Friday, January 8, 2021

Top 10 from Texas Bar Today: Solar Farms, Edge Computing, and a Flowing Statement

Originally published by Joanna Herzik.

To highlight some of the posts that stand out from the crowd, the editors of Texas Bar Today have created a list from the week’s blog posts of the top ten based on subject matter, writing style, headline, and imagery. We hope you enjoy this installment.

10. Lawyers: Five Questions to Answer About Your Target Market – Cordell Parvin @cordellparvin in Prosper

9. Edge Computing Is the Next Big Thing You and Your Clients Need to Know About – Peggy Keene of Klemchuk LLP @K_LLP in Dallas

8. Texas Supreme Court Hears Oral Argument on Allstate v. Irwin – David L. Plaut of Hanna & Plaut, L.L.P. in Austin

7. On-Line Retailers and Remote Sellers: Sales and Use Taxes – George W. Rendziperis of Freeman Law @FreemanLaw_PLLC in Frisco

6. DOL Guidance on Electronic Posting of Federally-Required Notices – Michael E. Brewer, Caroline B. Burnett, and Emily Harbison, and Autumn Sharp of Baker & McKenzie LLP @bakermckenzie in Houston

5. Lyle v. Midway Solar: Solar farm meets accommodation doctrine – John McFarland @TXOilGasLawPro of Graves Dougherty Hearon & Moody in Austin

4. Renewable Energy Tax Credits Extended by New COVID Relief Law – Charles Sartain and Joshua D. Smeltzer of Gray Reed & McGraw, P.C. @GrayReedLaw in Dallas

3. Fourth Circuit Speaks: To Be “Qualified” Under the ADA, Disabled Employee Must Comply with Valid Safety Requirements – John P. Phillips and Linda Schoonmaker of Seyfarth Shaw LLP @seyfarthshawLLP in Houston

2. Common Misconceptions About the Settlement Communications Rule – Zach Wolfe @zachwolfelaw of Fleckman & McGlynn, PLLC in The Woodlands

1. A Flowing Statement of Facts – Wayne Schiess, Senior Lecturer, The University of Texas School of Law @UTexasLaw in Austin

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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Thursday, January 7, 2021

On-Line Retailers and Remote Sellers: Sales and Use Taxes

Originally published by George W. Rendziperis.

The Supreme Court of the United States’ decision in Wayfair, in June 2018, changed the landscape for sales and use taxes nexus for on-line retailers and remote sellers.  Due to budgetary deficits the states are facing due to the downturn in the economy and the Covid-19 Pandemic, states will increase audit activity to raise money.  Companies must be prepared and be proactive in order to avoid or reduce any state tax assessments.

The Wayfair decision lowered the bar in which a company has nexus with a state.   Prior to Wayfair, a company needed a physical presence in the state to be required to collect and remit sales and use taxes.  After Wayfair, states now require an economic presence, generally based on a threshold of sales into the state to create nexus with the state.  Please note, even if a company does not meet the economic thresholds for sales or transactions, as the case may be, but has a physical presence in the state, then the company has nexus with the state because of the physical presence and must register for sales and use taxes in such state.

As a result of the Wayfair decision, all states that impose a sales and use tax, except Florida and Missouri, have adopted an economic nexus standard.  The economic threshold for each state is reflected below. Note that Alaska, Delaware, New Hampshire, Oregon, and Montana do not impose a state sales and use tax.

There are a lot of questions regarding the thresholds amounts by each state.  For example, are all sales counted, gross sales, or just taxable sales?  Do I include sales in which the product is being resold by my customer?   Do I include sales of my product that are made through marketplace facilitators or just direct sales to customers?

States have different meanings on what sales are included in the thresholds.  Freeman Law can help taxpayers navigate state tax laws.  We provide value-driven services and provide practical solutions to complex issues.  If you have any questions, please contact George Rendziperis at 512-663-0132 or George@freemanlaw.com.

State-By-State Economic Nexus Thresholds

States Economic Thresholds
Alabama Remote Sellers and Marketplace Facilitators

$250,000

 

Arizona Remote Sellers

$200,000 (2019); $150,000 (2020);

$100,000 (2021)

 

Marketplace Facilitators

$100,000

Arkansas Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

 

California Remote Sellers and Markplace Facilitators

$500,000

Colorado Remote Sellers and Markplace Facilitators

$100,000

Connecticut Remote Sellers

$100,000 and 200 transactions

 

Marketplace Facilitators

$250,000

District of Columbia Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Florida N/A
Georgia Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Hawaii Remote Sellers and Markplace Faciliators

$100,000 or 200 Transactions

Idaho Remote Sellers and Markplace Faciliators

$100,000

Illinois Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Indiana Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Iowa Remote Sellers and Marketplace Facilitators

$100,000

Kansas No Minimum Thresholds
Kentucky Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Louisiana Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Maine Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Maryland Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Massachusetts Remote Sellers and Marketplace Facilitators

$100,000

Michigan Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Minnesota Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Mississippi Remote Sellers and Marketplace Facilitators

$250,000

Missouri N/A
Nebraska Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Nevada Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

New Jersey Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

New Mexico Remote Sellers and Marketplace Facilitators

$100,000

New York Remote Sellers and Marketplace Facilitators

$500,000 and 100 Transactions

North Carolina Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

North Dakota Remote Sellers and Marketplace Facilitators

$100,000

Ohio Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Oklahoma Remote Sellers and Marketplace Facilitators

$100,000

Pennsylvania Remote Sellers and Marketplace Facilitators

$100,000

Rhode Island Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

South Carolina Remote Sellers and Marketplace Facilitators

$100,000

South Dakota Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Tennessee Remote Sellers and Marketplace Facilitators

$100,000

Texas Remote Sellers and Marketplace Facilitators

$500,000

Utah Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Vermont Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Virginia Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Washington Remote Sellers and Marketplace Facilitators

$100,000

West Virginia Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Wisconsin Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

Wyoming Remote Sellers and Marketplace Facilitators

$100,000 or 200 Transactions

The post ON-LINE RETAILERS AND REMOTE SELLERS: SALES AND USE TAXES appeared first on Freeman Law.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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Lawyers: Five Questions to Answer About Your Target Market

Originally published by Cordell Parvin.

This year I am posting some activities I did with the lawyers I coached. Here are five.

In order to create an effective business/marketing plan you have to know who is your target market. Who is it that you want to hire you and your firm?

