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NEW HAMPSHIRE TAX DEVELOPMENTS

For those interested in New Hampshire state taxation, the following update from CCH will be of interest:

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S.10,New Hampshire—Corporate Income, Utilities Taxes: Correction: IRC Conformity Updated and BPT/BET Rates Reduced,(Jul. 12, 2017)

Governor Sununu of New Hampshire has approved legislation that reduces the tax rates of the business profits tax and the business enterprise tax, updates the state’s conformity with the Internal Revenue Code, increases the IRC Sec. 179 deduction limit, and repeals the electricity consumption tax. The legislation reduces in two steps the business profits tax and the business enterprise tax rates. The business profits tax will be imposed at the rate of 7.7% on the taxable business profits of every business organization for tax periods ending on or after December 31, 2019 and at the rate of 7.5% for tax periods ending on or after December 31, 2021. [A previous story omitted the applicable dates for the rate changes.] Currently, the rate is 8.2%. The rate is scheduled to be reduced to 7.9% for tax periods ending on or after December 31, 2018 if certain state revenue levels were met by June 30, 2017.

The business enterprise tax will be imposed at the rate of 0.6% of the taxable enterprise value tax base for tax periods ending on or after December 31, 2019 and at the rate of 0.5% for tax periods ending on or after December 31, 2021. [A previous story omitted the applicable dates for the rate changes.] Currently, the rate is 0.72%. The rate is scheduled to be reduced to 0.675% for tax periods ending on or after December 31, 2018 if certain state revenue levels were met by June 30, 2017.

The legislation also updates the state’s Internal Revenue Code (IRC) tie-in date for purposes of computing New Hampshire’s business profits tax liability to December 31, 2016 (currently, December 31, 2015). This change applies to tax periods beginning on or after January 1, 2018. It is effective June 28, 2017.

Further, IRC §179 (asset expense election) will be subject to a deduction limit of $500,000 for property placed in service on or after January 1, 2018. Currently, the limit is $100,000 for property placed in service on or after January 1, 2017. These changes are effective January 1, 2018.

The electricity consumption tax is repealed effective January 1, 2019.

Ch. 156 (H.B. 517), Laws 2017, effective July 1, 2017, except as noted above

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NEW ARTICLE ABOUT TAX CHOICE OF ENTITY

Tax choice of entity is a critical task in any LLC formation.  Below is the cite to a new law journal article about LLCs and tax choice of entity:

9 Elon L. Rev. 311
Elon Law Review
2017
Article
Caolan J. Ronan
Copyright © 2017 by Elon University; Caolan J. Ronan
START-UPS: WHY INVESTORS PREFER THE CORPORATE FORM TO THE L.L.C. FOR TAX PURPOSES

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SELLING LLCS

LLC lawyers sometimes need expertise about the special issues involved in buying or selling family-owned businesses.  The post under the following link contains excellent advice about valuing these businesses:

http://www.taxlawforchb.com/2017/06/unreasonable-compensation-the-family-business/

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TEXAS SHOOT-OUT PROVISIONS

Texas shoot-out provisions, also known as “shotgun” provisions, are very common in the operating agreements of multi-member LLCs, but they are often inappropriate.  Under the link below, in a post by Peter Mahler, is the best short discussion of these provisions I’ve ever read.

Aim Carefully Before Pulling Trigger on Shotgun Buy-Sell Agreement

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DERIVATIVE SUIT BY LLC 50/50 MANAGING MEMBER

The post under the link below addresses an interesting Delaware Court of Chancery decision on derivative rules in suits between the two equal managing members of an LLC.  The decision is likely to be influential outside Delaware, and it’s a significant angle on an all-important task for LLC lawyers—handling member deadlocks.

Here’s the link:

https://delawarechancery.foxrothschild.com/derivative-actions/derivative-demand-requirements-equally-apply-to-actions-asserted-by-5050-member-of-an-llc/?utm_source=Fox+Rothschild+-+Delaware+Chancery+Law+Blog&utm_campaign=2c211dbca2-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_86821ff155-2c211dbca2-70733165

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MINNESOTA LLC ACT

Below are the citation and first paragraphs of a article about the soon-forthcoming new version of the Minnesota LLC Act.  The article will of course be of interest to Minnesota lawyers but also to people (like me) who try to follow LLC statutory developments nationwide.

