Posts By :

RWR Legal

Considerations of Moving Your Business to Texas & Why You Should Choose Austin

 1024 640 RWR Legal

Austin is frequently dubbed “the new Silicon Valley” and for good reason.  According to the Austin Business Journal, more than 9,000 businesses moved out of California in 2015, with most of those moves to Texas. With a recent attempt by California legislature to raise the corporate tax (from 8.25 percent to 18.84 percent) it’s not surprising that many California-based business are looking for a new place to call home.

If you are thinking about moving your business to Texas, consider the advice of the RWR Legal team, who have represented and connected innovators, and their startups, since 1996.

Here are some of the top reasons to move to Austin as well as a couple of tips and tricks to consider once the choice has been made.

Top Reasons to Move Your Business to Austin:

1. Texas has Significantly Lower Corporate Taxes
In Texas, a corporation, partnership or limited liability company is each taxed on something called its “margin”, which is its gross income with limited deductions. The tax rate will vary depending upon the type of business that it operates and ranges from 0.375% to 0.75%. Entities with $1,130,000 or less of revenue are not subject to tax. Further, there is no minimum tax and its owners are not subject to any further taxes, as Texas does not have a personal income tax.

This is generally much lower than business taxes in California. In California, a corporation is taxed at a rate of 18.84% (recently increased from 8.84%) on its net income over $100,000 (with a minimum tax of $800). A partnership or limited liability company would only be required to pay the minimum $800 in taxes; however, its owners would also pay an income tax on their share of the partnership or limited liability company income.

2. Austin has a developed, highly interactive Entrepreneurial Community

Texas entrepreneurial communities are developing at a rapid pace.  Austin has a very interactive ecosystem and prides itself on helping people connect with who they need to succeed.  We have many co-working spaces open and ready to welcome newcomers and visitors as well as incubators and accelerators designed to bring mentorship and other resources to growing businesses.

3. Capital Opportunities

If you have a business that is looking for investment or is already in the process of raising money, look to the Austin’s well-regarding entrepreneurial and investment community for guidance. One of many options is The Central Texas Angel Network, which has invested more than $90 million since 2006 and continues to be the most active angel investment group in North America.

4. Personal Income Tax

Texas is one of the few states that does not have a state income tax, which not only puts a little extra money in your pocket at the end of the day, but also attracts strong prospective employees.

5. Weather 

Texas has mild winters and mostly sunny days the rest of the year, Texas is a great place to move or expand your business. It does get hot in the summer (with multiple days hovering around 100 degrees), but if you don’t mind the occasional heat wave, Austin is your place.

6. Expansion 

Austin is one of the fastest-growing cities in the country.  With new construction happening throughout downtown and the surrounding areas, there’s plenty of office space and apartments/homes for employees to relocate.

Top Things to Consider After You Decide to Move:

1. Transfer your LLC 

Unless your company was incorporated in Texas, you will have to register as a foreign corporation. Fortunately, this isn’t as difficult as it sounds, and the  U. S. Small Business Administration actually explains the options for moving the LLC to a new state. You can continue your LLC in your old state, but will have to register as a foreign LLC in your new state, which means more paperwork, involving duplicate annual reports. Luckily, all the ins and outs of transferring the LLC can be easily navigated by your legal counsel.

2. Review Agreements 

Agreements drafted under a different state law may need some adjustment when you move your business to Austin. Make sure to review existing employee agreements to ensure compliance with Texas law, including non-competes and other employee restrictions that can be broader in Texas.

3. Check Permits and Licenses 

When moving a business to a new state, it helps to make sure you have everything buttoned-up before you go to ensure the easiest transition possible.  Depending on your business, this includes securing sales tax permits, filing annual franchise tax and public information reports, and obtaining any needed insurance, licenses and permits. If you have questions about any of these requirements in regards to your business, the RWR Legal team is here to help.

4. Incentives & Employment Details 

If you have employees, you may need to register for unemployment tax account with Texas Workforce Commission. It also is beneficial to research any state tax incentives that may apply to your business.

