AZ
CPA september 2011
The Arizona Society of Certified Public Accountants
A Distracted Legislature
Exit Strategies for Business Owners Reporting Arizona Use Tax Financial Execs Compensation Survey www.ascpa.com
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ADP is a Recommended Payroll Provider for the Arizona Society of CPAs. Call 480-477-8992 today. Visit www.accountant.adp.com for valuable tools and resources for Accountants. *Discount/free payroll applies to companies with 1 to 49 employees that sign complete ADP sales order and to all features of standard payroll processing invoiced on client’s regular processing cycle and does not include additional non-payroll services; excludes pass through costs, courier and other delivery fees, including off cycle fees, hardware, or penalty and interest fees. Only available to new ADP Clients using EasyPay sm or RUN Powered by ADP® in the continental U.S. Must be set-up for direct debit of fees (“DDF”) as the payment method.
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© 2011 ADP, Inc. The ADP Logo, ADP are registered trademarks of ADP. EasyPay is a service mark and RUN Powered by ADP is a registered service mark of ADP, Inc. All other trademarks are the property of their respective owners.
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AZ
CPA september 2011
2011 Legislative Issue Volume 27 Number 7
A Distracted Legislature
Features The ASCPA Unveils New Website
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Peruse the new website and enter to win an iPad2 or a Visa gift card.
Eight Essential Elements of an Exit Strategy for Business Owners
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Budget issues and high drama were afoot during this year’s legislative session. by DeMenna and Associates
Reporting Arizona Use Tax on Personal Income Tax Returns
Taxpayers may find it difficult to comply with Arizona’s new use tax reporting requirements.
by James Barash, CPA and Brooke Richards, Esq.
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by Daniel R. Siburg, CPA, CVA and Stephen E. Koons, CPA/ABV/CFF, ASA
CPA Financial Executives Respond to Incentives and Compensation Survey
Columns & Departments Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, Arizona 85034-2021 www.ascpa.com
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Chair’s Message by Mark Anderson, CPA
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Focus on Members
22 Classifieds www.ascpa.com
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AZ
CPA
Confidential Business Sales
The Arizona Society of Certified Public Accountants
President & CEO
Cindie Hubiak
Editor
Patricia Gannon
Locally Serving CPAs & Businesses in Arizona
• CPA Practice Specialty
Copy & Advertising Deadline The first of the month one month prior to publication date. Board of Directors Chair Chair-Elect Secretary/Treasurer Directors
• Exit Planning
Mark Anderson Armando Roman Karen Abraham Anita Baker Rob Dubberly Megan Faust Barb Muller Julie Norton David Richardson Craig Robb Elva Vivas David Walser Corrine Wilson Neal Young Kevin Yeanoplos
Immediate Past Chair Julie Klewer AICPA Council Members George Cohen Layne Simmons Chapter Presidents Southern Chapter Northern Chapter Southwest Chapter North-Central Chapter
• Business Sales & Acquisitions
• Business Valuation Ryan Gipple (602) 614-3583 r.gipple@murphybusiness.com www.murphybusiness.com/tempe Murphy Business & Financial Corporation Southwest, Inc.
MBFC_Arizona_CPA_Assoc-RGipple.indd 1
3/21/2011 2:29:52 PM
Flo Zenblu CW Payne Jayne Wright Alyx Cohan
AZ CPA is published by the Arizona Society of Certified Public
Accountants (ASCPA) to provide information, news and trends in the profession of accounting. It is distributed 10 times a year as a regular service to members of the Society. The ASCPA, its members, board of directors and administrative staff assume no responsibility for advertisements herein. The ASCPA and the above people also assume no liability for business decisions made by readers in reference to statements and/or claims in advertisements within this publication. Opinions expressed by correspondents and contributors are not necessarily those of the ASCPA.
Arizona Society of CPAs 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034-2021 Telephone (602) 252-4144 AZ Toll-Free (888) 237-0700 Fax (602) 252-1511
www.ascpa.com
Join the ASCPA as our members go
Behind The Scenes with… The Phoenix Art Museum —Oct. 5 Attendees will be treated to an exclusive, private VIP tour where Gary Egan, Deputy Director of Finance and Administration, of the Phoenix Art Museum will share a truly behind-the-scenes finance overview of some of the most compelling parts of the business of operating a museum—things you would not ever hear on a public tour! Receive one-hour of CPE credit. Non-alcoholic beverages and hors d’ oeuvres will accompany a private meet and greet/networking session with Egan and fellow attendees.
Only 50 spaces are available, so register today at www.ascpa.com to secure your spot.
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Chair’s Message
by Mark Anderson, CPA
Giving Does Matter I recently listened to an address by a former professor at Syracuse University’s business school and current president of the American Enterprise Institute, Arthur Brooks, about “Why Giving Matters”. It transformed the way I thought of charitable giving and validated some of the truths that I have held on to for many years. As a CPA, I have been trained to think in quantifiable terms. Revenues, expenses, assets and liabilities can all be measured in some fashion. We don’t always agree with the way things are measured, but there are usually good arguments for and against any theory we may have. Brooks’ theory on giving—when people give more money (or other resources) away, they tend to prosper—sounded contradictory in nature. At the very least, it is a challenging theory to prove on a quantitative level. Some startling statistics arose as Brooks started to research the giving tendencies of Americans compared to others around the world. Americans have sometimes been accused of being greedy and not very charitable. To the contrary, Americans give away 3.5 times as much as those living in France; 7.1 times as much as those living in Germany; and 14.3 times as much as those living in Italy. In 2006, Americans gave $300 million to charity, which is more than the national income of Sweden! Brooks was able to determine from two separate studies of giving and personal net worth that those who give increased their net worth. And in fact, the ROI on giving is 3.75 times or 375 percent of the amount given! But why? The answer is found in the psychology of charitable giving, which is based on the fundamental understanding that, “people who give get happier.” Happy people work harder, show up every day, work longer… happiness really is the secret to success. I can honestly say that some of the most fulfilling times in my life have been when I’ve donated my time to a worthy cause such as distributing food at St. Mary’s Food Bank, serving Christmas dinner at St. Bernadette’s, or handing out clothing at the Back to
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(L to R) Mark Anderson, Rep. Jeff Flake and Layne Simmons during a visit to Washington, D.C. School Clothing Drive. The feelings I had after hearing one child exclaim that he now has his own toothbrush is indescribable. I leave every one of these events a happier and better person and wanting to give more. Another enjoyable and prosperous time in my career came when I was working for a company that was led by someone who I considered one of the most giving and happy people I’ve associated with. His happy disposition came from more than just his financial giving but included the unselfish giving of his time and talents. He radiated enthusiasm and energy. People wanted to be around him and work hard for him. He led our company to tremendous growth and success that benefited all involved. So why all the talk about giving? At a time when most of what you read
about is doom and gloom tied to either the recession or other local and global crisis, I’d like to suggest that we look for ways to give and do more for our communities, churches, families and friends. And if you want to give back to our profession, please consider contributing to the ASCPA PAC. Your contributions will help support candidates who believe in our issues—those who have actively championed our views in the past, as well as those who are new to the process and understand our goals. Does giving matter? Absolutely. Will giving more help you and I prosper? I believe in Arthur Brooks’ findings that it will, but how each of us define and measure prosperity may be a little different. I hope all of us will reflect on our own lives to see where we can give AZ CPA a little more.