74-JUN Bench & B. Minn. 27
Bench and Bar of Minnesota
May/June, 2017
David Jenson
Copyright © 2017 by Minnesota State Bar Association; David Jenson
WHY YOU MAY NEED AN LLC UPDATE IN 2017

Ready or Not, Minnesota’s LLC Law Changes in January 2018

Many Minnesota LLCs have not yet updated their member control agreements and related documents to accommodate the new realities of a Chapter 322C world, but starting in 2018 that statute will govern all LLCs in the state. This article explores the impact of the change and explains why it’s crucial for businesses to adapt to Chapter 322C on their own terms while there is still time to do so.

For Minnesota LLCs, the clock is ticking to update member control agreements and related documents before a new and different LLC statute automatically applies on January 1, 2018.

Since August 1, 2015, anyone forming a new LLC in Minnesota has confronted the Minnesota Revised Uniform Limited Liability Company Act, also known as Chapter 322C. Minnesota’s new LLC statute differs significantly from the “old” LLC statute, Chapter 322B, but many existing LLCs and their owners have continued under Chapter 322B unaffected by (and perhaps unaware of) this major change and have been spared the necessity of confronting the new law because Chapter 322C currently only applies to newly formed companies and Chapter 322B LLCs that take action to opt in to Chapter 322C.

That all changes in January, when Chapter 322C will automatically apply to all Minnesota LLCs, whether their owners ever intended to be subject to Chapter 322C or not. This article explores the impact of this looming change and posits that it is crucial for businesses to adapt to Chapter 322C on their own terms rather than be forced (perhaps unawares) into Chapter 322C next year.

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GRANTS OF RESTRICTED STOCK TO EMPLOYEES

More and more LLCs are electing to be S corporations, and, as such, can issue restricted stock to their employees under clear tax rules.  However, the new post under the link below raises questions about whether this is ever a good idea.

http://www.taxlawforchb.com/2017/05/restricted-stock-employee-shareholders/

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“PROPER PURPOSE”

When non-manager members have disputes with managers, the access of the non-managers to LLC records is often a key issue.  The issue is whether the non-member members have a “proper purpose” for obtaining those records.  The post under the link below discusses a Delaware Court of Chancery case about that issue.

Here’s the link:  https://delawarechancery.foxrothschild.com/books-and-records-demand-2/chancery-finds-that-mismanagement-exists-warranting-section-220-books-and-records-demand/?utm_source=Fox+Rothschild+-+Delaware+Chancery+Law+Blog&utm_campaign=c83185548b-RSS_EMAIL_CAMPAIGN&utm_medium=email&utm_term=0_86821ff155-c83185548b-70733165

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2017 PROPOSED AMENDMENTS TO DELAWARE’S LLC AND PARTNERSHIP ACTS

The Delaware Limited Liability Company Act is the most prestigious U.S. LLC act, many sophisticated investors and lenders will deal only with Delaware LLCs, and when two or more LLC founders from non-Delaware states disagree about whose LLC act will govern, they often choose the Delaware Act.  Sophisticated LLC lawyers should have a detailed understanding of the Delaware Act.

The Delaware bar updates the Delaware Act every year to keep it current.  However, as shown in the link below, the updates this year will be quite minor.

http://richardslaytonnews.com/rv/ff00313a50ec119fa779ccd23e4591a53369b557

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SELF-EMPLOYMENT TAX OF LLC MEMBERS

Most multi-member LLCs are taxable as partnerships.  A key task of lawyers forming LLCs is often to minimize the Self-Employment Tax exposure of the members of these LLCs.  The post under the link below discusses a recent Tax Court case addressing the SET liability of the members of a multi-member LLC whose members were lawyers, and it finds that because all of these functioned like general partners of their multi-member LLC, all were liable for that tax.

However, the post does not discuss the usefulness of Prop. Reg. § 1.1402(a)-2 (the “Prop. Reg.”) in protecting from SET liability the members of multi-member LLCs taxable as partnerships.  The IRS has twice stated in public forums that the Prop. Reg. is its audit guideline for the SET liability of partners in entities taxable as partnerships.  Thus, the Prop. Reg. is a powerful tax-avoidance tool for LLC lawyers and their clients.

Here’s the link:  http://www.taxlawforchb.com/2017/06/self-employment-tax-llcs-the-limited-partner-exclusion/