5. Culture & Lifestyle 

With an array of music festivals, food trucks, coffee shops, nightlife and beautiful hiking trails, Austin is a lively city filled with new experiences. The city features a diverse range of things-to-do, making it an appealing home for prospective employees.

Section 199A of the 2017 Tax Cuts and Jobs Act and What It Means for Business Owners

 1024 697 RWR Legal

You’ve likely heard about the new Tax Cuts and Jobs Act (the “Act”) that the President signed into law on December 22, 2017, but might not know exactly what it means to you as a business owner, and with it comes a slew of questions, especially, “what does that mean for me?”.

One of the primary features of the Act is the much-publicized permanent reduction of the top marginal corporate tax rate from 34% to 21%. While the top marginal tax rates for individuals is also reduced, the reduction is only from 39.6% to 37%, which is nowhere near the corporate tax rate reduction. A lesser known provision of the Act added a new section 199A to the Internal Revenue Code to provide a deduction (referred to herein as the “QBI Deduction”) to non-corporate taxpayers, which is intended to give some equivalence to the corporate rate reduction, at least with respect to business income of the non-corporate taxpayers.

We have outlined below a brief summary of the general rules to determine your QBI Deduction and certain exceptions and limitations to the general rules. However, this is only a summary and the actual rules can be quite complex. If you need more specific guidance on the application of these rules to the QBI Deduction, or other aspects of the Act, please feel free to contact us and we can set up an appointment with our attorneys that monitor the Act and its developments.

Basic Rules

The rules to determine your QBI Deduction, if any, is much simpler if your taxable income, determined before the section 199A deduction (“Taxable Income Base”) is equal to or less than $157,500, or $315,000 for a married couple filing jointly, adjusted annually to reflect a cost-of-living adjustment (such amount, as adjusted, is referred to herein as the “Threshold Amount”). In this case your QBI Deduction is equal to 20% of your share of trade or business income (“Trade or Business Income”) from partnerships, including limited liability companies taxed as partnerships, or S-corporations (“Flow-Through Entities”) and/or trade or business income generated by sole proprietorships, or single member limited liability companies that are disregarded for federal income tax purposes, that you own and operate. Generally, Trade or Business Income will not include investment income or capital gains or losses. Further, such income does not include reasonable compensation or guaranteed payments paid to you from a Flow-Through Entity. The QBI Deduction computed pursuant to this paragraph is referred to herein as the “Threshold Deduction”.

So long as your Taxable Income Base is equal to or less than the Threshold Amount, your QBI Deduction can be computed as noted above and you do not need to read further (except for the short section below entitled “Overall Limitations”).

Rules Where the Taxable Income Base exceeds Certain Amounts

Determination of the QBI Deduction gets significantly more complex whenever your Taxable Income Base exceeds the Threshold Amount because between the Threshold Amount and an additional $50,000, or $100,000 in the case of a married couple filing jointly (the sum of such amounts is referred to herein as the “Cap”) the new law contains rules that phase out amounts that would otherwise qualify for the deduction. The two most important of these rules are summarized below. Both of them relate to an overriding theme in the statute that the deduction does not apply, or is at least limited, to the extent income consists of payment for services.

If your Taxable Income Base exceeds the Cap, the 20% deduction does not apply to all Trade or Business Income, but only to “Qualified Trade or Business Income”, which is basically Trade or Business Income from a “Qualified Business”. A Qualified Business is a trade or business not involving certain specified services[1]. Whenever your Taxable Income Base exceeds the Cap, your 20% deduction will only be applied to income from such Qualified Businesses.

Limitation Related to Certain Wages You Pay and Capital Investment.

Further, if your Taxable Income Base exceeds the Cap, the QBI Deduction for each Qualified Business is limited to the greater of (i) 50% of W-2 wages paid by the business; or (ii) the sum of (A) 25% of such W-2 wages plus 2.5% of the cost of certain property (“Qualified Property”) used in the business. There are numerous complexities related to this limitation, including the determination of the cost of the Qualified Property. Further, owners of sole proprietorships and partners in partnerships cannot receive W-2 wages, so unless wages are paid to others, this limitation may relate solely to the cost of such Qualified Property.