Focus on Members Clifton Gunderson named Marie Burns as lead financial advisor of its Southwest wealth management group. Clifton Gunderson will relocate its Phoenix office on January 1, 2012, to 20 East Thomas Road, Phoenix. Heinfeld, Meech & Co., P.C. added a new partner, Pat Walker, CPA, to the firm. The following associates were also promoted: Andrea R. Scarla, CPA, Mandy Metcalf and Sara Specht to manager; Joshua Jumper, CPA, Stephanie M. Lopez, CPA, and Cynthia N. Montoya, CPA to senior, and Rachel Bosman, Michael Hamilton, Laura Flaherty, and Christopher A. Goeman, CPA, to staff II. Stephen Harnden, CPA, private wealth advisor with Ameriprise Financial, was recently recognized as a member of the Chairman’s Advisory Council. The Council discusses current issues and works with Ameriprise leadership to provide input on business opportunities.
Gary W. Fleming, CPA, and partner at Henry and Horne, was recently named the president of the Arizona State Board of Accountancy. His term will run from July 1, 2011—June 30, 2012.
erning Board. David Damron, CPA, a tax partner at Grant Thornton, was chosen as one of the Phoenix Business Journal’s 40 Under 40.
Newsworthy CPAs...
Mesa Mayor Scott Smith, CPA, was elected second vice president of the U.S. Conference of Mayors.
Jason Washo, CPA, CFP, was intereviewed on CNN.com for an article on financial planning.
Tony Kenon, CPA, was elected to the Carondelet Foundation’s Board of Trustees.
Armando Roman, CPA, was interviewed by Telemundo for a story on the decline of Hispanic family net worth.
In Memoriam Joanne Martone, CPA
Brad Preber, CPA, was promoted to the national managing partner position for Economic Advisory Services at Grant Thornton LLP. He is currently seving a dual role as the local office managing partner, as well. Raelynn Mackenzie, CPA, of Amkor Technology, was selected as a participant in the AICPA’s 2011 Leadership Academy. Diane Landis, CPA, was chosen for the Flinn-Brown Civic Leadership Fellows program. Andrea Sotomayor, CPA, was elected treasurer of the Tucson American Marketing Association. Rodolfo “Rudy” C. Paredes, CPA, was named a partner in the Tucson firm of R & A CPAs. Chuck Kill, CPA, became a member of the Audit Committee of TUSD Gov-
Grant Thornton Revs up for Camp Rainbow Kids—Team members at Grant Thornton joined nearly 500 “Camp Rainbow” kids at F1 Race Factory with the Phoenix Children’s Hospital for a day of fun to celebrate “National Cancer Survivor’s Day” in June. Camp Rainbow is for children who have, or have had, cancer or a chronic blood disorder. The Grant Thornton team raised all the funds to give the kids the experience. In total, 25 members of the Grant Thornton team came out to support the event as well.
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Check out the website and be entered to win an iPad2!
Help Us Celebrate...
The New ASCPA Website Go online and enter our scavenger hunt contest, explore the website and you could win an iPad2 or $50 Visa gift card. Here are just some of the new features of the site: CPE • Increased course search functions makes it easy to search and find the perfect course • CPE Tracker—keep track of the CPE you take from us, as well as the CPE you take from others – all in one easy place • CPE Certificates will now be available at your fingertips
What our members are saying:
The navigation is easy to use and logical in its arrangement. The look and feel is professional but not too “stodgy.” The website is crisp, professional, well laid out, easy to navigate, logical. I like the MY ASCPA page. It makes it easy to see and update my profile and other information. On the whole, I liked the look and feel of the website. It’s easy to navigate and easy on the eyes. Looks good! I like the new features, including access to the magazine. I think it looks superb and works like a charm!
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MY ASCPA Profile • Members will have a more personalized experience and be able to update their own information • Personalized Calendar of Events • Easier Online Dues Payment • Ability to add your own photo and join an opt-in member directory – available to members only Events and Membership Activities • Increased accessibility to upcoming events • Events calendar and fun photo galleries • More member interaction with blog population, chapter, section and committee pages, and listserves And More • Easy to access news section • Magazine is easier to read online • New Marketplace page featuring online ordering of ethics exams, job notices, classifieds, tax guides, professional service listings – all automatically entered and billed • A more substantial page for future CPAs • User-friendly CPA Referral Service
www.ascpa.com
Eight Essential Elements of an Exit Strategy for Business Owners By Daniel R. Siburg, CPA, CVA and Stephen E. Koons, CPA/ABV/CFF, ASA All business owners will need to transition their businesses to new owners at some point in time. The new owners could be business partners or family members, and transactions range from management buy-outs to outright sales of the businesses on the open market. Regardless of the circumstances, every business and business owner should have a transition plan implemented before exiting the business. There are steps owners can take right now that will increase the desirability of their businesses. Without a proper exit plan, a business can suffer loss of significant value during any ultimate transfer of ownership. In fact, it’s possible to increase the value of a business by developing and implementing an exit strategy.
