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Julie

Senior Manager

When Julie is not out exploring the beautiful Pacific Northwest or creating a new dish in the kitchen, she is passionate about helping clients challenge their current process of how things have always been done. She believes that a well-thought-out process, good people, and proper technology are key to allowing a business to scale and flourish.

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Matthew Sutorius
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Things were simpler in times of old. Back in the pre-industrial era, the only data you needed for a profitable harvest was a ledger of your past sales and maybe a farmer’s almanac.

Today, data is everywhere. The problem isn’t how we get the information we need to make decisions, it’s how we get the right information we need, in the right format, and how to see through the clutter and white noise that surrounds everything we do.

Every day, our systems accumulate vast amounts of data without any intentional action by us. As I write this article, Outlook is sending me insights into my productivity over the past week and reminding me of the commitments I’ve made to my peers. With so much data accumulated and available for our use, the leaders of the future will need to develop skills to pick the right data and use it in an informed and intentional way.

Understanding Your Data Systems

The first step in using data to make decisions is to get the right data in a useable format.

Most sophisticated business systems, be they CRM, accounting, production, or hybrid systems, contain massive quantities of data. Taking the time to understand what your systems can do and the data they can produce is critical at the beginning of any new data-driven decision-making journey. No one wants to spend the first 30 minutes of an hour-long meeting arguing about where their data came from and whether it’s “good or not.” My Microsoft CRM may be able to run 200 different reports, but how many of those are useable and can help in informing my decisions? How will I know without experimenting and understanding what my systems can do?

If we take the time to see what capabilities our systems already have (and where they may be lacking), we are on our way to more informed decision-making and leadership.

Using Your Data

Once we have data in a useable format, what do we do with it? How should it impact our decision- making? What do we do if the data challenges our long-held beliefs or existing practices?

Strong leaders use data to improve their organizations and the lives of the employees working for their business.

As an example, in professional services we have historically looked to the “billable hour” as a gold standard of how to run a successful practice. The more hours your employees billed, the more successful your business. Ergo, if we want to be more profitable, our employees should work more hours.

However, if we look at historical data outside of hours (including non-financial data such as turnover rates, client and employee satisfaction surveys, and average tenure of employees) we may find that a better indicator of profitability is utilization, or client satisfaction, or average amounts billed each week. It may be that the way we’ve run the business in the past isn’t the most efficient.

This brings up one of the challenges in using data to lead – what if the data shows us the historical way of doing things is flawed or can be improved upon?

A good leader is able to pivot based on new insights created by analysis of data, even if it means reassessing previously held beliefs on how something should be done. While subjective measures can be influenced by feelings, thoughts, emotions, or experiences and therefore be inherently flawed, data doesn’t lie.

Preparing for a Data-Driven Future

At Clark Nuber, our leaders pride themselves on bringing useful data into the decision-making process early, including relevant facts and figures as part of the process. It may be that professional accountants are hard-wired to seek out “the numbers” first, but this tendency to get data to “back up your opinion” has created a culture in which we strive to support our opinions with hard facts.

In the audit world, change is coming quickly. The AICPA, the organization responsible for creating auditing standards, is undergoing a years-long project to rethink standard practices and re-engineer financial statement audits with data analysis at the core.

If you’re a financial professional on the other end of our audits, you’ve no doubt had to pull “samples” of transactions for your auditors to review. In the future, instead of analyzing a sample of items, computers and AI will analyze 100% of the transactions and flag those needed for auditor review based on algorithms written by experts in both auditing and data science. In many cases, this is happening now.

For many organizations, the biggest challenge right now is how to incorporate raw data into decision-making and developing the necessary skills to do so. Statisticians, data scientists, and professionals with skills in computer-assisted data analysis techniques are going to be in demand for the foreseeable future. Good leaders will recognize the need for hiring such experts and utilizing their services for the extraction of quality data that can be used to make decisions.

The applications will be endless. The recruiting process, the hiring process, the evaluation process, new client acquisition, product development, marketing plans, and lookback analyses will all be significantly changed over the next decade as we enter a realm of data-driven decision-making. In all likelihood, much of this change will be driven by artificial intelligence and algorithms. The leader who embraces this technology and uses it as part of a well-informed decision-making process will be set up well to lead into the future.

This article is part of the Learning, Adapting, and Growing: Leadership Perspectives series, which explores the role of leadership from a diverse array of perspectives. Each article is written by a Clark Nuber leader who shares their ideas on the unique challenges and opportunities they have experienced, and the lessons they’ve learned along the way.

© Clark Nuber PS and Leadership Perspectives, 2021. 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 Leadership Perspectives with appropriate and specific direction to the original content.

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Articles and Publications

Tips for Handling Payroll and Out-of-State Employees

As the COVID-19 pandemic nears its end, businesses are reporting an increased demand for flexibility from their employees, including a desire to travel or to move closer to friends and family. With more out-of-state employees, organizations will need to learn how to navigate the additional payroll challenges of having a remote workforce.

