Personal Attention. Efficiency. Collaboration. One Central Office.

These aren’t normally the words used to describe a leading accounting firm, but it’s exactly what we deliver at Clark Nuber.

Say hello to

Mike

CPA, CFE, CGMA | Principal

Whether it’s climbing 19,341 feet to summit Mt. Kilimanjaro, reaching terminal velocity while skydiving, or rescuing feral cats, Mike is always up for an exciting new adventure.

 » Read more

Clark Nuber PS
posted this blog on

Clark Nuber is partnering with LeaseCrunch to assist organizations in implementing the new FASB lease accounting standard ASC, Topic 842.

LeaseCrunch is a cloud-based software solution that enables entities to more easily address the challenges created by the new lease standard, while automating the required deliverables. The new lease standard requires substantial footnote disclosures from entities. LeaseCrunch eases this burden by providing entities with many of the disclosures (FASB, GASB and IFRS) needed to complete the footnote, reducing mistakes and the time required of their accounting team. Examples of these footnotes include finance lease expense (amortization and interest), operating lease expense, weighted-average remaining lease term, weighted-average discount rate, and maturity analysis. LeaseCrunch will also calculate the corresponding journal entries.

LeaseCrunch’s “software wizards” will guide users through the complicated requirements of the standard. These wizards help users evaluate the five criteria of lease classification and determine term length when actions like early termination or renewal options must be factored in. These wizards can be implemented as a requirement in the data entry workflow or used as an optional assistant for users to reference when necessary.

LeaseCrunch holds both a SOC 1 and SOC 2 report and has been vetted for strong IT security.

If your company or organization is struggling with implementing the new lease accounting standard, contact Clark Nuber to learn how our professionals and LeaseCrunch can assist you.

© Clark Nuber PS and Developing News, 2022. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Clark Nuber PS and Developing News with appropriate and specific direction to the original content.

 

Keep Reading

Articles and Publications

State Taxation of NFTs — What to Know

The mixed characteristics of non-fungible tokens (NFTs) have made them a tricky subject for state taxation. This fact, coupled with the lack of guidance from state tax administrators, leaves NFT sellers, purchasers, and their tax advisors on their own to guess at how to report the purchase and sale of NFTs. This article will cover the ambiguous tax treatment of transactions involving NFTs and how some states are currently approaching the issue.

What is an NFT?

NFTs are unique digital assets/files that are linked to a certificate of authenticity stored on a blockchain. These assets can take the form of artwork, music, tweets, domain names, club memberships, video game characters, virtual land, and more. Because the certificate of authenticity exists on a blockchain, it is possible to indisputably verify who owns the original of the digital asset, certify its uniqueness, and facilitate its exchange. Tokenized or anonymous identity makes markets more private and more secure, which could explain the reason behind their growing popularity. NFTs began entering the mainstream in 2017 with the sale of images of digital punks or virtual cats that could be traded in an online game. The market for NFTs has since evolved and grown to an estimated $25 billion in sales by the end of 2021. Some analysts expect global sales of NFTs to reach $80 billion by 2025.

The Hurdles of NFT State Taxation

All states with sales taxes levy them on sales of tangible personal property. Many states also tax sales of certain services. However, the sale of intangibles, or non-physical property, have not historically been treated as taxable. As digital products, services, software, and now NFTs have become more popular, states have found creative ways to tax these electronic transactions which would be considered by most to be intangible in nature. Given NFT’s intangible nature, the question has arisen as to whether their sale fits within a particular state’s taxable categories. However, because ownership of an NFT essentially represents virtual ownership of a digital asset, it is imperative to consider the nature of what the underlying asset represents when determining taxability of its exchange. Some NFTs have connections to traditional tangible assets as well. Popular high-end brands like Burberry and Louis Vuitton have released clothing lines made for digital avatars and video game characters. NFTs are currently being used in the real estate industry to facilitate transactions through title validation, enable smart contracts for properties that automate the escrow and transfer of currency, and even create decentralized home rentals services that protect sensitive data like credit card details. The variety of forms that an NFT can take makes identifying the nature of their exchange challenging. From a sales tax perspective, the absence of existing guidance from the states creates a considerable amount of ambiguity as it relates to their tax treatment.

Latest State Tax Developments

Although states have largely been silent regarding the taxation of NFTs, as of July 2022, there are two states that have released guidance regarding the taxation of NFT transactions.

Pennsylvania

The Pennsylvania Department of Revenue was the first to formally issue guidance regarding NFTs when it added them to the taxability matrix it publishes online. However, the state hasn’t issued guidance or provided a definition for NFTs other than specifying that the tokens are taxable. Due to the complexities associated with the wide variety of both digital and non-digital assets that encompass NFTs, this state issued guidance is limited in its application to transactions involving their exchange.