What’s the Business Worth? An owner can discover the hypothetical value of a business by having a business valuation done by a business valuation expert. To find the real value, the owner would have to actually sell the business. The valuation can help the owner to determine how much the business might be worth on the market. A business valuation also can help the owner to come up with strategic plans for evaluating offers to sell, determine the equity interests of family members, determining the division of assets in marital dissolution, settling disagreements among co-owners, or setting
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values for a buy–sell agreement between co-owners. In performing a valuation, the analyst typically determines the business’s fair-market value, which is the amount of cash that would be required for the business to change hands between a hypothetical buyer and hypothetical seller. The cash that could be received from an actual transaction might be different. After establishing the business’s value, an owner must understand a couple of basic things before selling the business: the selling price of similar-sized businesses in the same market and understanding how businesses are being acquired. Most business sales are asset purchases where the buyer acquires the assets, both tangible and intangible, versus a stock purchase where the owner sells the stock in the business. These two facts are the starting points. From here, a good transition plan can help an owner keep from losing money and actually making some.
1. Understand the Taxes Sellers should have a good understanding of typical deal structures and their consequences in terms of income tax. The most common deal structure is when a transaction is structured as a sale of assets. The seller generally pays tax on the difference between the purchase price received and the tax basis of the assets sold. A gain may be taxed at ordinary income tax rates to the seller. Also the type of business structure affects how a transaction may be treated. If the assets of the business are owned by a C-corporation, the taxes will be assessed at the corporation level. If the business is structured as a pass-through entity (S-corporation, partnership, limited-liability company, etc.), gains may be taxed as ordinary income to the seller. Other types of transfers may be a sale to an Employee Stock Ownership Plan (ESOP) or gifting to family members. An owner should understand how the form of their organization affects valueand-tax consequences. Pass-through entity structures, such as partnerships,
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Sub-S corporations, and LLCs, may present simpler tax issues compared to C-corporation structures, where an owner needs to be concerned with double taxation issues. There may be significant tax advantages for an owner of a C-Corp to convert to an S-Corp, which generally pays no income taxes. Rather, the shareholders pay tax proportionate to their share of S-Corp earnings, whether or not those earnings are distributed. A conversion from a C-Corp to an S-Corp can also help a seller reduce income taxes on the sale of assets. The full benefit of a conversion from a C-Corp to an S-Corp can take years to realize, which could make the business less attractive to sell for tax reasons during the Sub-S conversation period. A review of the business’s ownership structure should take place as part of the exit-planning process.
2. Personal Expenses Should Be Personal Owners should stop paying personal expenses through the business and cease deducting these expenses from the business’s tax returns. Continuing to pay personal expenses through the business can raise questions in the minds of a potential buyer as to the credibility of the business owner. Also, all non-working family members should be removed from the company payroll. It is much easier to attract quality buyers when owners have managed the enterprise strictly as a business.
3. Get Everything in Writing A significant part of the value of most businesses is represented by the value of intangible assets, such as trade names, patents, customer lists and business relationships, franchise and license agreements, and similar property. To the extent that any agreement is based on a handshake, with major customers or vendors, it is appropriate to obtain a written agreement. It is important to have loan agreements between the owner and the company documented. And it goes without saying, it is best if the owner can show proof of compliance with the
loan agreements. When an owner loans money to the company, he can repay himself, tax free, with proceeds from the sale, as long as the loan agreement has been properly documented and abided.
4. Settle Legal Actions Nothing will lower the value of a company or make it more unlikely to sell than unresolved litigation matters. A potential buyer of a company wants the assets free and clear, with no legal problems after the sale. Most business sales are structured as asset sales. With a stock sale, the buyer acquires the entity in its entirety (not just the assets), including any legal issues. Be prepared for a potential buyer to walk away from a transaction when there is outstanding litigation.
5. Financial Reporting Pays Dividends Good financial reporting always adds value to a business. Internal reporting that provides accurate financial and operational information helps the current management team and makes it easier for the new owners to keep things running smoothly after the purchase is complete. In addition, the quality of the financial data is a factor that valuation analysts and potential buyers use to evaluate value and risk, and thorough financial reporting instills them with confidence that they have the information they need to properly evaluate the business. The gold standard for financial reporting is audited financial statements. Audited financial statements add a level of credibility to internally generated financial and operational information that a buyer will request during due diligence.
6. Develop a Strong Transition Team The development of a strong management team is usually a necessary consideration in the preparation of an exit strategy. Strong management teams help to ensure a smooth transition with some continuity of leadership and talent for a potential buyer.
7. Avoid Over-Reliance on Normalizing Entries Sellers should avoid over-reliance on normalizing entries, which are commonly used in business valuation and by sellers to adjust the historical financial statements to economic reality. There are several types of normalizing entries: removal of non-recurring income and expenses, removal of owner discretionary and personal expenses, removal of income and expenses on assets that have no relationship to the business operations, changes in accounting principles from one period to the next, changes to conform to generally accepted accounting principles, and adjustments of transactions between the owner and the company to the amount at which an independent third party would transact business. Potential buyers can understand the need for some types of normalizing entries, but they also realize that such entries may not reflect economic reality. Buyers determine a purchase price based on actual financial information and performance as presented in the seller’s tax returns, internal financial statements, and audited financial statements, when available. For two reasons, it is difficult for a seller to rationalize certain normalizing entries, especially those that show significant amounts of personal expenses.
Want to dig deeper into this issue? Attend our two-hour CPE Seminar led by the article’s authors Dan Siburg and Steve Koons.
8 Essential Elements of an Exit Strategy for Business Owners (plus 10 tips)— Nov. 1
8-10 a.m. at the ASCPA — www.ascpa.com
First, personal expenses can be difficult to adequately document. Second, a federal tax return likely includes an income-tax deduction for the items in question. All of this may lead the potential buyer to question the credibility of the seller.
8. Have Written Strategic Planning Documents Though a potential buyer is generally buying the assets of the business, they are also buying the future earning potential of the assets. Buyers like to see well-established budgets with goals and objectives as to how the company is planning to achieve their future financial and operational results. Buyers want to know that a seller has a well-established road map for the future of the company. When the owner has a well-defined process for tracking progress, such as budget versus actual income statements, cash-flow forecasts, and ratio analysis related to the company, buyers can quickly gain an understanding of company historical and future performance. Proper strategic planning helps the management of the company to talk with a potential buyer about the future activities and the earnings potential of the business.