Third-Party Payroll Providers

A critical recommendation for any organization facing out of state payroll is to use a third-party payroll provider. The importance of this grows with every new state added to its payroll. Leveraging an already existing Human Resources Information System (HRIS) that provides payroll services may be the best course to take, as having the HRIS and payroll system ‘talk’ to each other is most beneficial. When reviewing payroll providers, the list of services should include the following:
  • Calculation and deposit of state taxes including income, unemployment, and city and local taxes
  • Preparation of state tax returns and monitoring of state compliance requirements
  • Management of state notices

State Requirements

State registrations are one service rarely handled by third-party payroll providers. Each state comes with its own set of rules related to state income tax, state unemployment, workers compensation, and city and local taxes. Along with that, some states require the organization to register as a business in that state, creating another level of complexity. Thus, each state must be researched to identify the requirements that apply. The best place to start identifying the state requirements is on the state’s website. A quick search (e.g. “employer payroll taxes in WA state”) can take you directly to the state tax website, where an employer section provides the necessary information for registration requirements. Another option is to reach out directly to the state or to a trusted advisor for guidance.

State Income Tax

All but seven states have either a flat income tax or graduated-rate income tax. State income tax is typically dependent on where the employee performs the work and the amount of days the employee works in that state. If the state has an income tax requirement, the organization should register for a payroll tax account number and begin withholding the necessary state income tax. The employer should also review whether the state allows the Federal Form W-4 to be used or if the state has its own W-4 withholding form. At year-end, the state may require filing of an annual tax return or state annual W-2s.

State Unemployment

Not-for-profit organizations (501(c)(3)) have the option to (a) to contribute to the state program in accordance with state law or (b) to pay into the state program annually an amount equal to the actual unemployment benefits paid out by the state program on account of employment services previously provided to the organization. Most organizations find Option B creates the least administrative burden and typically results in savings. However, during the pandemic, unemployment claims have risen dramatically, and the savings once incurred may not be the case any longer. The organization should weigh both options before making a decision.

Workers’ Compensation

Most states require employers to provide workers’ compensation for its employees. Some states require employers to obtain workers’ compensation directly with the state, while others require an extension of the current insurance policy to the out of state employee. Not-for-profits should consult with their current insurance carrier to determine how to extend coverage. Along with workers’ compensation, some states also require disability coverage. Disability insurance covers off-the-job accidents or injuries that prevent the employee from doing their job. The process is similar to workers’ compensation. The organization will want to reach out to their current insurance provider to determine an extension of coverage.

In Conclusion

Challenges and opportunities arise when having out of state employees. The ability to hire more talent from miles away also comes with additional compliance and administrative duties. If the organization is able to navigate the steps to register properly and has a robust payroll provider, the opportunities that an out-of-state or remote workforce presents may outweigh the unique challenges of state payroll. If you have questions about your out-of-state employees and handling payroll correctly, please send me an email through our website. © Clark Nuber PS, 2021. All Rights Reserved

Flow Charts for Implementing UBTI Siloing Rules

This article has been updated to reflect the latest guidance as of 5/26/2021. It was originally published on 6/1/2020.  On December 2, 2020, the IRS published final regulations on the unrelated business taxable income (UBTI) siloing rules required under the Tax Act of 2017 and section 512(a)(6) of the Internal Revenue Code. Exempt organizations with multiple unrelated trades or businesses have been waiting for the final guidance as it helps define the extent to which organizations will need to silo UBTI activities. While the guidance leaves several unanswered questions, it does give organizations a road map of how to define and bucket their various trade or business activities. The guidance will help them properly file the Form 990-T and comply with the special net operating loss rules for exempt organizations created under the Tax Act of 2017. Clark Nuber has created a series of flow charts for organizations to refer to when navigating the final regulations, which are effective for tax years beginning after December 2, 2020. The flow charts also illustrate some of the challenges and administrative burden the siloing rules will have on organizations with a significant amount of UBTI activity from more than one trade or business, most notably if they have an extensive portfolio of alternative investments.

Background

Under the Tax Act of 2017, exempt organizations with more than one unrelated trade or business are not allowed to offset a net operating loss from one trade or business with the income from another trade or business. As a result, a not-for-profit is required to bucket or silo its trade or business activities for reporting purposes. For tax years beginning after December 22, 2017, for compliance purposes, the organization reports every trade or business separately on the Form 990-T. As such, the 2020 Form 990-T has been redesigned to have the summary information reported in the core Form 990-T and each trade or business is reflected on a separate Schedule A. On September 4, 2018, the IRS issued Notice 2018-67, providing initial guidance on the new unrelated business income tax rules and requested comments. On April 24, 2020, the proposed regulations [REG-106864-18] were issued, which were a continuation of the original notice with consideration made from comments from the sector. The final regulations [TD 9933] published on December 2, 2020, and all organizations with tax years beginning after December 2, 2020, comply with the regulations. (If an organization has a tax position contrary to the regulations, it should disclose on a Form 8275-R.) Before the effective date of the final regulations, organizations may rely on Notice 2018-67, the proposed regulations, the final regulations, or a reasonable and good-faith interpretation of the siloing rules under section 512(a)(6). If you have any questions regarding the siloing of UBTI, please contact a Clark Nuber tax professional. © Clark Nuber PS, 2020. All Rights Reserved