Who is your target market?
______________________________________________________________________
______________________________________________________________________

What do you want your target market to hire you and your firm to do?
______________________________________________________________________
______________________________________________________________________

How can you become more visible and credible to your target market?
______________________________________________________________________
______________________________________________________________________

What organizations does your target market belong to?
______________________________________________________________________
______________________________________________________________________

Who influences your target market?
______________________________________________________________________
______________________________________________________________________

The post Lawyers: Five Questions to Answer About Your Target Market appeared first on Cordell Parvin Blog.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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From the Texas Supreme Court to the Fifth Circuit: Judge Don Willett

Originally published by D. Todd Smith.

TALP 45 | Fifth Circuit

 

Growing up in meager circumstances, Judge Don Willett never imagined he would serve as the Tweeter Laureate of Texas or, more notably, as a justice on the Texas Supreme Court and now on the Fifth Circuit Court of Appeals. Judge Willett credits his rise to the work ethic and sacrifices of his mother—a widow who worked long hours as a waitress to support him. Judge Willett applied that work ethic in both legal and policy jobs that put him on the path to the bench. In this week’s episode, Judge Willett talks with Todd Smith and Jody Sanders about his career path, his judicial approach, and even font choices. He also shares some of the most memorable experiences he has had in his varied and fruitful career.

—

Listen to the podcast here:

From the Texas Supreme Court to the Fifth Circuit | Judge Don Willett

We are ringing in the New Year in a very special way with a special guest Judge Don Willett from the Fifth Circuit Court of Appeals. Welcome to the show, Judge.

Thanks, guys. I’m honored to join you.

The folks who are familiar with Texas appellate practice will certainly know you. We do have people who are reading who are not from Texas. Let’s talk a little about your background and how you got to where you are now.

I’ve definitely had a roundabout in the uncommon zig-zag journey to my current job. I understand full well, I’m the beneficiary of a lot of divine happenstance and a lot of serendipity. I think because of that, it is what has driven me, spurred me to devote my life to public service just as a way to express gratitude for these improbable privileges and advantages I’ve been given. I was born in Dallas to an unwed teen mom. I’m born sickly and frail, frankly, not expected to make it, at least not much beyond Christmas. I was adopted by my mom and dad, neither of whom finished high school. Both my mom and my dad had dropped out of high school to help support their families to work and try to provide. They nursed me back to health and my father then passed away when I was six years old. I was about to begin first grade.

My father was 40 and died of a heart attack or a series of heart attacks. My friends, hearing how young my father was when he passed away and they say, “Have you gotten checked out? How’s your health?” I’m adopted and I’m this biological, medical, now it’s a jurisprudential mystery, which makes it easy when I fill out medical forms. It saves a lot of time, but I don’t have the foggiest idea about my medical or biological background. He passed away at age 40. My mom was about the same age and she too did not finish high school. She was a waitress her whole life. She worked her heart out pouring coffee and serving people. She was a waitress for 55 years, mostly at the local truck stop along the interstate in Forney, Texas.

After my father died, we moved into this drafty double-wide trailer out in the country in Talty, Texas, which had a whopping population of 32 people. I joked that it was small that our town’s square had only three sides to it. Our ZIP code began with the decimal. It was pretty tiny. I grew up surrounded by cotton and cattle out in the country and rode the rickety school bus to neighboring Forney, Texas, which had slightly more population. It was probably the nearest bigger small town. I was a Forney Jackrabbit, class of ’84. I grew up, again, out in the country, middle of nowhere with just my mom, my sister and me. My mom’s the majestic hero of this story. She couldn’t help me a lot with academic stuff growing up but in terms of embodying these incredible virtues, these uncommon attributes of grit, tenacity, and fortitude, she was my exemplar.

I had my formal investiture on my former court, the Texas Supreme Court. I joined that court August of ’05. We had the investiture on November 21st of that year. We chose that date on purpose because it was my mom’s 75th birthday. We wanted to pay a tribute to her, to this life of tenacity, sacrifice and selflessness that she had given to my sister and me. She just didn’t want a lot of heroic moms do. She hunkered down and worked her heart out to support my sister, Donna, and myself. At that investiture ceremony, I wanted to pay special tribute to her. I did some research and I found a website that will estimate the number of miles that people walk every day in different occupations.

You can imagine a letter carrier, really high. A waitress, unbelievably high. I did my quick lawyer math and I thought, “Fifty-five years, but often working a couple of jobs, sometimes three in many weeks for seven days.” I was astonished when I got to be the arithmetic bottom line of all that and discovered that my mom had worked for more than 50 years and had walked about 250,000 miles, which is hard to wrap our mortal noggins around. In Texas terms, imagine there’s a map of Texas behind me, put your finger in the corner of the panhandle and trace the border of the Lone Star State about 80, 85 times. Every working year of her life, she made a complete trip and a half around the Lone Star State.

I’d tell people, “It was cliché and sappy, I know, but every step she took brought this grateful son one step closer to this unfathomable gift. I have to do what I do all these advantages I have.” She passed away a couple of years ago at age 87. Get this, after she spent 55 years waiting tables, she then became the clerk of the court for the Justice of the Peace in Forney, Texas in my little rink small town. I found her little plastic nameplate that said, “Doris Willett, Court clerk.” I have it over here. I’ve got a snappy brass. It used to go on the door of my chambers downtown. I have her little plastic engraved court clerk desk plaque next to my Don R. Willett United States Circuit Judge brass plaque. I then found the oath that she took to be the court clerk for the JP in Forney. I was astonished when I came across it. I have her little oath of office as court clerk to the JP. I have it taped to the back of my presidential commission for my federal circuit judgeship. She was a remarkable woman. I found also some old financial aid forms from college and her income tax returns. She was making $11,000, $12,000, $13,000 a year waiting tables. I owe her everything.

TALP 45 | Fifth Circuit

Fifth Circuit: Employment and labor law was real flesh and blood practice and the issues it dealt with were always provocative and interesting.

 

To come from those beginnings to where you are now, it’s quite incredible. I enjoy hearing you talk with such reverence about your mother and how she contributed to your success in life. No doubt it ingrained the work ethic in you. How do you not pick up a work ethic watching someone go through day in, day out working like that?

She never finished high school, but she had a PhD in grit and tenacity. She lived with a lot of exuberance and she loved a lot of extravagances. She was famously opinionated and she was always caffeinated. She was sweet with the side of zest. She’s remarkable. She was a force of nature and she was a category five combination of sass and dynamism.

You mentioned how the blessings that you’ve received propelled you or instigated in you a desire to participate in public service. You’ve obviously done that in your career. You mentioned your career at the Texas Supreme Court, which I’m sure we’ll get into in some more detail, as well as your current bench. Before you went on the Supreme Court, you had quite a career in public service as well. You worked in the governor’s office and you’ve had some other posts in public service as well.