Be prepared and plan your exit strategy. Transition planning is very important to an owner’s ability to maximize value when it is time to sell the business. Every business needs an exit strategy, as it is better to preserve and maximize value AZ CPA than to leave it to chance. Daniel R. Siburg, CPA, CVA, is the managing director of The Siburg Company, LLC, a boutique consulting firm specializing in financial and operational consulting with an emphasis on mergers and acquisitions—www.TheSiburgCompany.com. Stephen E. Koons, CPA/ABV/CFF, ASA, is director of the Business Valuation & Litigation Support Services Group of Henry & Horne, LLP. He specializes in business valuation and economic damages—stevek@hhcpa.com.
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A Distracted Legislature Every legislative session has its distractions. But the First Regular Session of the 50th Legislature is one for the record books. It’s a blessing that Arizona’s lawmakers completed their work in only 100 days (an accomplishment that hasn’t occurred in more than a decade). Each week of session meant more scandals, headlines, protests and partisan bickering; and it didn’t help that legislators introduced, debated and even passed some of the most bizarre legislation in recent memory. The Republican dominated legislature enacted laws creating an official state firearm (the Colt Action Army Revolver) while at the same time blocking cities and counties from regulating the ability of restaurants to offer incentives… but, rest assured, you will still be able to get Happy Meal toys at McDonalds!
By DeMenna & Associates
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The November 2010 elections resulted in unprecedented Republican legislative triumphs, and made Democratic lawmakers virtually irrelevant. The 50th Legislature, when compared to the makeup of the 49th Legislature, added eight Republican lawmakers to the roster—five in the House and three in the Senate. This increase in the majority left Republican policymakers with a “supermajority,” or “veto-proof” legislature. In theory, the Republicans have enough votes to do whatever they want, but as a practical matter, the divisions in the party preclude this from ever happening. As the 2011 Legislative Session approached, legislators prepared to focus on solving Arizona’s daunting budget problem. When lawmakers convened in early January, the projected current year shortfall exceeded $530 million. The task appeared all the more daunting as they looked ahead to Fiscal Year 2012 and an expected shortfall of almost one billion dollars. Despite gloomy budget projections, the shooting rampage in Tucson that killed six and gravely wounded Congresswoman Gabrielle Giffords, set the tone for the beginning of the session. Governor Jan Brewer had initially prepared a State of the State address outlining her plans for the year. Instead, she offered a somber speech asking for Arizonans to pray for the victims. Arizona lawmakers also experienced a brief period of bipartisanship and civility. Despite the carnage in Tucson, life at the State Capitol wasn’t quiet for long. In February, Senator Scott Bundgaard had an altercation on the side of the freeway with his (then) girlfriend. This high-profile incident jeopardized his legislative career and left him waiting to see if he would face criminal charges. Inconsistent accounts and Bundgaard’s legislative immunity (a provision of the Arizona Constitution that gives lawmakers limited immunity from arrest) escalated the situation. The State Senate was sidetracked for weeks as the Republican caucus held closed-door meetings, leading to Bundgaard’s removal as the Senate Majority Leader.
In March, legislative infighting came to an all-time high as Senate President Russell Pearce, author of SB 1070, the infamous anti-illegal immigration measure, prepared to advance yet another package of anti-immigration legislation. The package of bills caused heartburn for both Democrats and Republicans. The depth of the division among Republican members became clear when a dozen Republicans voted against the bills. All five measures were defeated. The dissenting lawmakers argued that it was now time to begin focusing on economic issues, something that they considered far more important. It became clear in early April that lawmakers were very close to rounding-up the votes necessary to pass the long-awaited budget. With the Republican budget hawks—weary of borrowing and “budget gimmicks”— leading the negotiations, lawmakers eventually passed a budget with deep cuts to education, healthcare and social programs. The $8.3 billion budget compromise, signed by Governor Brewer on April 6, came very close to matching spending with revenues. The budget plan allowed the current fiscal year that ended June 30 to expire with a mere $322 million deficit. Republicans defended this approach by arguing that it’s honest budgeting to show the “real” shortfall rather than hide it with gimmicks. This deficit has been folded into the FY 2011- FY 2012 budget. So, its still there, but at least it’s in plain sight! Despite their protests, a wide variety of new and innovative gimmicks were used. However, real cuts account for about $1.14 billion in budget reductions. The Arizona Healthcare Cost Containment System, Arizona’s Medicaid Agency, was hit the hardest—reduced (for now) by more than $510 million. K-12 schools, community colleges and universities also took significant hits. For example, the current year’s budget reduced state support to community colleges by more than half. But, the prize for the strangest and most innovative gimmick of all was the
With the Republican budget hawks— weary of borrowing and “budget gimmicks”—leading the negotiations, lawmakers eventually passed a budget with deep cuts to education, healthcare and social programs.
change in the state retirement system contribution rate. Historically, employers and employees each contribute 50 percent to the system. But this year most employers were only required to contribute 47 percent while employees were required to contribute 53 percent! End result: the retirement system got what it needed, the state gained about $40 million, and employees were blessed with a “backdoor” salary cut of three perecent! Finally, the end of session was near and the process was actually running on schedule. So, time for another scandal. In late March, only a month before the session ended, an investigation of Fiesta Bowl officials landed a number of legislators in hot water for receiving free tickets to football games and extravagant accommodations. With multiple scandals and the passage of a few hundred new laws behind them, lawmakers concluded the First Regular Session of the 50th Legislature on April 20 at 5:25 a.m. Despite endless distractions, lawmakers successfully passed the 2011 Federal Income Tax Conformity bill in record time. Every year, the state legislature updates the statutory definition of the Internal Revenue Code (IRC) to include any federal provisions that became effective in the previous year. These changes to Arizona’s statutes are ex-
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tremely important to conform Arizona income tax laws to the Federal Code. Arizona, like many states, requires taxpayers to use Federal Adjusted Gross Income as the starting point for the calculation of state income taxes. This bill is among the most important pieces of legislation that the state must pass for taxpayers each year. In previous legislative sessions, when policy makers weren’t riddled with nearly as many extraneous distractions, lawmakers often failed to pass this legislation before the April 15 (now April 18) deadline. Failure to pass this single bill on a timely basis leaves every tax practitioner wondering what to tell their clients. Fortunately, with significant effort on the part of the Society, this was not the case. This legislation became law earlier than ever before: Valentine’s Day (Feb. 14). Despite the success of the conformity bill, the veto of the 2011 Tax Corrections Act cast a shadow over the Society’s legislative program. Legislative staff, the Arizona Department of Revenue, and members of the Society’s Tax Committee routinely review Arizona’s tax statutes for errors, obsolete language or blending problems. These minor changes become a single—but significant—bill designed to correct these unintended mistakes. Traditionally, this bill is held as “off-limits” by legislative leadership… no substantive policy changes are permitted. For the first time in memory, lawmakers departed from legislative custom and allowed the bill to be amended to revive a private school tuition credit measure the Governor had vetoed only a week earlier. With the inclusion of this provision, the Governor vetoed the 2011 Tax Corrections Act on April 27, 2011. While the fate of the Tax Corrections Act was disappointing, lawmakers have the luxury of saying, “there’s always next year.” And that, of course, is when the Society will ensure that these changes are made. DeMenna & Associates appreciates the opportunity to work with the Society. But, in reality, it is the political ac-
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ASCPA members had the opportunity to meet with the Arizona House of Representatives Speaker, Andy Tobin. Pictured from left are Andy Ray, Ed Zollars, Al Augenstein, Lisa Daniels, Mark Anderson, Speaker Tobin, Cindie Hubiak, David Walser and Adela Jiménez. tivity of the ASCPA under the direction of Cindie Hubiak, and the numerous volunteers that take the time to read and analyze bills…these are the individuals that make the Society a force at the legislature. AZ CPA
DeMenna & Associates is the lobbying firm for the Arizona Society of CPAs. They can be reached at www.demenna. com or (602) 252-4430.
