The FAQ provides new guidance regarding whether an owner, partner, shareholder, or board member qualifies as an employee. See FAQ Question A.8. Seattle will evaluate such individuals on a case-by-case basis using the EEOC’s Covered Parties Guidelines.

According to the EEOC, in most circumstances, individuals who are partners, officers, members of boards of directors, or major shareholders will not qualify as employees. An individual’s title, however, does not determine whether the individual is a partner, officer, member of a board of directors, or major shareholder, as opposed to an employee. The key is whether the individual acts independently and participates in managing the organization, or whether the individual is subject to the organization’s control. If the individual is subject to the organization’s control, she or he is an employee.

The EEOC provides the following factors to consider with respect to such individuals:

• Whether the organization can hire or fire the individual or set the rules and regulations of the individual’s work
• Whether and, if so, to what extent the organization supervises the individual’s work
• Whether the individual reports to someone higher in the organization
• Whether and, if so, to what extent the individual is able to influence the organization
• Whether the parties intended that the individual be an employee, as expressed in written agreements or contracts
• Whether the individual shares in the profits, losses, and liabilities of the organization

Seattle’s FAQ provides additional factors.

Please feel free to contact Luke Campbell should you have any questions about this ordinance or any other legal issue.

The post The City of Seattle Publishes Guidance for Owners, Partners, Shareholders, or Board Members Concerning Its Paid Sick Time and Safe Time Ordinance appeared first on Montgomery Purdue Blankinship & Austin PLLC.

The opportunity for tax reduction is catching the attention of many corporations that may not have traditionally been thought of as qualifying as a REIT. A recent New York Times article published on April 21, 2013, entitled Restyled as Real Estate Trusts, Varied Businesses Avoid Taxes, summarizes the various corporations that have or are in the process of obtaining I.R.S. approval to be REITs. This list includes private prisons and casinos. The article also notes that many corporations are figuring out ways of breaking off pieces of their operations into new entities that will qualify as REITs. The worry is that Congress may change the law if too many companies begin to benefit from the tax advantages of REITs, especially in this time of fiscal crisis.

The outcome of the heightened interest in REITs is unknown. Local to Washington State, Weyerhaeuser and Plum Creek of Seattle are two timber companies that operate as REITs.  In some ways the designation of these companies as REITs has worked out well (e.g., tax savings) but in other ways the classification has created more risk exposure to the ups and downs of the real estate market. The risks associated with being a REIT will not always be the same for each company, but the recent interest in REITs may subside if things don’t turn out financially for the corporations obtaining classifications as REITs. In any event, the current worry is that Congress will change the law relating to REITs in reaction to the lost tax revenue associated with the increased number of companies becoming REITs. If this occurs, many will lament that those who were not intended to benefit from the REIT laws are the ones that ruined REIT laws. But Congress has yet to take notice and consider changing current REIT laws.

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However, most lease renewal options don’t leave all terms open for agreement, but rather they leave only the amount of the rent open for agreement. The question in this situation is whether leaving the amount of rent during a renewal term open for future agreement invalidates the renewal option because it is then too vague. The answer is not a bright-line rule, but the conservative approach is to provide for a specific method (more than just agreement) for determining the rent if the parties can’t agree. For example, providing that the rent amount will be determined by arbitration in case the parties cannot agree is an adequate alternative that provides specificity because the arbitrator will determine a reasonable rent. See, e.g., Faucett v. N. Clay Co., 84 Wash. 382, 146 P. 857 (1915). While taking the conservative approach brings added security that the renewal provision will be upheld, Washington courts have favored lessees when the issue has come up by upholding renewal options that have stated that rent will be to the satisfaction of both lessor and lessee or that rent will be agreed upon by the parties. See, e.g., Young v. Nelson, 121 Wash. 285, 290, 209 P. 515, 517 (1922). Other jurisdictions have not been as lenient as Washington. See, e.g., Keating v. Michael, 242 S.W. 563, 565 (Ark. 1922) (“Here no provision was fixed in the contract, except such rental value as the parties might agree upon. They might never agree and so the case falls squarely within the general rule announced above, and the contract is too uncertain and indefinite to be enforced.”).

In sum, one may avoid the headache and expense of litigation related to the enforceability of a lease renewal option by taking the simple action of providing an alternative, certain manner for determining rent during the renewal period, such as through arbitration as one example. Please contact MPBA with any questions or assistance with your leasing needs.

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The 2012 Tax Act also reinstated the personal exemption phaseout and the so-called “Pease” limitation on itemized deductions. Generally speaking, the reinstatement of these provisions can result in increased income taxes for higher income taxpayers. The personal exemption phaseout requires higher income taxpayers to reduce the amount of personal exemptions for themselves, their spouses, and dependents. The “Pease” limitation requires higher income taxpayers to reduce itemized deductions by 3% of the amount by which a taxpayer’s adjusted gross income exceeds a threshold amount.  Both of these limitations apply to single taxpayers with incomes over $250,000 for single filers and married couples filing jointly with incomes over $300,000.  Please note that the thresholds for these deductions are lower than the thresholds for the higher income tax rates discussed above.