I came out of law school in ’92 and then I came to Austin to the clerk on the court I now serve on. I was a clerk to Jerre S. Williams who I believe was the last Carter appointee to the circuit. Judge Williams, before that, was a law professor at UT for about 30 years. Widely universally respected. Everybody loved Judge Williams. Unfortunately, health had taken a negative turn, he was sick and fairly frail during my clerkship. He ended up passing away shortly after I wrapped up my clerkship in ’93. I had law firm offers when I did my clerkship in Dallas, but I didn’t know where I wanted to be. I was fairly directionless. I did a joint degree program at Duke. I got my Law degree and I got a graduate Political Science degree.

That Poli Sci degree soaked up a lot of my elective hours. When I graduated, I had no idea what type of law I wanted to practice. Clerking was a beneficial, useful buffet almost for me and everything we handled at the circuit was in the context of litigation. It was a useful gap year, but it helped me get my head on straight and sharpened some things for me. I ended up staying in Austin and I went to Haynes and Boone, which had an outpost here. I practiced employment and labor law, which I thought was interesting because it wasn’t company A suing company B over some deal that blew up. It was a real flesh and blood practice. The issues and the facts were always so provocative and interesting.

You’ll find words in the index of an Employment Law of Deposition that you often just won’t find in a commercial litigation context. The psychological layers run very deep and it’s a key part of people’s identity. You’ll meet somebody new and you’re like, “What’s your name? What do you do? How do you spend your time?” It’s a real key ingredient to how people see themselves. It was a fascinating field of law. The firm was good about indulging my off-the-clock interest in government and public policy. You don’t have a lot of spare time as a young lawyer at a large revenue-generating law firm, but they were good about indulging my interest in government.

Off the clock, I did some think tank writing and research. I did a lot of pro bono litigation for nonprofit legal foundations, and frankly, it was all of that off the clock non-billable extracurricular work that put me onto the radar of Governor Bush’s office. I’d been at the firm for maybe 2.5 years and then got this expected invitation to come to join Governor Bush’s staff as a utility infielder. Everybody in the policy shop where I was, we were the governor’s think tank, his idea factory. Everybody had their own narrow specialty except for me. I got to be more of a generalist and I feel like the hot grounder du jour.

I could be working on an education issue at 8:00 or a criminal justice matter at 8:30 and economic development matter at 8:45. It was a new adventure from email to email. I worked for Governor Bush for about four years in the governor’s office then went to the 2000 campaign and did my tour of duty there. I went to Florida for a spell in their great recount war as of 2000 and then off to DC and worked on the transition. I worked in the White House for a year. I went over to the Justice Department and was the deputy in the Office of Legal Policy, which is the administration’s legal think tank.

All the civil and criminal justice policy initiatives are born and nurtured within OLP. It is the epicenter for this Armageddon scale judicial selection and confirmation battles. I worked there a lot on interviewing potential federal judges both district court and appellate court level and helping shepherd these limelight nominees through this toxic and vile process. My wife and I got married in 2000 about three weeks before Election Day. She worked in the White House for both years, helping to run the White House Fellows program. She traveled all over the world as part of that. A few months before 9/11, she was leading this White House delegation through Pakistan and India.

TALP 45 | Fifth Circuit

Fifth Circuit: The thrill and joy that go with working in the Texas Supreme Court can never be overstated.

 

At that point, the regional terrorist Osama bin Laden was tracking the movements of her White House group. That was only 3 or 4 months before 9/11. We were there during historic times. We’re there on that horrific day. We saw a lot of history there on our time in DC. We got to go to Tee Ball games on the South Lawn of the White House. We got to sit in the president’s box at the Kennedy Center, which was awesome, fireworks on the 4th of July. We were not going to come down with Potomac fever. We were not going to become enchanted by all the trappings of DC life.

We were there, we served about a two-year hitch and I had a long-term judicial aspiration that was not getting remotely propelled further too long, the longer that you lingered in Washington. We were a part of the early wave of people returning home to Texas. We got back in early ’03. Greg Abbott was then newly elected as Attorney General and he was assembling his executive team. I came back as his Chief Legal Counsel. I was the Deputy Attorney General for Legal Counsel. I was at this never dull intersection of law, policy, politics and at his elbow for every major legal issue confronting the state. That’s the most fun, nonjudicial legal job I’ve ever had. I was there for about 2.5 years. Governor Perry appointed me to replace Priscilla Owen on the Supreme Court and then was there for about 12.5 years until I joined my current court. I’ve worn a lot of legal hats, but I think judging fits me best. I’m metabolically engineered, sort of hardwired for this cloistered, contemplated, monastic and nerdy life of appellate judging.

What are some of your favorite memories or cases at the Supreme Court? You were one of the longest-serving judges and recent memory at the Supreme Court.

You guys know this, but from ’01 to ’05, there were ten new faces on that court. That revolving door was spending at work speed and people would lose an election and they would go into private life. They would run for some other non-judicial elected office. Incredible turnover from ’01 to ’05. I was the 10th of 10 when I joined in August of ’05 and then the court entered this four-year period of continuity and stability. I then became the longest-serving number nine in Supreme Court history. I was the court caboose longer than anybody had been chairing the heroic coffee committee and all that. Judge Brown bested my record by a few months but that was a ball.

I have such a fondness and affection for that court, which is the intellectually muscular high court, perhaps the leading such court in the country in my book. I know for the clerks who were there, the clerks attended a conference at my former court. They sit around the perimeter and have this unmatched front row seat into judicial decision-making. They’re there with this bird’s-eye view. Sometimes they’ll muster the courage to stand up and chime in or maybe they’re called on by their judge or by another judge on the court to chime in which is initially petrifying for them. I loved my service on my former court and thought I would be a lifer there until the stars aligned for my service here. A couple of favorite cases, there’s one that would be under the infamy category.

As you both know, your readers may not know, but at my former court, authorship is purely random. It is completely literally the luck of the draw. About 1, 2, or 3 months before oral argument, our den mother at the court, Nadine, she will fan out the names of these cases that she has written on these 3×5 blue index cards. She’ll write the names, one case per card, and then she’ll span them out like a magician playing a card trick. Beginning with the junior-most member of the court, you pick a card and you use the Force, and some days the Force is with you and other days not. One day the force was not with me. I picked the card and Strickland v. Medlen, which is our infamous dog case.