Phase-in of the Limitations.

As noted above, if your Taxable Income Base exceeds the Threshold Amount, but not the Cap, you would reduce the Threshold Deduction only by a pro-rata amount of the reductions.

Overall Limitations.

In addition to the limitations above, your QBI Deduction is limited to your Taxable Income Base reduced by your net capital gain for the taxable year. Further, it is worth noting that your QBI Deduction is not allowed in computing Adjusted Gross Income, but is allowed regardless of whether you itemize deductions and if you do itemize, it is allowed without regard to limits on itemized deductions. It is also worth noting that the QBI Deduction applies only to federal income taxes and not to other federal taxes, including employment taxes.

Other Special Rules.

In addition to the above rules used to compute the QBI Deduction, there are special rules that apply to the following:

  • Qualified REIT Dividends;
  • Qualified Cooperative Dividends;
  • Qualified Publicly Traded Partnership Income;
  • Certain agricultural or horticultural cooperatives;
  • Trusts and Estates;
  • Qualified Business Income from sources within the commonwealth of Puerto Rico; and
  • Alternative Minimum Tax.

We will continue to monitor developments with respect to the Act, including anticipated Treasury Regulations. Included in our team of experts at RWR Legal, is our very own Doug Ledlie, a Corporate and Tax Counsel at RWR Legal where he uses his extensive legal experience and background to represent clients in corporate and tax matters. Mr. Ledlie not only has a JD, but also an LLM in Taxation from NYU and experience as a CPA. His legal practice spans several decades in which he has represented clients in general corporate matters and commercial transactions, including start-ups, mergers and acquisitions, financings, corporate restructurings, and tax matters. In addition, Mr. Ledlie has written several research books on the Texas Business Organizations Code and Texas Tax Code.

[1] Any trade or business involving the performance of services in the fields of health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, or any trade or business where the principal asset of such trade or business is the reputation or skill of 1 or more of its employees. Trade or business involving the performance of engineering and architecture services are specifically excluded, therefore, trades or businesses involving such services will be Qualified Businesses.

CES 2018 and The Future of IP

 1024 683 RWR Legal

The Consumer Technology Association is holding their annual Consumer Electronics Show (CES 2018) next week in Las Vegas from January 9th – 12th. While the media is captivated with reports of self-driving cars, artificial intelligence, augmented reality headsets and smart appliances, CES is also a highly anticipated event for intellectual property (IP) law.

Matthew Burr at RWR Legal works in IP law and with start-ups, where he fuses his interest in technology and science to advise innovators, entrepreneurs and start-up companies. The world of law can be a complicated place when it comes to intellectual property and technology, especially without proper guidance.

“The advent of powerful home computers in the 80s and 90s created a crisis in intellectual property law. All the microelectronics are tangible inventions, but the software you programmed a machine with was hard to categorize,” says Burr. “Is it an invention, copyright, or a trade secret?”

Some early technology patents stretched the definition of innovation (see US 544036 “Method for exercising a cat”), but in the recent years, the law has begun to sort itself out. Burr says we’ve reached a point where merely doing something with technology doesn’t mean it can be patented.

“Just writing a phone app doesn’t make it patentable. It has to do something extraordinary.”

Some of the new technologies that interest Burr are those that have come to prominence in the past two years, particularly virtual reality (VR) and biomedical advancements. These developments have implications for CES 2018 and beyond.

“Virtual and augmented reality headsets have been surprising to me, in the last two years especially. Google, Microsoft and Facebook have gotten in the VR headset game, and I’m very curious to see how successful that will be. A lot of resources are being poured into consumer versions of VR,” says Burr. “Biomedical technology is another one I keep my eye on, and there have been jaw dropping advances in the last 18 months, especially gene editing technology, like CRISPR.”

As technology advances and becomes more complicated, the law surrounding it will almost certainly become more complicated as well. Lawyers like Matt Burr, and the team at RWR Legal, are ready to expertly guide tech companies on IP law.