PAC Contribution List January 1, 2011 – July 31, 2011 (More than $100) Mark M. Anderson Lawrence C. Bello Brenda K. Brandt Jay L. Buck Lisa L. Daniels Michael C. Drexler Lawrence Field Kevin E. Fincher Gary L. Freed Richard H. Goldenson Nickolyn Hansen Herbert J. Hoffman Craig J. Isakson Thomas G. Johnson Edward F. Kidner
Chris W. Ludwig Phillip R. McCollum, Jr. Jon W. Mitchell Bryan W. Mogensen Dave Phillips John W. Prenzno Andy Ray, Jr. Mark H. Schneider Bob S. Shanley Ronald L. Stearns Michael J. Suba Peggy H. Ullmann David K. Walser G. James Wright
Reporting Arizona Use Tax on Personal Income Tax Returns by James Barash, CPA and Brooke Richards, Esq. Taxpayers and tax return preparers alike may find it difficult to comply with Arizona’s new use tax reporting requirements on Arizona personal income tax returns for the upcoming tax season. Effective for 2011, any individual filing Arizona Form 140, Resident Personal Income Tax Return, Arizona Form 140PY, Part Year Resident Personal Income Tax Return, and Arizona Form 140NR, Arizona Nonresident Personal Income Tax Return, will now be required to report Arizona use tax liabilities on purchases made from vendors who do not collect the Arizona transaction privilege (sales) tax (TPT) that are subsequently stored, used or consumed in Arizona. Arizona House Bill 2332, signed into law on April 15, 2011, added Arizona Revised Statutes (ARS) § 42-5169 which provides that “[i]f a person stores, uses or consumes tangible personal property subject to tax under this article for a nonbusiness purpose and the tax was not collected by a registered retailer, the individual shall declare the annual amount of tax due under this article on the individual’s income tax forms pursuant to Section 43-321. Further, ARS § 43-321 now provides that each return required to be filed under this title shall contain the following…a specific statement of the taxpayer’s use tax liability pursuant to section 42-5169. The use tax line item will be included on the 2011 Arizona Forms 140, Form 140PY and Form 140NR.
Arizona’s “use tax” serves to complement the TPT on Arizona retailers. The use tax is imposed on a person who “stores, uses, or consumes tangible personal property in Arizona,” upon which the Arizona TPT has not been paid. See ARS § 42-5155. For purposes of the Arizona TPT and use tax, “tangible personal property” includes tangible and even some intangible property, including downloads of software and media files such as iTunes. Use tax will be due where an individual purchases goods from a non-Arizona vendor as follows: Purchases by an individual while outside of Arizona that are brought back or shipped to the purchaser in Arizona; and online purchases by an individual which are delivered into Arizona. The State use tax rate is 6.6 percent. Some cities also impose an additional use tax. However, the new statute requiring the income tax return disclosure does not include city use tax reporting. To the extent the out-of-state or online vendor properly collects another jurisdiction’s sales tax equaling or exceeding 6.6 percent, no Arizona use tax will be due. Typically, in order for the other state’s sales tax to be properly imposed, title and possession of the item sold must transfer from the seller to the buyer in the other state. The use tax will be computed as follows: If you have already paid the TPT or have paid tax to another state whose sales tax rate is equal to or greater than 6.6 percent, no use tax is due. If another state’s sales tax was properly imposed on the sale whose sales tax rate is less than 6.6 percent, you are allowed a credit for the sales tax paid to the other state, i.e., your Arizona use tax liability will be your taxable purchases multiplied by the Arizona rate of 6.6 percent, less the amount of tax paid to the other state. If you have paid no sales or use tax on your purchase, your use tax liability is the purchase price of the property multiplied by the Arizona rate of 6.6 percent. The following example shows how to
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Fox & Fin makes good CPAs look even better.
compute the use tax due: Jane lives in Arizona. She orders a new kitchen appliance from an out-ofstate store based in New York. New York sales tax was not paid. The price Jane pays is $125. Because the out-of-state store collects no Arizona TPT, Jane must pay Arizona use tax on this purchase and report the liability on Form 140.
To look your best to a client who is selling a business, depend on our M&A expertise and track record. The Fox & Fin Process™ revolutionizes the way businesses are sold, at every step: 1. 2. 3. 4. 5. 6.
1. Taxable purchase = $125 2. Arizona use tax rate—6.60% 3. Multiply line 1 by line 2 and enter result = $ 8.25 4. Round amount on line 3 to nearest whole dollar and enter on Form 140 = $ 8.00
Assessing the company and the market Packaging the company Marketing the company Maximizing the offer Closing the deal Providing transition assistance
To learn more about the Fox & Fin Process and to meet your new M&A team, visit www.foxfin.com/process.