It’s about what damages can that grieving, bereaved dog owner recover when their pet is accidentally destroyed? In this case, poor Avery was negligently euthanized at the shelter. Avery’s heartbroken family was suing the shelter and a shelter employee for wrongful death type damages for emotional attachment, pain and suffering, loss of companionship. That stuff you would seek if a spouse or a child had passed away. The decision was nine to nothing but I drew the card and Strickland v. Medlen and had to write the opinion, which I wrote myself. For better or worse, every word of that opinion I wrote from scratch. It went through a conference one time and it was unanimously agreed to. I began writing it before the argument, because the draw happens pre-argument as well, which surprises a lot of people.

As an advocate, you’re there at the podium. Somebody up there has already been assigned authorship of your opinion. I began writing that one pre-argument because I had a pretty strong suspicion of how the court was likely to come out. Also, that case was unique. Your readers might appreciate this. The value of amicus briefs in that case was special. We got a lot of Amicus briefs and from a lot of animal-loving pet welfare organizations. As a matter of their love and compassion for our furry friends, you would think would lead them to favor greater recovery for loss of companionship and sentimental value. They urged us to come out exactly the way we did.

We had, for example, a group of veterinarians. We had the American Kennel Club, we had the Cat Fanciers organization. They all urged us to come out exactly the way we did and not allow that recovery for emotional damages. The reason is, for example, the veterinarian said, “We’re going to have to then ensure against these high dollar judgments. We’re going to have to pass along the cost of that higher malpractice coverage to our clients. If it used to cost this much to have your pet examined, it may now cost this much. If the cost of pet care spikes, we’ll have to pass it on. The net result of that, it may cause animals more harm than good because if a pet is now injured and if it costs a lot more to have that pet examined, owners may be more apt to maybe abandon a pet, sadly, and maybe cheaper to put a pet down rather than have it treated. If you’re backing out of your driveway, just think about your insurance rates, your homeowner’s rates. Your neighbor’s cat runs by you. You run over your neighbor’s cat and now you’re sued for a million-plus because that cat meant everything to your neighbor.” The value of amicus briefs, in that case, was beneficial. Helping the court to see beyond the litigants in front of us to see the society-wide ripple effects. It struck us as a quintessential policy judgment because Texans, we’re fond of all critters.


Authorship in the Texas Supreme Court is purely random. Some days the Force is with you and other days it’s not.
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In Tennessee, they’ve passed a statute. They had hearings, they crafted legislative language to limit those cases to domesticated dogs and cats. No boa constrictors, no gerbils, no tarantulas, none of that. They put a cap on it at $10,000. They struck me as the right way to do it because it seemed to be judicial policymaking for us to draw all these lines as if we were freewheeling, common law judges imposing our own personal sense of justice and fairness. Strickland v. Medlen and that one went viral internationally because it’s easy for people to relate to. My infamous eyebrow threading case and several. It was a rollicking docket. I’m a lot different than my current docket. Maybe we can get into differences between my former court and my current court, but I cannot overstate what a thrill it was to work on my former court. It was an absolute joy.

It’s funny you bring up the Strickland case because Justice Boyd was our first guest. When we asked him about memorable cases, he brought that case up because he had asked a question that got him some hate mail from cat lovers. He brought that up too.

I remember it well.

The lesson he gave on that was, you be careful what questions you ask at oral argument, because the way he asked his question, it gave off the impression wrongly to some people that he hated cats.

We were on opposite sides of the bench. As soon as I heard it, I thought, “He’s going to hear about that one later.”

It’s funny that you bring that one up, but also you mentioned Patel, the eyebrow threading case. We don’t talk cases all that much on this show. At least we haven’t, but that could change eventually. Those seem to be the two most discussed cases. This will be episode 45. It’s interesting that there’s a theme that’s come through the cases that have made the most impact and you wrote the majority opinion in Strickland and then that was concurrently quite an interesting case in and of itself.

Phil Johnson drew the card in Patel and drew the majority assignment, which was best for everybody. If I draw on it and written anything like my fire-breathing concurrence that I wrote, I might not have had the desire, or I’m going to have landed a bit differently as a majority than it did as a concurrence. In the grand scheme, it’s best that Phil Johnson drew that majority assignment. My book about Patel, like Strickland, is one that again, for better or for worse, I wrote every word of myself. Patel lingered at the court a long time. The petition was there for a long time and there’s some court composition I believe changed along the way.

We finally mustered four votes to grant the petition. Even then, I had no idea how it was going to turn out. I really didn’t. What’s interesting is this is just in the weeds nerdy statistics matter, but that is the only case over the previous I don’t know how many years were in a divided judgment where Paul Green and Nathan Hecht were on different sides. I forget going back how many years, but if there was a divided judgment at my former court, Justice Hecht and Justice Green was always together, but Patel is the one and the only example of them parting company.

You mentioned writing both of those yourself. You told me in another setting once that you knew that at least one of those cases was going to be a major part of your judicial legacy. You didn’t want to leave the drafting to your law clerk or staff attorney.

TALP 45 | Fifth Circuit

Fifth Circuit: It is best to hire clerks who have the intellectual horsepower to help you generate the bread and butter work that you do at a high level of legal sophistication.

 

That’s true. I usually try to give them first crack at drafting a majority opinion, and then I’d take it and revise the heck out of it. Often the final product may not bear much resemblance to what they initially gave me. Sometimes it does but I’ve got this irresistible inclination to fuss with and revised. I knew that both Strickland v. Medlen, the dog case, and Patel, the eyebrow threading case, I knew would be part of my judicial legacy. I wanted to speak in my own voice and put it the way I wanted to put it. On my former court, there were eight other very smart, willful opinionated people that you had to persuade.

I thought it was best for me from scratch from a blank screen on my laptop to just write it all myself the way I wanted to write it. There are others, especially separate writings. I’m more apt to just write myself when you’re speaking in your own voice and not on behalf of colleagues. You have a bit more leash and stylistic license to put things the way you want to put them without having to play, Mother, May I with a lot of other folks. Separate writings, I’m more apt to just write on my own from scratch. On majority, I try to get my clerks to put together a sharp, thoughtful draft that they would be satisfied going out.

I don’t want to see it unless they are incredibly satisfied with the quality of that product that it’s the most penetrating analysis they can muster. In my chamber, every clerk carefully kicks the tires on every draft of all their code clerks before I see it. I don’t want to see it until it’s gone through that rigorous review. The talent level here in my chambers is unreal. These are exceptional lawyers and very few of mine come straight from law school. Of my current four, the next four I have hired, the next four I’ve already hired and the two that I’ve hired beyond that.