An Overview of Washington State’s Capital Gains Tax

Senate Bill 5096, “Concerning an excise tax on gains from the sale or exchange of certain capital assets,” was passed by the Washington Legislature on April 25, 2021 and signed into law by Governor Inslee on May 4, 2021. The law generally imposes a 7% tax on net long-term capital gains in excess of $250,000 recognized during each calendar year. Net long-term capital gain is defined by reference to U.S. federal income tax law. The tax is imposed on capital gains recognized on or after January 1, 2022. The first returns will be due in 2023 on capital gains recognized during calendar year 2022. The following are some essential details on the tax. For ease of reading, references to “capital gains” in this article mean “long-term capital gains.”

What is Subject to Tax?

The tax is imposed specifically on long-term gains from the sale or exchange of capital assets. Thus, ordinary income, short-term capital gains, dividends, and interest are all excluded from the tax. Certain categories of assets are also excluded, most notably real estate (whether held directly or through a privately owned entity). Other exclusions cover assets held in retirement accounts, tangible property that was used in a trade or business prior to its sale, interests in qualified family-owned small businesses, certain livestock, timber, and commercial fishing privileges. An annual standard deduction of $250,000 is available to each individual and married couple (unlike under federal law, married couples are not allowed a higher shared amount). Spouses who file a joint return for federal income tax must also file jointly for purposes of the Washington capital gains tax. An additional deduction of up to $100,000 is allowed for charitable contributions in excess of $250,000 to Washington-based nonprofits made by the taxpayer during the year. The 7% tax rate is applied to capital gains exceeding the deductible amount, with a limited credit available to the extent income or capital gains taxes are paid by the taxpayer to other jurisdictions.

Who is Subject to Tax?

The tax is imposed on net long-term capital gains recognized by individuals and allocated to Washington by provisions of the law. The tax does not apply to legal entities (e.g., corporations), but individuals may be subject to the tax on gains recognized by passthrough entities in which a taxpayer has an ownership interest. Capital gains from the sale of intangible property such as stocks, bonds, and other investment instruments are subject to tax if the individual is domiciled in Washington at the time of sale. Domicile, although not defined in the capital gains tax law, is generally understood as the place a person considers their permanent residence and home, and in which they have the majority of their legal, professional, and personal ties. Gains from sales of tangible personal property are generally allocated to Washington if the property was located in Washington at the time of sale. However, gains from the sale of tangible property located outside Washington may be subject to tax if the seller is a resident of Washington at the time of the sale, and the property was present in Washington at any time during the year of sale or the preceding year. A person is considered a “resident” for purposes of the tax if they are domiciled in Washington or maintain a place of abode in the state and are physically present for more than 183 days during the calendar year. It is curious that the allocation rule for gains from sales of intangibles refers to the taxpayer’s domicile, while the rule for gains from sales of tangible property refers to residency (including statutory residency under the 183-day rule). It is unclear whether this disparity was intentional on the part of the Legislature, or if it will be revised by future legislation.

Comparison to Other State Income Taxes

Few other states impose taxes specifically on capital gains; however, many states impose personal income taxes on residents and on certain nonresidents. Such taxes typically encompass capital gains earned by residents, and in many cases also encompass gains earned by nonresidents on sales of tangible property located within the state. Many states’ personal income tax rates are graduated such that little or no tax is imposed at lower income levels and the highest rates are paid by only a fraction of the population. For example, California tax rates on married couples range from 1% on the first $17,864 of taxable income to 13.3% on taxable income over $1 million. Most states do not apply preferential rates to long-term capital gains, so such gains are taxed at the same state income tax rates as short-term gains and ordinary income. The Washington tax appears to be unique among states in that it is imposed solely on long-term capital gains and has a very high standard deduction so that less than 0.1% of state residents will likely pay the tax in any given year.

Controversy Surrounding the Tax

Opponents of the capital gains tax have argued (both prior to and since its enactment) that the tax violates the Washington State Constitution. Specifically, the state constitution requires taxes on property to be uniform (i.e., a single tax rate on all property of the same class) and limits the tax rate to 1%. Income is considered a class of property under Washington case law. A 7% tax on capital gains in excess of $250,000 would violate both provisions of the state constitution if it is a tax on income. However, according to the law, the tax is an excise imposed on the sale or exchange of capital assets. By characterizing the tax as an excise or privilege tax, rather than a tax on income, the legislature is attempting to avoid the constitutional issue. One lawsuit challenging the tax has been filed in Douglas County and others are expected to follow. If you have questions regarding the capital gains tax, please reach out to a member of Clark Nuber’s State and Local Tax team. Jorge Alegre is a senior manager in Clark Nuber's State and Local Tax team. ©2021 Clark Nuber PS. All rights reserved.

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