15029 N. 74th St. | Scottsdale, AZ 85260 | 480-421-9789 Ranking Arizona’s #1 M&A Firm, 2003-2011
Problem with the Board? Contact: Former Accountancy Board Member
D. Jay Ryan Attorney at Law City North 5415 E. High St., #200 Phoenix, AZ 85054 (623) 937-3737 or (602)840-8075 (fax) Free Telephone Consult Mr. Ryan is a former Assistant Attorney General who represented the Board from 1970-72. The Board’s first lay member/ President (1974-79); Law Committee (1983-1998) ASCPA Honorary Member OTHER LICENSING AGENCY EXPERIENCE
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Sponsored by ADP Free Networking Event for Members Only
Because the use tax line is included in Forms 140, 140PY and 140NR, the reporting of the use tax is subject to the same penalties of perjury as the reporting of income tax. Accordingly, return preparers should assemble the information discussed above to determine the amount of out of state and online purchases and the related sales tax imposed on those purchases in order to properly compute the use tax liability due on the return. AZ CPA James Barash, CPA, and Brooke Richards, Esq., work within RSM McGladrey’s National State and Local Tax (SALT) practice in Phoenix. Together they have more than 25 years of experience in resolving complex SALT issues for their clients. They can be reached at James.Barash@McGladrey.com or Brooke.Richards@McGladrey.com.
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You get tWo doLLars in heartBurn from this cLient for everY doLLar in fees?
“Let’s taLk this through” Ron Klein, JD, CFE, VP Claims Counsel for CAMICO, discusses the risks faced by CPAs every day.
ok, ron, is this client relationship really a risk to me?
Well, let’s look at the red flags. The client has careless record-keeping practices, is late in providing information and is often non-responsive, causing you delays. What happens if the business fails or you later discover the client had been deliberately withholding information due to unethical activity. How might you be blamed? isn’t it better to fix the problem and keep the client? Sure, if you can. But at what cost to you, your staff and your firm?
But disengagement is such an unpleasant business... Not nearly as unpleasant as getting sued. Proactively managing your risk through client selection and retention is really about upgrading your client base and thus upgrading your firm.
ok, so i’m ready to disengage from this problem client. What’s the next step? Calling CAMICO is always your first step. Our risk management specialists will help you tactfully and securely end the relationship. We have dozens of sample disengagement letters and will even help you tailor your own letter to make sure all your bases are covered.
not insured by us? give camico a call, and we can start the conversation about lowering your risk – and easing your heartburn – today.
see a video of ron klein talking about how cPas can best handle disengagements at www.camico.com/disengage
ce Le B rati n g a Quarte r ce ntu rY of Pr ofe s s i onaL LiaB i LitY i n s u ran ce f or cPas Com pr e h e n s ive Cove rag e • pr oaCtive r i s k manag e m e nt r e s ou r Ce s • e x pe rt Clai m s han d li n g cam i co r e Pr e s e ntative
Larry stuckey Phone: 602.264.5533/ 800.224.2264 stuckey@stuckeyinsurance.com www.stuckeyinsurance.com
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camico professional liability insurance is recommended by the Arizona Society of CPAs. at l a n ta • n e w Yo r k • s a n F r a n C i s C o B aY a r e a ca L L 8 0 0 . 6 5 2 . 1 7 7 2 o r e m a i L i n Q u i rY @ ca m i c o . c o m W W W. ca m i c o . c o m
CPA Financial Executives Respond to Incentives and Compensation Survey How are companies adjusting performance targets in the post-recessionary environment? A predicted rise in executive compensation indicates that organizations are game to meet financial targets as they navigate out of the economic crisis.The results of the 2011 CFO Incentives and Compensation Survey: Incentives and Performance Targets Following a Recession, conducted by Michal Matejka of the W.P. Carey School of Business at Arizona State University, show a downward trend in total compensation between 2008 and 2010, but predict an improvement in 2011. The survey is a follow-up to research conducted with AICPA members in 2009 and 2007. Many companies that had increased emphasis on financial performance targets during the recession reduced those expectations in 2010. Survey participants also indicated that 2011 earnings targets were much more likely to be achieved than during the recession. As a result, the difficulty of financial and nonfinancial targets was better balanced in 2010 and 2011 bonus plans than during the recession.
Research Results Show Use of Financial and Nonfinancial Targets Some specific findings from Matejka’s research include: Median targeted return on sales increased from 4.6 percent in 2009 to six percent in 2011 and the probability of achieving 2011 earnings targets went up considerably as well. Companies were very reluctant to set negative earnings targets regardless of
the time period considered. The bonus weight on financial targets was lower in smaller private companies and greater in larger ones. Many private companies had increased the bonus weight on financial targets in CFO bonus plans during the recession but lowered it again recently. The most common type of nonfinancial targets in CFO bonus plans were operations targets. Targets related to market and strategy were used more heavily by larger companies. Inversely related to size was the usage of targets related to CFOs’ accounting & IT functional duties—this type of target was used more heavily by smaller organizations. Nonfinancial targets were relatively easy to achieve as long as a the targets were formally included in the bonus plan formula—the average probability of achieving nonfinancial targets was 75 percent in companies that formally included them in their bonus formula. Formally using explicit nonfinancial targets in CFO bonus plans (rather than relying on subjective evaluations) was associated with greater CFO involvement in major business decisions. The research revealed that the recession did have a strong effect on annual bonus plans and performance targets. Many companies (especially larger ones) increased bonus weights on earnings and other financial measures of performance. In addition, earnings targets became difficult to achieve in part because companies were reluctant to set negative targets even if they were often more realistic than zero or justabove-zero earnings targets. Nonfinancial performance targets remained achievable, which may have further increased the pressure to focus on short-term financial results. Although the data does not speak to the effectiveness of companies’ bonus plans, it seems that a high emphasis on earnings, cash flow, and other financial results crucial for survival is justifiable during a crisis.