Of those fourteen, only one of them is coming straight from law school and all the rest have some seasoning, some other legal experience either maybe in private law practice, maybe a federal district court clerkship. Maybe a Texas Supreme Court clerkship, maybe a fellowship in the Solicitor General’s Office, the Coleman Fellowship or another SGs office, or some combination of all of those. By the time they show up on my doorstep, they’ve got a little more seasoning and they’re a little bit better-rounded. Their legal work is a little sharper and refined than coming here straight from school though. I have colleagues who will only hire people straight from school because maybe they don’t want them to be philosophically corrupted by the wide world or something.

They want them as a wet play that they can mold and shape but the talent level is unbelievable. These are exceptional young lawyers who take a year out and come and work alongside me. I’m proud of the day job work I do and the written stuff that I work hard at, but my law clerks are my proudest judicial legacy and it’s fun to follow them over the future generations. Clerking for me is not a one and done proposition. It is lifelong of mentorship and friendship. I hire people that I want to root for. For me, it’s not a matter of hiring, “Unfinished number one. Who has the most platinum resume?” They all have platinum resumes. Their grades, the objective stuff is incredibly impressive, but there are a lot of those. For me, clerk selection is more art than science. I want to hire people certainly who have the intellectual horsepower to do the work to help me generate the bread and butter work that we do at a high level of legal sophistication. Also, I want to hire people who are going to enjoy working closely alongside who I can cheer and root for over the course of their career.

It is helpful to hear how you use your clerks. Even now, we’ve had the privilege of hearing from some of your colleagues on both courts about that. That’s always useful information to have. I do want to get into comparing and contrasting the Supreme Court and the Fifth Circuit, but what can you tell us about your transition to the Fifth Circuit? You mentioned being an OLP and being on that end of the process. It sounds like you got to see it from the nominee side, which I’m sure was extremely interesting, but probably cloistered.

Interesting is a G-rated word for that. It is interesting because I interviewed and helped select a lot of folks that once I got onto the circuit, I would review their work or serve alongside them. I knew full well having had that front row vantage point working within the justice department, interviewing a lot of prospective judges, and helping shepherd them through the gauntlet, I knew what to expect. I knew it was a hurly-burly toxic and odious process. I told my wife that when all this began, “This is not a process to be enjoyed. It’s a process to be endured. You just curl up and endure the flogging and hope that you come out safely on the other side.”

One beneficial aspect of my zigzag professional background working in different branches of government on the state and federal level, it equipped me. It helped me understand that “I know judging, I know policymaking and I know the difference and that judging according to the rule of law is a sacred trust.” Moving from my former court to my current court, my title, it’s changed from justice to judge, but my task hasn’t and my judicial toolkit is the same. It’s fundamentally a job about language, about reading, researching and writing.

I’m always trying to refine and sharpen my judicial skillset. I went back a few years ago and got an LLM, a graduate Law degree in Judicial Studies at Duke where I’d gone to law school ages ago. Just because I’ve got this insatiable appetite for learning and want to always sharpen and refine how I do what I do to up my game. I’ve been a lawyer now for a little more than half my life. I’ve been a judge now for a little more than half my lawyer life, which is hard to imagine. Now, I’m ending my career by returning to the court where I began my career many years ago. Initially, I was office seated right next door to the office where I clerked. I remember walking in there one day and it was like, I’d stepped into a time machine and here I was many years later back where I began. It’s an indescribable privilege to do what I do.


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What are some differences in your role now on the Fifth Circuit versus when you’re on the Texas Supreme Court?

They are abundant. Certainly, I don’t have to run for office anymore. Parts of that I miss. I do. I have not cracked the code on the perfect judicial selection process. I’ve gotten very up close and personal with all the drawbacks to the way that we do it in Texas. I’m intimately acquainted with all the negative aspects of it, but I loved the meeting people part. I love the interpersonal part. I love the civic education part of it, acquainting people with the indispensable work of the courts and demystifying and humanizing that inscrutable branch of government. I do not miss this part. For your readers, I’m holding out my hand. I don’t miss the money-raising part at all. I was good at it, but I didn’t enjoy it. It’s very inelegant, a little crass, and undignified. I’m glad to have all that in my rearview mirror.

As a down-ballot obscure judicial character politically, you’re along for the ride and there’s not a lot you can do to buck the prevailing political mood or current. In Texas, you run on a partisan ballot and if your party is having an up year, then you’re in good shape. If they’re not, then well onto you, but you’re along for the ride and you can be a flawless candidate running a flawless campaign and wind up a loser if your party is not having a good year. The opposite is true too. You can be a lousy candidate, unqualified, inept, run a loony campaign, and find yourself victorious.

If your party is having an up year, a lot of voters, they go into the booth and it’s party-specific or it’s eeny, meeny, miny, moe, and they get to the judges. I’m glad that I’m no longer in a position where my own professional fate and future is tethered, tied, and dependent on the prevailing political mood or current. The election stuff is totally behind me, which I’m glad for. I miss my discretionary docket. I miss picking and choosing. I miss deciding what I want to decide. The volume and the velocity at my current court are next level. They are extraordinary. The conveyor belt never stops. It is truly like Lucy and Ethel in the chocolate factory. It has never ended. It is relentless. I miss also being the final word.

My former court, we were a court of last resort. Every case we heard as an en banc court, which gave a satisfying measure of finale and conclusiveness to it. You sat with the same eight familiar faces on every case and you all office down the hall from each other, you see each other a lot. In my current court, I sit with two different colleagues every sitting, every month but we’re geographically scattered and were ideologically a little more scattered. The philosophical spectrum at my current court is a lot wider than at my former court. Every three-judge panel has some distinctive flavor and personality.

The way cases are divvied up is a lot different here. The presiding judge on the panel will assign authorship at the end of that sitting, as opposed to that egalitarian luck of the draw system we had at my former court. Maybe a little more isolated and cloistered here than at my former job. Most days I just see the other five people that I work with and nobody else. The makeup of the docket is radically different. My former court was, as you and your readers know, a civil-only court. The makeup of the docket was a lot different, maybe a smidgen more criminal than civil. We still get our state law eerie guest cases, which are fun. That docket makeup and was a lot different and it’s fun too. They sink my teeth into some meaty, weighty, federal questions. Over the years. I’d reviewed a lot of insurance policies and a lot of oil and gas contracts. Those cases are important, inconsequential, and fun. It’s fun and fresh to sink my teeth into a new batch of weighty federal questions. It’s been exhausting, but also exhilarating.

Did you have to get a Louisiana law dictionary to decode some of the stuff that comes up in those cases?

Those are different vocabulary, for sure.

Prescription and what else?

TALP 45 | Fifth Circuit

Fifth Circuit: You can be a lousy candidate, unqualified, inept, run a loony campaign, and still find yourself victorious if your party is having an up year.

 

The terminology.