The 2012 Tax Act made a wide variety of other changes to federal income tax law, such as ending the “payroll tax holiday” (i.e., the temporary decrease in the Social Security tax withholding rate on worker’s salaries to 4.2% rather than the traditional – and now reinstated – 6.2%), indexing the alternative minimum tax exemption for inflation, and many others.  Please contact us if you have questions about these changes.

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PODs can take a variety of forms. They can involve investment in a medical device manufacturer, a joint venture between physicians and a medical device manufacturer to engage in research and development and manufacturing of medical devices or in distributing medical devices, and they can involve a separate entity owned either solely by physicians or by physicians and other investors, in which entities either engage in the development and manufacturing of medical devices or the wholesale or distribution of medical devices, with or without some oversight or management services from a medical device manufacturer. The Senate committees and OIG have been particularly concerned about PODs which have as their primary, if not only, customers facilities where the physician investors in the PODs perform surgeries, particularly if the only sales of the medical devices are in connection with surgeries performed by those physician investors. This type of arrangement is an area of particular focus in this new Special Fraud Alert from OIG.

The Federal Anti-Kickback Statute, Section 1128B(b) of the Social Security Act, makes it a criminal offense to knowingly and willfully offer, pay, solicit or receive any remuneration to induce, or in return for, referrals of items or services reimbursable by a federal healthcare program. OIG is charged with enforcing the Federal Anti-Kickback Statute and has scrutinized PODs with respect to whether they create unlawful remuneration in exchange for referrals by the physician owners.

The Special Fraud Alert lists a number of what OIG calls “suspect characteristics” of a POD that would likely be found to violate the Anti-Kickback Statute. Most of those suspect characteristics are similar to ones outlined in previous Special Fraud Alerts and are features that most physicians, with advice of good legal counsel, would avoid anyway.  They include such factors as:

• The size of the investment offered to each physician varies with the expected or actual volume or value of devices used by the physician.
• Distributions from the POD are not made in proportion to ownership interest.
• Physician-owners condition their referrals to hospitals or ASCs on their purchase of the POD’s devices through coercion or promises, for example, by stating or implying they will perform surgeries or refer their patients elsewhere if the facility does not purchase devices from the POD.
• Physician-owners are required, pressured, or actively encouraged to arrange for purchase of the devices sold by the POD.
• The POD retains the right to repurchase a physician-owner’s interest if the physician fails or is unable to make sufficient referrals for purchase of the POD’s devices.
• The POD is a shell entity that does not conduct appropriate product evaluations, maintain sufficient inventory of its own, or employ or otherwise contract with personnel necessary for operations.
• The POD does not maintain continuous oversight of all distribution functions.
• When a hospital or an ASC requires physicians to disclose conflicts of interest, the POD’s physician-owner’s fail to disclose, or actively conceal, their ownership interest in the POD.

What is more interesting about this Special Fraud Alert is its particular emphasis on implantable medical devices. OIG states that since these tend to be “physician choice” devices in particular (a patient usually does not choose which hip implant brand they want), PODs that involve investment by the surgeon ordering the device are particularly susceptible to fraud and abuse. Moreover, OIG cautions hospitals and ambulatory surgery centers of their own exposure for being found in violation of the Anti-Kickback Statute for entering into arrangements with PODs. We have seen an increased reluctance by such facilities to purchase from PODs, and I expect this repeated warning from OIG will only further that reluctance, making it more difficult for PODs to be successful in selling implantable devices to facilities at which some or all of the physician investors perform surgeries.

Notably, OIG continues to stop short of declaring all PODs to be in violation of the Anti-Kickback Statute. This latest in a series of fraud alerts, however, shows that these arrangements continue to be “inherently suspect” in the view of OIG and OIG is certainly tightening the circles around which arrangements it would consider to be possibly permissible under the Anti-Kickback Statute. While there are certainly perfectly legitimate physician-owned entities involved in the research and development, manufacture and sale of medical devices which should be allowed to continue, before any physician undertakes to invest in or form such a business venture, they should consult experienced legal counsel with in-depth knowledge of these federal and state healthcare regulations.

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In addition to the 2012 Tax Act changes, the federal gift tax annual exclusion increased from $13,000 in 2012 to $14,000 in 2013.  As a result, any individual may gift up to $14,000 to another person without having to file a gift tax return or use any portion of the donor’s lifetime gift tax exemption (now $5.25 million).

While the 2012 Tax Act has been described as “permanent,” it is always impossible to predict what Congress might do.  However, unlike previous major federal estate tax legislation, the 2012 Tax Act is not scheduled to expire or change at a later date.  That said, there have been discussions in Washington, D.C. about restricting certain advanced estate planning strategies, including valuation discounts for closely-held business assets and grantor retained annuity trusts (GRATs).  We would be happy to assist you in determining the estate planning strategies most appropriate for your situation.

