to NC as described above, but still not have nexus, so you would owe no income tax to NC.
3) 86-272 - even if the taxpayer has receipts that are sourced to NC, and has nexus in NC, they may be protected from being subject to *income* tax in the state. These are very strict rules, and either the taxpayer isn't selling TPP in year 2 (for example, they're selling some intangible right to property or some other clarification), in which case 86-272 doesn't apply, or they're actually selling the TPP in year 1 and 2, in which case, the installation in year 3, presumably being an undivided part of the project, would take them out of 86-272. I put income in bold because NC also has a franchise tax and the taxpayer would not be protected from franchise tax.

Since installation is not protected, PL 86-272 doesn't protect the taxpayer.

But is there nexus in Year2?

Thank you ATX for the detailed response - appreciate!

I should add this is for a sole-proprietorship, not a corp.

I mention this bc i've been informed for corps, NC is market base sourcing

and

for sole-proprietorships - it is not.

Since installation is not protected, PL 86-272 doesn't protect the taxpayer.

But is there nexus in Year2?

Yeah, that's probably what I would be trying to assert (no nexus). I don't know NC's rules on trailing nexus, but if there's no trailing nexus or if they're silent as to it, that would seem like the strongest argument. Of course, would want to know about the interactions between the taxpayer and customer and details on any other customers, but I'd say it's a better place to start than 86-272.

86-272 is hard enough when you take the tax position in advance and everyone in operations/sales is trained on the rules. Trying to assert it and come up with facts two years later is not a great position to be in.

Thank you ATX for the detailed response - appreciate!

I should add this is for a sole-proprietorship, not a corp.

I mention this bc i've been informed for corps, NC is market base sourcing

and

for sole-proprietorships - it is not.

Yes, sourcing is that third area you need to look at. If it's cost of performance in NC, maybe it's market based in the state where it's made. You have nowhere receipts. Of course, this is a lot less enticing for a sole proprietor since they'll have to generally pick up the income on their personal return anyway.

Technically, even with no receipts sourced to NC you could theoretically have nexus there, and the tax would be the minimum franchise amount, but I would typically make clients aware of the risk and let them decide whether or not to file.

As we're now talking about NC franchise tax, what is the client's tax entity, if any?

As we're now talking about NC franchise tax, what is the client's tax entity, if any?

You're right, I wasn't thinking all the way through, likely wouldn't be subject to franchise tax.

sole proprietorship

nyc should me cost of performance for a sole proprietorship

amazing the complexity that goes into nexus

i have no problem paying north carolina either

i'd just get a credit in ny

however, i don't want to pay north carolina when it's not appropriate.

alt...you can't have 86-272 for the first year only to exclude those receipts?

i found a rep who told me to fill out a business questionaire and send it to
an individual who will make an assessment (hopefully)....otherwise i could consider
a written determination letter for $500 that'll probably take 2 years to get back.

in one sense, i think North Carolina would maybe say...look, you guys could easily alter how much is
paid in the 1st and 2nd year to circumvent paying taxes in the 3rd year - that's certainly not the case,
but it'll be interesting to see their response.

I'll post back with what i hear https://www.ncdor.gov/media/11786/open

well North Carolina is no help - they say apply for a private letter ruling that will take 7 months to get back.

I"m not trying to avoid NOrth Carolina - i'm just trying to reach an accurate answer.

it's a shame they won't help

That's probably because they don't know either, LOL!

I just received a notice that they denied an amended NC tax return for the ERC that we submitted. They have no clue how all of it works - I'm having to try to educate them and it's not going well!

My contention is if you can provide me with a private letter ruling for $500 that is binding

why can't you give me your answer for free from the same person and not have it binding.

Somewhere, someone has an answr

It's amazing what people can get away with ... there seems to be no reprimand or detriment for messing up