You also do have the unique ability and in appropriate cases to essentially refer questions back to your former colleagues. I’ve seen one such case in the news with let’s say an example of a witty Don Willet footnote. The words were, “No pressure.”

When I got to my former court because of all that turnover, we talked about ten new faces in five years, there was an enormous backlog at the court, which you all may remember. The turnover contributed to that backlog because people would leave the court and all their cases would get reassigned or divvied up among their remaining colleagues and then somebody else would leave the court. When I got to the court, I don’t remember the number, but there were several dozen, maybe as many as 70 or so cases that had been held over from not only from the previous term but in many cases maybe even the previous term.

There was a rule at my court at that point where if you were a tardy on circulating a certain number of drafts. If more than X number of drafts were untimely or tardy, you couldn’t draw any more new cases and you were in the box, as they say. When I got to the court, I had more than a few colleagues who were in the box. I’m brand new at the court. Judge Ellen, bless her, had taken all of her staff with her to the Fifth Circuit. I began totally solo and on my own, not a single support person at all. I walked into my office on day one. It was this empty, largely furniture-less, echo-filled office.

I had to hire my staff brick by brick, person by person. I’m drawing, I’m being assigned roughly a third of all the cases at the court because a bunch of my colleagues is in the box and unable to draw new cases, given the backlog. I’m also the only one on the court who has a contested election. I had a contested primary looming in March and I was appointed to the court in late August. I’ve got a primary in the near term. I have no staff support and in the meanwhile, I’m drawing like a third of all the new appendant assignments at the court. It was a perfect storm.

I’m sure my former colleagues are tired of me bellyaching about this, but it’s an enormous source of pride that we were never late on anything in my 12.5 years on my former court. The Willett chambers was never a day late on circulating the best memo and opinion draft or whatever, but it was relentless from the early going. It was rough because you’re a candidate 24 hours a day, but you’re also trying to keep your head above water with your day job. On the campaign side, job one is keeping your job. It was a hotly contested primary, which I won by a gratuitous one-point margin. You had to work your tail off. It’s not for the faint-hearted and you had to tackle it with gusto, but I also wanted to be dutiful and conscientious in my day job and produce high-quality timely work. Those were the days.

It would be malpractice on our part if we didn’t ask you a little bit about Twitter because a lot of our readers know you well from Twitter. Can you tell us how you got into that? You were one of the first judicial adopters of getting on Twitter.

I began using it as judicial communication, a political communications tool. Judges are elected in 39 or so states including the Lone Star State, but Americans increasingly consume information online. Social media, I thought, was a fruitful way for the judiciary to engage citizens. When I first ran for the court in ’06, social media was maybe not completely non-existent, but nowhere near as ubiquitous as it is now. By the time I ran for reelection in 2012, it was a lot more prevalent and pervasive throughout the political world. As Texas Supreme Court justice, you got to hopscotch across 254 counties trying to tattoo your name onto the noggin of millions of voters.

You got to find creative ways to raise visibility and boost awareness. Twitter and Facebook and all that seemed to be low cost, but potentially high yield ways to remove distance and also rally the support of key influencers and supporters, opinion leaders. Things ricochet in potentially fruitful ways online. Especially if you have a contested primary, which I did in both of my elections, if you can win the hearts and minds of key influencers and opinion leaders who in turn command vast, large follower ships, then it is political malpractice not to engage people smartly via social media. It began as a political communications tool over time.


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It became my primary news feed and the best way for me to stay abreast of all the warp speed happenings in the world. It’s to enjoy the musings of smart, fascinating people from across the spectrum. For me, Twitter’s a neat one-stop compilation of smart, incisive viewpoints on every imaginable topic from a riveting cross-section of people. For a while, I was the most avid social media using judge in America, which I joke is like being the tallest munchkin in Oz or the most popular kid in chess club or whatever. It’s a low bar, like subterranean low. People were genuinely amazed that a fuddy-duddy nerdy judge can be somewhat ordinary, somewhat engaging, somewhat approachable.

My geekery is on an uber elite level. It’s rare for a judge to step out from behind the bench, demystify and humanize things. We do inhabit this age of staggering civic illiteracy. I also thought it was a neat way to acquaint people with the judiciary, with the work of the courts and try to boost our collective national civic side cue. I miss it a lot. It did require a lot of care and feeding, a lot of energy and I’m glad it’s a burden lifted not to have to devote energy and attention to it. I’m still on. I’m still working. It’s still how I consume information.

I accidentally retweeted something and I live in a perpetual terror that I’m going to make a stray swipe with a finger, like a careless finger grazing my screen. Sure enough and out of all the people I could have accidentally retweeted, it was so appropriate. I retweeted Raffi, the Dean of Appellate Twitter. Raffi had been giving people tips on Zoom oral argument. I was reading it through his thread and I accidentally along the way wound up retweeting it. All these notifications are popping up, “He’s back.” I’m like, “What did I do?” I get on my phone and I find out that I’d retweeted Raffi and I undid it. My heart just skipped a beat. It was momentarily terrifying.

I think you’re underselling yourself just a little, Judge. First of all, you’re not the only person on Twitter with the title. You mentioned Raffi being the Dean of Appellate Twitter, but you are the official or at one point were the official Twitter Laureate of Texas, which came by, if I recall, legislative proclamation. For a judge who’s no longer active on Twitter, I just checked in your follower count is up to 96,000. I was thinking back in the day when you were active, it was about 25,000. It seems like your follower numbers have increased.

My high water mark was around 120,000 or 125,000. When my nomination happened, I was instructed not to delete my account or any of that stuff. Some people who go into federal office, they totally scrapped their account. By Jeff Brown’s account, it’s gone. Lost to the mist of time, but mine is still up there. It’s a historical archive, for better or worse. Once the nomination happened, I went dark. You may not remember this, but then after confirmation happened, but before I took my federal oath, there was about a 3 or 4-week window. I was out of the danger zone. I was confirmed, but I hadn’t taken my federal oath yet. I returned to Twitter for a final three-week little victory lap or last hurrah.

I still see my tweets retweeted sometimes. There are people who have a Timehop type feature that’ll show what I tweeted on that day, a few years ago. I’ll still see stuff retweeted and see a weird unexplainable burst of followers that appears out of the blue. My high water mark was 120,000, 125,000, and every day that I’m inactive, every day that I’m dormant, I just hemorrhage followers. I probably lose 50 or so followers a day. It is funny though, you mentioned the certified question case in my footnote, no pressure on my former colleagues. After Judge Owen left my former court and went to the circuit, people noted an uptick in the number of certified questions that were coming back to the Supreme Court. This is maybe the 2nd or 3rd one that I voted to send to my former court, but people were making jovial fun at the footnote that I was trying to find some outlet for my pent up, itchy Twitter fingers.