Looking Ahead Matejka advises that companies that
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One- and Two-Hour Seminars Quick Programs at a Minimal Cost to You
Below is a list of our upcoming one- and two-hour programs recommended by your fellow CPAs. These programs are meant to provide valuable information and insight, as well as give you an opportunity to network with other business professionals while earning CPE. Tax Update - Sept. 20 - Prescott Society & Profession Issues Update - Sept. 20 - Flagstaff Fast Five: Tips to Help Clients Build the Value of Their Business Sept. 20 - Tucson “The Regulators are Coming!” How Will the Arizona Regulatory Landscape Impact Your Business? - Sept. 21- Phoenix Tax Considerations Associated with Foreclosures, Short Sales, and the Recognition of Cancellation of Indebtedness Income - Sept. 21- Phoenix Webinar: Help Your Clients Through the Commercial Lending Process Sept. 23 - Phoenix Behind the Scenes with...the Phoenix Art Museum - Oct. 5 - Phoenix How an IRA Rollover Can Help Turn Assets Into Income for Retirement Oct. 18 - Flagstaff Fast Five: Tips to Help Clients Build the Value of Their Business Oct. 18 - Prescott Tax Considerations Associated with Foreclosures, Short Sales, and the Recognition of Cancellation of Indebtedness Income - Oct. 19 - Yuma ADOR Legislative Update - Oct. 20 - Phoenix Webinar: ADOR Legislative Update - Oct. 20 - Phoenix Young Professionals Focus: Networking 101 – What You Absolutely Need To Know- Oct. 25- Phoenix Estate Planning and Compliance in this “Temporary” Environment Oct. 26- Phoenix Webinar: Introduction to Forensic Accounting - Oct. 28- Phoenix Register today at our website
www.ascpa.com and search by one- and two-hour programs.
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want to be well positioned to benefit from a post-recessionary rebound in the economy cannot afford to overemphasize short-term financial results and curtail investing in long-term projects for long. Accordingly, executive bonus plans should more effectively balance financial targets with nonfinancial performance indicators that better reflect long-term business success. The survey findings are consistent with this expectation. Many companies that had increased bonus weights on financial performance measures during the recession adjusted them down again in 2010. Respondents indicated that earnings targets were much more likely to be achieved than during the recession and their average difficulty was comparable to the difficulty of nonfinancial targets, which restored the balance between the different types of targets and encouraged focus on shortterm financial goals without neglecting the long-term. Combined, this evidence suggests that the sample companies are well on the way to recover from the adverse effects of one of the worst recessions in recent memory.
International Survey Allows for Comparison Results of a companion survey, Performance Targets CFO Compensation: An International Comparison, show that members of Internationaler Controller Verein (ICV), and Associazione Nazionale Direttori Amministrativi e Finanziari (ANDAF) in Germany and Italy, respectively, have similar base salaries as their U.S. counterparts; however, organizations in each country utilize financial and nonfinancial targets in various degrees.
Survey Details The 2011 CFO Incentives and Compensation Survey population consisted of 40,000 AICPA members in business and industry with job titles CEO, CFO, VP Finance, COO, President, Managing Director, or Controller. By the end of April, 999 members fully or partially completed the survey questionnaire. AZ CPA
Highlights of the ASCPA Board of Directors’ July Meeting
Bigger is Better
Among other actions at its July 20, 2011 meeting, the ASCPA Board of Directors reviewed the following:
Audit Report The 2010-2011 financial report was given by the independent firm of Mayer Hoffman McCann P.C. An unqualified opinion was issued, and the board accepted the audit report.
Consent Agenda The consent agenda, which included the board minutes, financial statements and nominating committee members, was approved.
Call 1.800.584.4595 Ext. 05 www.accountingpracticesales.com
Strategic Plan Update
Gary Hankins, CPA Member Arizona Society of CPAs
The board reviewed progress against metrics. Cindie Hubiak shared that the professional issues updates presented to firms/companies have been wellreceived.
Leadership Day: Managing Thoughts Hubiak led a discussion that included board members reflecting on thankfulness, wondering and visioning exercises.
Other items covered: The board learned about the Society’s new website. The board reviewed ground rules for using technology during meetings. This was the board’s first paperless meeting. The October meeting will occur after the AICPA Council meeting to be held at the Biltmore in Phoenix. Hubiak encouraged board members to attend.
ASMR CONSULTING LLC Personal Property Tax Specialists
A Day in the Life Board members heard from Julie Klewer, David Walser and Kevin Yeanoplos on the challenges and joys they experience in their jobs. If you have questions or would like additional information, please contact Cindie Hubiak at (602) 324-2888; AZ toll free at (888) 237-0700, ext. 203; or chubiak@ascpa.com.
• Arizona CPA • Over 12 years experience • We produce refunds for over 80% of new clients • Average refund is 20% of tax paid plus interest • Contingency fee only • See us on Linked In, Facebook and Twitter asmrconsulting@gmail.com www.asmrconsulting.com
(480)
204-1289
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Classifieds Business Opportunities/Practices for Sale BUYING OR SELLING A PRACTICE? Let me make it happen for you. • Integrity • Confidentiality • 48 years selling Arizona businesses. Call Allan Jeffryes, the Jeffryes Company at (602) 279-4988. WANT TO SELL OR BUY AN ACCOUNTING PRACTICE? Make it easy on yourself. Call Gary Hankins, CPA (800) 584-4595, ext. 05. hankins@ apsleader.com. www.accountingpracticesales.com. OWN YOUR OWN TAX PRACTICE —New to Arizona. Looking for professionals interested in owning their own Tax Preparation and Financial Services practice? Easy and affordable to get started, with training and great support. You choose your location, we provide the system to attract premier clientele. Confidential. Reply to Box 100, Arizona Society of CPAs, 4801 E. Washington St., Suite 225-B, Phoenix, AZ 85034. CPA SEEKS TO PURCHASE Scottsdale Tax Practice—Successful, experienced CPA interested in purchasing existing accounting/tax practice in the Scottsdale area. Please reply to maazcpa@msn. CPA FIRM SEEKS TO ACQUIRE CLIENTS. Small CPA firm located in North Central Phoenix seeks to purchase tax and accounting clients. Please send confidential inquiries to: phoenixcpaclients@gmail.com. Are you interested in selling your Phoenix CPA practice? No sales commission. Cash purchase. CPA has over 10 years experience in his CPA practice. Low turnover of clients. Interested in buying practice with between $30K to $100K in billings. Contact Brandy at ashlee. shoulders@gmail.com. Small Wickenburg area tax and consulting CPA practice for sale. $75k gross. Perfect for adding to exist-
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ing practice, starting out, or for semiretired practitioner. Please contact (928) 684-0660.