Washington

On July 1st, 2022, the Washington Department of Revenue issued an interim statement regarding the taxability of NFTs. The statement includes legal definitions, as well as specific examples which, unlike Pennsylvania, provide more factually specific, and less ambiguous, guidance. Because Washington has enacted a comprehensive set of rules regarding the taxation of digital goods and services, the treatment of the sale of NFTs depends on whether the NFT is considered a digital good or contains some element of a taxable digital service (so-called “digital automated services” or “DAS”). The Washington Department of Revenue indicated it has plans to develop more permanent and comprehensive guidance in the future. The interim statement details that the selling price of an NFT is measured by the amount of consideration received in exchange for it, and in cases where cryptocurrency is received as consideration, the value of the cryptocurrency will be determined in U.S. dollars at the time the sale occurred. Taxpayers will be responsible for retaining documentation that describes the nature and character of each sale.

More Taxation Hurdles

As previously mentioned, the broad definitions of “digital products” in several states arguably could encompass NFT transactions. However, it may also be necessary to investigate what the underlying asset(s) secured by the NFT is/are to determine whether their exchange is subject to sales tax. NFTs may include both tangible and intangible components, and since both state definitions and laws regarding the taxability differ, uncertainty is likely to abound in this new frontier. Another issue arises around the privacy and anonymity that are coveted values of blockchain transactions. Blockchain transactions are indisputably verifiable, yet the parties involved in the transaction are typically unknown. However, for sales tax purposes, most states source transactions to the location where the product is delivered to or first accessed by the buyer. Sourcing determines the state or locality with jurisdiction to tax the transaction. The buyer’s location is therefore an essential piece of information for sourcing purposes. Without the ability to determine the buyer’s location, it is not possible to source the transaction to a physical location. As a result, states may consider requiring NFT marketplaces to collect key information on the location of buyers based on their IP address. It’s unclear if this type of regulatory oversight would affect the popularity of the NFTs in the market.

Conclusion

The future popularity and taxability of NFTs is uncertain. Although their exchange has rapidly expanded over the past couple of bull-market years, whether their popularity will continue to expand is unclear given the numerous complexities and issues raised in this article. One thing we can expect is that, if the potential tax revenue from their exchange continues to be material, then eventually the tax man will cometh. Before he comes knocking, make sure you’re prepared to answer by reaching out to a member of the Clark Nuber state and local tax team to discuss the taxation of your NFTs. Cecilia Palli is a senior in Clark Nuber's SALT Services Group. © Clark Nuber PS, 2022. All Rights Reserved.

The Benefits of Having a CPA on Your Board

The not-for-profit board, or board of directors, is the legal governing body of a not-for-profit organization. The members of a not-for-profit board are responsible for understanding and enforcing the legal requirements of an organization. They also focus on the high-level strategy, oversight, and accountability of the organization. While there are many candidates worthy of joining a board, a CPA-certified accountant brings a unique skillset with them and can act as a valuable resource for your not-for-profit. CPAs can especially add value in the following areas:

Management Expertise

CPAs are often called upon to act as outsourced Chief Financial Officers while organizations search for their long-term replacement. This firsthand experience grants them insight into the habits and practices of a strong managerial team that they can then share with the board. CPAs also have expertise in developing and perfecting organizational policies and procedures and assessment of the functional needs of staffing models. This gives them the unique skillset to assess management teams and offer recommendations.

Governance Responsibilities

Serving on the board of an organization you’re passionate about is an excellent way to give back to your community. However, given their nature as volunteers, many board members may be unaware of the specific responsibilities they’re beholden to while serving. A CPA can help guide the board in its legally obligated duties and act as an educator for new board members who are eager to serve but lack a defined understanding of what their role entails.

Ability to Understand and Interpret Financials Statements

One of the core responsibilities of a not-for-profit board is ensuring the organization is being run in a financially responsible manner. Key to this is the ability to understand and interpret the nonprofits’ annual financial statements, which provide insights into how an organization generates revenue, how much it costs the organization to operate, and how efficiently it handles its donations. Often the financial lead or treasurer is tasked with managing the budgeting, forecasting, and review and oversight of the financial information and financial systems. It significantly adds value to task these responsibilities to a professional with a strong financial background. A trained professional can help spot upcoming issues and opportunities for the board to address.

Stay Up to Date on Fiduciary Requirements

There are two constants with fiduciary requirements: there will always be a new one coming down the pike, and they will not be written in layman’s terms. A CPA can help translate densely written guidance into actionable steps for your organization, and the requirements of their career means they’re often aware of new requirements well before they become enforceable, giving your organization more time to prepare for the change. A nuanced understanding of the fiduciary requirements also means your organization is likely to stay on the right side of the law.

Capitalizing on Experience Working with Other Not-for-Profits

CPAs who work with not-for-profits have a vast pool of learned experience from helping these organizations through their own obstacles and opportunities. Placing a CPA on your board gives you access to this library of learned experience and a first-hand insight into how other not-for-profits handled scenarios that may be similar to your own. A CPA-certified board member will be able to share what has and hasn’t worked in the past and save your organization the trouble of testing trial-and-error solutions.