The opinion did get some traction. They’re writing to get some traction on Twitter. You’re indirectly out there.

I did want to commend my former colleagues. There was that window when the backlog had existed and the court, over the years, diligently and dutifully chipped away at the backlog. For several years running, they’ve decided every argued case by the end of the term and to their immense credit. They’ve been very conscientious, burned a lot of midnight oil, and worked hard to achieve that. I thought they deserved a well-earned little commendation.

You’ve been very gracious with your time, Judge. We appreciate you coming on the show. We’re so happy to have you. Before we go, though, we’d like to ask each one of our guests to offer a tip or a war story at the conclusion of the episode, does something come to mind beyond some of the things that you’ve talked about? We’ve had 1 or 2 war stories in here, but maybe a good practice tip for the Fifth Circuit.

TALP 45 | Fifth Circuit

Fifth Circuit: If you can win the hearts and minds of key influencers and opinion leaders who in turn command really vast followings, then it really is political malpractice not to engage people smartly via social media.

 

There are a lot of great tips out there in terms of Zoom moral arguments. I don’t want to rehash them. Raffi had some great ones. There are a lot of articles out there about how to make the most virtual oral argument. I don’t want to rehash that stuff. One war story, and I won’t go into depth, but as you no doubt know, as your readers have noticed, there’s a new sheriff in town at the Fifth Circuit. We have our typography template. As soon after becoming chief judge, Chief Judge Owen appointed a five-member committee on typography and style to take a fresh look at the layout of our written opinions. It had been about a dozen years when the court last undertook that.

When I was on the court as a law clerk, we were using Courier, which is still used by the First Circuit. Courier gave way to Century Schoolbook about a dozen or so years later, give or take. That effort was led by Judge King at the time. A dozen or so years later took a fresh look at it with our committee ably chaired by my dear friend, Judge Elrod. We opted for this proprietary font Equity, which is beautiful. It’s elegant, authoritative, and uniquely designed for legal writing and judicial writing. There are some stories I could tell about the internal zig-zag journey that our template overhaul took. People are, by and large, pleased with the fresh and maybe more sophisticated look of our staff.

Our work is handiwork that deserves to be showcased in a form as elegantly as possible. It’s worthy of craftsmanship. Substance matters most obviously the rigor of the intellectual analysis, but style matters too. My work is too important and it should be showcased in the most sophisticated way possible. I wrote an article for The Advocate, which is the publication for the litigation section of the bar. If people can get online and maybe review that, it gives the story behind the story of the circuit’s adoption of our new typography template. We want our work to be substantively correct, but also stylistically elegant. We want the analysis to be watertight, but we want the style to be refined as well.

The only tip, I have, this may sound sappy or saccharin, but 2020 has packed a wallop on a lot of people professionally and personally. I’m sure we’re all familiar with friends or family who’ve endured a lot of sorrow and grief over the year. Their lives have been totally upended. We all know a lot of lawyers. Some are very satisfied and content with their professional lives, others less so. I know a lot of disenchanted lawyers. I hope that 2020 has been a time for all of us to reconnect, rejuvenate and recalibrate. I know for me, it was satisfying to open up my calendar and mark through trips, lectures, teaching, assignments, and conferences. It was a burden lifted to exhale and know that I could slow my pace and catch my breath. I would urge everyone, me included, as things maybe return to a measure of normality in 2021, to resist the allure of getting back on that treadmill at warp speed and to lavish attention on those who matter most in our lives.

That’s a great reminder.

Disclaimer: This transcript has not been proofread or edited to written-article standards. If you have any questions or see any discrepancies, please let us know by sending an email to hosts@texapplawpod.com.

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About Judge Don Willett

TALP 45 | Fifth Circuit

Judge Don Willett is a former justice on the Texas Supreme Court. In 2015, the Texas House of Representatives named him Tweeter Laureate of Texas. Since 2018, he has sat on the United States Court of Appeals for the Fifth Circuit.

 

 

 

 

 

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Starting a Business in Texas: Choice of Entity

Originally published by Matthew Roberts.

Business owners in the State of Texas face a lot of tough decisions.  Perhaps the most significant of these decisions is the choice of entity the business will utilize while conducting its operations.  Similar to many other states, the State of Texas offers its business owners and entrepreneurs several options.  This Insight provides a summary of the tax and non-tax implications of each potential entity.

Sole Proprietorship. 

It may surprise you to learn that starting a business in Texas sometimes does not require any formal organization paperwork at all.  For example, a business owner or entrepreneur may begin conducting business in Texas under his or her own name.[i]

Major advantages of operating as a sole proprietorship include ease of formation and management.  A major disadvantage of operating as a sole proprietor is that the sole proprietor is liable for all of the debts and obligations of the business.[ii]

For federal tax purposes, a sole proprietor’s business activities are reported on Schedule C, Profit or Loss from Business.  Accordingly, the sole proprietor’s business activities (income and losses) are reported directly on the sole proprietor’s individual income tax return.

Sole proprietors are not subject to Texas franchise tax.[iii]  See Tex. Tax Code § 171.0002(b)(1).

Limited Liability Companies. 

Limited liability companies (LLCs) are popular due to the flexibility and protections they afford to their investors (referred to as “members”).  A Texas limited liability company is formed through the filing of a certificate of formation with the Texas Secretary of State.  Its management may either be through its members or through manager-members.  See Tex. Bus. Org. Code § 101.251.

Unless the operating agreement states otherwise, members are limited in their total investment loss.  By statute, members of an LLC may incur losses only up to each individual member’s contribution to the LLC.  See Tex. Bus. Org. Code § 101.114.

Members also have some flexibility in determining the federal tax treatment of the LLC’s business activities. For example, a single-member LLC may choose to be treated as either a disregarded entity, an S corporation,[iv] or a C corporation.  Other LLCs with more than one member may choose to be treated for federal tax purposes as either a partnership, an S corporation, or a C corporation.

Limited liability companies are subject to Texas franchise tax.  See Tex. Tax Code § 171.0002(a).

Professional Limited Liability Companies. 

A professional limited liability company (PLLC) is an LLC that is formed for the purpose of providing professional services. Generally, professional services include personal services rendered by a dentist, attorney, physician, or veterinarian.

PLLCs are treated similarly to LLCs for state and federal tax purposes.  They are subject to Texas franchise tax.  See Tex. Tax Code § 171.0002(a).

Partnerships. 

General Partnerships. 

