Monday, February 24, 2014

Tax Break for South Dakotans Building Airplanes Out of Kits

On February 20, 2014, South Dakota Governor Dennis Daugaard signed landmark legislation to help South Dakotan residents who build airplanes from kits. 

Under S.B. 80, South Dakotans who build their own planes are effectively exempt from South Dakotan sales taxes paid on plane parts or components.  Technically, they first pay the sales taxes and then claim a credit for all of the sales taxes when they pay a fee to register the finished "homebuilt" airplane with the state government.  The credit is capped at around 4% of the plane's value. 

South Dakotans build about 10 airplanes from scratch each year, according to Mr Doug Schinkel, director of the business tax division of the South Dakota Department of Revenue.  He does not expect any significant impact on the state's tax revenues.

The tax credit is allowed only for plane components purchased in the five years before the plane's registration, in order for the tax credit to not get out of hand.

Monday, February 17, 2014

Tax Break for Unusual Work Clothing

The Swedish musical group Abba recently admitted that they wore outlandish clothing in the 1970s in order to benefit from a Swedish tax deduction for clothes not used for daily wear, such as spangles and sparkles. For any aspiring Agnethas, Bjorns, Bennys, and Anni-Frids in the United States, American tax law has a similar rule for work-related clothing. 

In Donnelly v. Commissioner, the court concluded that the handicapped taxpayer could not deduct $65 of expenses on work clothes and aprons that he wore in his plastics polisher job, because the clothes must meet all three of the following requirements in order to be tax deductible:
1.  the clothing is of a type specifically required as a condition of employment,
2. it is not adaptable to general usage as ordinary clothing, and
3. it is not so worn.

So an American musician can develop a persona where unusual clothing is required as part of her act, the clothing cannot be worn normally on the streets, and she does not wear them normally on the streets.  In the landmark case of Donald Victor Teschner v. Commissioner, a part-time backup guitar player for Rod Stewart was able to deduct the costs of some of his "flashy" and "loud" items, but not his underwear. 

Friday, February 7, 2014

Proposed Tax Break for Olympic Medalists

US President Barack H. Obama II and US Senator Marco Rubio agree on many things, one of which is that a certain group of persecuted Americans have long suffered from high tax rates -- Olympic medalists.

The United States income tax is, by definition, imposed on a person's income, derived in whatever form.  A winning Olympic athlete receives medals and cash prizes, such as $25,000 from the US Olympics Committee for winning gold, which are treated as taxable income.

Marco Rubio knew a problem when he saw it, and he proposed in 2012 the Olympic Tax Elimination Act to eliminate any taxes on "the value of any prize or award won by the taxpayer in athletic competition in the Olympic Games."

While winning Olympic medalists are undoubtedly in need of much public assistance to avoid living in poverty, it is unclear why Mr Rubio limited his athletic tax break to only the Olympic Games, and not to include the Paralympic Games, the Special Olympics, or the World Tenpin Bowling Championship.

Barack Obama instantly saw the merit in helping winning Olympic medalists, and he agreed to sign the bill if it comes across his desk.