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One legal implication to consider is whether an employer’s regular payment of the bonus will create an implied agreement that the bonus is part of the employee’s wage.  While discretionary bonuses are generally considered gratuities and not wages, if the bonus is given regularly so as to create an expectation that it will continue, then it may be considered a wage under an implied contract.  Specifically, “to be considered compensation, a discretionary bonus must be given regularly to create an implied contract and reliance, otherwise it is a mere gratuity.” Byrne v. Courtesy Ford, Inc., 108 Wn.App. 683, 690–91, 32 P.3d 307 (2001).

An example of a regularly paid bonus being deemed a wage can be found in the Washington appellate case Simon v. Riblet Tramway Co., 8 Wn.App. 289, 505 P.2d 1291 (1973). In Simon, an engineer was paid a small monthly salary but received a large discretionary bonus at the end of each year which constituted approximately 68% of his total compensation. The engineer’s employer regularly paid the bonus every year during the engineer’s ten-year employment, and each year the bonus would increase regardless of company profitability.  The court found that under these circumstances, the course of dealing between the employer and engineer had created an implied agreement that the bonus would be paid as part of the engineer’s wage. When the engineer voluntarily quit his employment, he was entitled to the pro-rata share of his annual “bonus.”

In contrast, a recent Washington case shows when an annual bonus will be treated as such instead of being deemed a wage.  In LaCoursiere v. CamWest Development, Inc., 289 P.3d 683 (2012), the employment contract at issue identified the employee’s bonus as discretionary and provided a formula for determining the amount of the bonus, primarily based upon employee productivity and company profit. The employee only received a bonus during three of the four years he worked for the company, and the size of the bonus fell each year. The court held that “[u]nder these circumstances, the bonuses were mere gratuities: they were not given regularly, did not create an implied contract that they would be paid every year, and [the employee] could not have relied upon them, given he knew [the employer] had no obligation to provide them.” Further, the court found that diverting a portion of the bonus into a profit sharing plan did not violate Washington’s Wage Rebate Act, RCW 49.52 et seq., since the employee had voluntarily agreed to invest a portion of his bonus into the profit share plan.

When preparing to design your company’s employee bonus program, consult with our experienced employment law attorneys so that your bonus program is appropriately tailored to the unique circumstances affecting your business.

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Although the purpose of the UEFJA is to “make uniform the law of those states which enact it,” it is important to understand the nuances of Washington law before attempting to enforce a foreign judgment there. For example, Washington law requires that all money judgments, including foreign judgments, contain a judgement summary. RCW 4.64.030. Failure to include a judgement summary may cause problems when attempting to enforce a foreign judgment. See Bank of Am., N.A. v. Owens, 173 Wn.2d 40, 54, 266 P.3d 211 (2011)(“[A] clerk may not enter a judgment in the execution docket, until a proper summary exists.”). To avoid the problems, it is important that you contact an attorney licensed to practice in Washington State before attempting to enforce a foreign judgment there.

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In 2012, the Washington Supreme Court clarified the meaning of RCW 82.04.500 through its holding in Peck v. AT&T Mobility, 174 Wn.2d 333, 275 P.3d 304 (2012). In Peck, the Washington Supreme Court held that, “even if disclosed, a seller is prohibited from recouping its B & O taxes by collecting a surcharge in addition to its monthly service fee.”  As such, “a business cannot add on the B & O tax to the sales price.” Instead, B & O tax must be factored as part of the sales price just as any other overhead expense. One of the rationales behind this ruling is that, although ultimately the B & O tax is likely passed on to the consumer, “at least it will be reflected in a sales price that consumers can compare against competitors.” Therefore, in reviewing your business’s pricing policies and practices for 2013, be sure that B & O tax is not included as an additional, separate charge in addition to the final sales price.

If you have any questions about collecting B & O tax or any other questions relating to your business, please contact your attorney at MPBA.

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In Bracken, the surviving spouse died after the current Washington state estate tax statute was enacted in 2005.  The Washington state estate tax return for the surviving spouse did not include the value of the federal QTIP trust, because no Washington state QTIP election had been made for such trust.  Put differently, the personal representative took the position that because Washington law only subjected state QTIP property to tax, the federal QTIP trust was not included in the surviving spouse’s estate for Washington state estate tax purposes.

The Department of Revenue disagreed with this position, arguing that the federal QTIP trust was included in the surviving spouse’s estate.  However, the Washington State Supreme Court agreed with the personal representative, holding that QTIP trusts created prior to the 2005 enactment of the current Washington state estate tax statute are not subject to Washington state estate tax.

Under Bracken, if a Washington state estate tax return included federal QTIP property from trusts established at a first spouse’s death prior to the 2005 enactment of the current Washington state estate tax, such estate may be entitled to a refund of Washington state estate tax.  Because such tax is deductible for federal estate tax purposes, the refund can also result in a larger federal estate tax liability.

The Department of Revenue has reportedly expressed displeasure with the Bracken decision and is encouraging the state Legislature to take action to prevent or limit its application, possibly even retroactively.  We strongly recommend that you contact our office as soon as possible if you believe that Bracken may be applicable to an estate or trust of which you are personal representative, trustee or beneficiary.

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