Employment Opportunities Governmental Specialists/ CPAs—Heinfeld, Meech & Co., P.C., recognized leaders in governmental and non-profit accounting, auditing and consulting, seeks ambitious and motivated individuals with at least 2 years experience specializing in governmental accounting and/or auditing for our growing offices in Phoenix, Tucson and Flagstaff. Nationally recognized on the “25 Best Small Companies to Work for in America” list for the past four years, our firm is committed to providing a superior work environment and career opportunities for our staff. Competitive salaries and benefits offered. BS in Accounting and at least 2 years governmental accounting or auditing experience required. CPA or CPA candidate preferred. Travel primarily within the Southwest region required. Email and salary requirements to: recruit@heinfeldmeech.com. Entrepreneurial CPA—Established North Scottsdale Financial Planning office seeks a 3+ years experienced CPA to join its busy practice. If you are part of a CPA firm wanting to go independent OR working from home and meeting clients/prospects at Starbucks, this is a great opportunity for you. You will work in an upscale office with great demographics and relaxed environment with your center of influence and likeminded professionals. Ideal candidate should be self motivated, hard working, team player, ethical, possess excellent communication & sales skills to aggressively market to attract new quality clients. Please reply to: raymond.singh@ lpl.com. Tax Manager—45 year Tempe CPA firm seeks Tax Manager for long-term relationship. Join our family, servicing small business clients in all fields. Candidate must have CPA and 10+
years experience in tax and accounting services. Manager will oversee preparation of entity returns and compilation financial statements, and handle some IRS correspondence.Office & QuickBooks required, Lacerte preferred. Salary is DOE. Self-Employed practitioners will be compensated for their current clients.Company provides health insurance, SIMPLE IRA, and is conveniently located in the center of Tempe. Please submit resume and salary history to tempecpafirm@aol.com or fax (480)355-6307.
Miscellaneous ENTREPRENEURIAL CPA NETWORK (eCPAn)—Wednesday October 19, 2011, AZ Accounting Ethics with Emphasis on Tax Practice Issues, presented by Ed Zollars CPA with Thomas & Zollars Ltd. This is a special four hour program 8:30-1:00 (lunch included) and fulfills the four hour ethics requirement. Cost is $99 and the meeting is at the DoubleTree Suites, 320 N 44th St., Phx, AZ. More information at www.ecpan.org or email us at info@ ecpan.org.
Office Space CUT $$$$$$—Move into the “ACCOUNTING ANNEX”—Tenant sought. Office space to rent. Suitable for a dynamic CPA or CPA firm. Share phenomenal resources. On light rail and next to a station. Two conference rooms, included. 3,687 ft. to 4,210 ft. Unique property next to the heart of downtown, walk to baseball and basketball stadium. Short-term lease is welcome. Call Lance at (602) 741-7876 cell. PROFESSIONAL ACCOUNTING OFFICE AVAILABLE—16th Street & Glendale Avenue, 1,500-3,000 SF of prime office space now available. 8 private offices, large open bullpen for cubicles, conference, utility/workspace area, and employee break room. Email jason@azcre.biz for more information.
Upcoming ASCPA Conferences North Central CPA firm has office space available for a professional interested in starting a CPA practice or interested in sharing office space. We will share the tax software (ProSystems FX), use of the copier, postage meter, and fax machine. Please respond to licht@jlhcpas.com or biglou@jlhcpas.com. LuAnn Roberts, CPA is interviewing experienced CPAs to share established office space in Flagstaff. Another CPA is desired in the office to enjoy referrals and to share in common expenses such as Lacerte tax program and seasonal staff— luann@lmrcpa.com
Services ESTATE/GIFT/GST TAX RETURNS AND PLANNING ISSUES POSE A CHALLENGE FOR YOU? I can work with you or your client. Estate planning/ compliance is not a science; it’s an art. Let’s make a better plan for your client. Ira Feldman, CPA/CVA/CEP (602) 8505101 or ira@felco.biz or www.felco.biz.
Is your firm moving? Did you get a promotion? Do you have a new hire in your firm? Announce it here with discounted ads in the AZ CPA for our members only. We will even create the ad for you at no additional charge. (For an example, see back cover.) For more information, call José Herrera at (602)324-4741 or e-mail: advertise@ascpa.com
Not-for-Profit Conference – Sept. 21 • How can we raise funds during a tough economy? • What lessons can be learned from the schemes of Ponzi and Madoff? • How can I make sure my organization is making ethical decisions? • You may know that your non-profit organization has to file the annual Form 990, but do you know about the other filing requirements that may apply to your organization? Learn the answers to these questions and more at this year’s conference.
Business Valuation Conference – Oct. 6 National and local experts will provide insight on the top issues in business valuations. • How the size of firms affects cost of capital estimates • Tips on getting through a SAS Valuation Review • Minimize your liability risks • Judicial and legal view on written valuation reports and expert testimony • Update on estate and gift taxes • Hear from a panel of experts on the latest hot topics
Construction Industry Conference – Oct. 19 Face the challenges in the construction industry with fresh ideas. • Learn new ways to improve your chances of getting paid • How to survive a government audit • Create accountability in your organization • How to recognize revenue and costs on construction contracts • Reduce conflict and encourage collaboration • Detect and investigate fraud • Streamline your end-of-year processes
Arizona Federal Tax Institute Conference – Nov. 3-4 Start the new tax season prepared with the latest updates from the tax experts. Hear from favorites Bob McKenzie, Jim Hamill, Ed Zollars, Mona Hymel, Marianne Jennings and many more.
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Arizona Society of Certified Public Accountants 4801 E. Washington St., Suite 225-B Phoenix, AZ 85034
PRSRT STD U.S. Postage PAID Phoenix, Arizona Permit No. 952 ADDRESS SERVICE REQUESTED
After 25+ years serving nonprofits, closely held businesses and the individuals who run them, Brenda Blunt is pleased to announce the establishment of her own firm
Brenda A. Blunt, CPA, PLLC Brenda Blunt offers a wide variety of tax, accounting and business consulting services including: tax planning and compliance, strategic planning, multi-entity structures, and planned giving. Brenda has especially deep experience in the nonprofit area working with hundreds of local and national nonprofit organizations, consulting with attorneys and other CPAs regarding their NFP clients and recently having served on the steering committee for the NFP practice group of a top-10 national accounting firm. As a result, she is recognized for her expertise addressing exempt status, UBIT, public charity status, private foundation, compensation reporting, related entities and other issues unique to not-for-profit entities. Brenda is a member, and the founding chair, of the ASCPA Notfor-Profit Section Steering Committee and a frequent national and local speaker on topics of interest to not-for-profit organizations.
Brenda A. Blunt, CPA, PLLC One East Camelback Road, Suite 860, Phoenix, AZ 85012 602-692-6856 – BrendaBluntCPA@cox.net
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AZ CPA