Strong Networking Presence in Business Community

One of the benefits of being an accountant is working closely with members of many different organizations, including C-suite executives and other decision makers. A well-connected CPA can leverage their network to assist the organization in various strategic and consulting roles, effectively connecting the organization to the ideal candidate to fulfill their needs. They are also well positioned to tap into their network to recruit other board members and volunteers.

Providing Access to Shared Knowledge Amongst Colleagues

CPA firms house multiple experts within their offices. Chances are, if your CPA board member does not know the answer, they have a wealth of knowledge at their fingertips within their firm. It is prudent to seek out a CPA with a well-established nonprofit tax and assurance practice.

In Conclusion

Clark Nuber believes that a large part of being a professional is a commitment to community and finding purpose in your work. We as CPAs relish the opportunity to bring additional purpose and meaning to our work by supporting causes we’re passionate about. Next time you’re looking to fill a board seat, consider reaching out to a CPA that can bring value to your organization in all the ways listed above. Want to learn more? Send me a message. © Clark Nuber PS, 2022. All Rights Reserved.

What to Know Before Selling Your Business

The last two years of COVID-19 have compressed business deals and created a backlog of buyers and sellers. Deal activity is expected to be strong in 2022 as corporate buyers have strong balance sheets, and private equity needs to put funding to work. However, recent fears over a coming recession may soften the market, and increased interest rates will impact valuations. So, in light of these developments, how do you set yourself up for success when making the decision to sell your business? And, what creates value? I had a chance to talk with James Cartales, Managing Director at Cascadia Capital, who offered advice on the steps one can take to successfully sell their business. Here are the key takeaways from my conversation with Cartales:

Start the Process Early

“It’s a long sales cycle in the mergers and acquisition (M&A) world,” Cartales said. "So, get your team involved early.” Onboarding your advisors early in the process will allow you to get the valuable outside perspective you need to bring your business to market. With the help of your team, figure out how your company benchmarks against others; develop an understanding of your key differentiators; and bring up value detractors so you can address them prior to going to market. Finally, make sure your team understands the vision for the company and where it is going. Having a strong grasp on the answers to these questions will help your organization put its best foot forward when going to the market.

Have the Right Team Behind You

Who should be on your team when going to sale? Cartales recommends including specialists such as an investment banker, an M&A attorney, a CPA, and an investment advisor. “The M&A space is different from corporate business, so having advisors who specialize in this space is crucial to the success of any transaction,” he said. Start your team building early and find those who you work well with. The acquisition process can be long and building trusted relationships with advisors outside of the pressures of a sales process will ensure that you are getting candid and consistent advice as you navigate toward the final sale.

Check Your Infrastructure

Buyers want to see a stable business and a stable investment—making sure your business infrastructure is strong is one way of accomplishing this. Businesses that are attractive to lots of buyers will have established and consistent processes in place to handle their many functions. “Patchwork systems and processes that require upgrades to scale can be perceived as a fixer-upper, which ultimately detracts from the story of a company and can lead to lower value in a transaction,” Cartales said. Perform a review of your company before going to market and look for ways to improve your current systems. It’s possible that workable, but ineffective, business habits have accumulated over time and some housecleaning will be needed. Having best practices in place will make for a more durable and sustainable growth story when bringing yourself to market.

Make Sure Your Financials Hold Up

Strong financial controls and reporting, including consistent and timely creation of financial statements and other key metrics, will increase the organization’s value. Being able to effectively share your story using this data will create an optimal outcome for you. Many companies have mountains of data but are unable to use it effectively when it comes to selling their business. Cartales recommended harnessing all that information to paint a clearer picture of the state of your company and its present and future durability. Doing so will make you more attractive to buyers in the market. He also warned that as concerns about the economy grow and capital markets become more volatile, he’s starting to see more disagreements between buyers and sellers when it comes to valuation. With COVID-19’s fallout and the elevated inflationary environment skewing many of the standard benchmarking metrics, investors are developing some skepticism when it comes to a company’s true worth. One way to effectively mitigate a misalignment of buyer and seller expectations is having a clear, data-driven way of presenting the financial health of your business.

Invest in a Quality of Earnings Report

A Quality of Earnings (QoE) report can go a long way towards building trust with buyers and establishing the true value of your company. A QoE report will vary greatly by company, since each report is tailored to the specifics of the business. But, in general, these reports examine the financials of a business to determine its stability. A typical report will include sections on adjustments and normalized earnings, trends and customer base analysis, and the amount of working capital. If a company conducts a QoE report proactively, they’re further along in the process when a buyer does appear. QoE reports can even pay for themselves if the reviewer finds adjustments that boost the value of the company. They also help establish a stronger case for the seller.

Ready to Sell?

There are many moving parts when selling your business. Bringing the right team to the table with you is the best way to walk away with a strong and fair valuation. If you’re considering selling, contact us and we’d be happy to help you get started. Many thanks to James Cartales for being generous with his insights. © Clark Nuber PS, 2022. All Rights Reserved.

Featured Resources