Similar to sole proprietorships, general partnerships may be created without filing any formal organization paperwork.  Indeed, all that is necessary in the State of Texas to form a general partnership is “an association of two or more persons [who] carry on a business for profit as owners[.]”  Tex. Bus. Org. Code § 152.051(b).  Sometimes general partnerships are formed even when the two partners do not recognize it as a general partnership.

Under Texas law, all partners of a general partnership are generally jointly and severally liable for all obligations of the partnership.  Tex. Bus. Org. Code § 152.304.

Most general partnerships are treated as partnerships for federal income tax purposes.[v]  General partnerships are subject to Texas franchise tax unless direct ownership is composed entirely of natural persons.  See Tex. Tax Code § 171.0002(b)(2).

Limited Partnership. 

A Texas limited partnership is a partnership formed by two or more persons that has one or more general partners and one or more limited partners.  Unlike a general partnership, a Texas limited partnership is only formed if a certificate of formation is filed with the Texas Secretary of State.

A general partner remains liable for the debts and obligations of the limited partnership.  Tex. Bus. Org. Code § 153.152(b).  However, the limited partners (as the name suggests) are not liable for the obligations of the limited partnership unless:  (1) the limited partner is also a general partner, or (2) the limited partner participates in the control of the business.  Tex. Bus. Org. Code § 153.102(a).  But the limited partner is only liable under (2) to persons who transact business with the limited partnership and who reasonably believe, based on the limited partner’s conduct, that the limited partner is a general partner.  Tex. Bus. Org. Code § 153.102(b).  There are also a litany of exclusions which permit a limited partner to not be treated as participating in the control of the business in certain instances.  Tex. Bus. Org. Code §§ 153.103; 153.104

Limited partnerships are taxed similarly to general partnerships.  However, because limited partners are limited in their liability to the partnership and third parties, special federal tax rules apply to the allocation of certain debt to these partners, which may limit the amount of their deductible losses.

Limited partnerships are subject to Texas franchise tax.[vi]

Limited Liability Partnership. 

A Texas limited liability partnership is similar to a limited partnership except it also provides liability protection to its general partner.  Tex. Bus. Org. Code §§ 153.353; 152.801.  Because the limited liability partnership limits the liability of the general partner, special federal tax rules apply to the allocation of certain debt to these partners, which may limit the amount of their deductible losses.

LLPs are subject to Texas franchise tax.  See Tex. Tax Code § 171.0002(a).

Corporations. 

A Texas corporation is formed through the filing of a certificate of formation with the Texas Secretary of State. Corporations provide shareholders with limited liability—however, corporations are also subject to two levels of tax:  first at the corporate level,[vii] and a second time at the shareholder level when dividends are distributed from the corporation to shareholders.[viii]

A Texas corporation can be a professional corporation (PC).  A PC is formed for the purpose of providing a professional service that by law a for-profit or nonprofit corporation is prohibited from rendering.  Only a professional individual licensed to practice the same professional service as the professional corporation may be a governing person or managerial official of the PC.

Corporations can avoid the double level of taxation through filing an election with the IRS to be treated as an S corporation.  If the election is effective, the corporation is generally only taxed once by way of flow-through items of income to the shareholders.  When distributions are made by the S corporation to its shareholders, the shareholders are not taxed again, provided they have sufficient basis in their stock of the S corporation.

Corporations are subject to Texas franchise tax.  See Tex. Tax Code § 171.0002(a).

The Take-Away. 

As the above comparison shows, business owners and entrepreneurs have many options in ensuring their choice of entity aligns with their business and financial goals.  But, with added flexibility comes added complexity.  Freeman Law attorneys welcome any questions you may have regarding the tax or non-tax implications of setting up and establishing your business in Texas.

 

For other resources on choice of entity, see Choice of Entity After Tax Reform.

.

[i] The sole proprietor must request an assumed name certificate (referred to as a DBA) in the county where the business is located if the sole proprietor intends to operate under another name than the sole proprietor’s surname.

[ii] For example, if the sole proprietor has employees, the IRS may seek directly from the sole proprietor all unpaid employment taxes.  Conversely, if the owner operates under an entity umbrella, the IRS is generally limited to seeking only the trust fund portion of the unpaid employment taxes from the owner because the other portion of employment taxes represents a debt of the entity and not the sole proprietor. See also 26 U.S.C. § 6722.

[iii] Franchise tax is computed based on a taxable entity’s margin.  Generally, the taxable entity’s margin is computed in one of the following ways:  (1) total revenue times 70%; (2) total revenue minus cost of goods sold (COGS); (3) total revenue minus compensation; or (4) total revenue minus $1,000,000.  The tax rate for 2020 is .75%, unless the business is in retail or wholesale.

[iv] However, to be characterized as an S corporation, it must meet additional requirements under the Internal Revenue Code.  Specifically, it must have no more than 100 shareholders; its shareholders must be natural persons, estates, or certain trusts; it must not have a nonresident alien as a shareholder; and it must have only one class of stock.  See 26 U.S.C. § 1361.

[v] Because Texas is a community property state, a general partnership owned solely by husband and wife as community property may be treated as either a disregarded entity or a partnership.  See Rev. Proc. 2002-69; CCA 2008852001.

[vi] There is an exception in which the franchise tax is not imposed on a limited partnership if the limited partnership meets the requirements of a “passive entity.”  See Tex. Tax Code §§ 171.0002(b)(3); 171.0003.

[vii] Currently, corporate tax rates are 21% of taxable income.  See 26 U.S.C. § 11.

[viii] Currently, qualified dividend rates are 0%, 15%, or 20%, depending on the shareholder’s other income and marital status.  See 26 U.S.C. § 1(h)(11).

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US DOL Issues Final Rule on Independent Contractor Status Under the FLSA

Originally published by Seyfarth Shaw LLP.

By Camille A. Olson, Richard B. Lapp, Louisa J. Johnson, and Andrew M. McKinley

Seyfarth Synopsis: With the growth of the gig economy, the increased desire of some workers to control their own work hours to ensure a work-life balance, and the evolution of the modern workplace to one in which workers rarely retain one full-time job throughout their working years, the demand by workers and companies alike for independent contractor relationships has grown. The line between employee and independent contractor status, however, has remained frustratingly unclear. In more than 80 years since the FLSA’s enactment, neither the FLSA’s text nor formal rulemaking have provided businesses or courts a broadly-applicable rule regarding where to draw that line. That is, until now.

Tomorrow, the DOL’s final rule on “Employee or Independent Contractor Classification” will be published in the Federal Register, with an effective date of March 8, 2021.

The Notice of Proposed Rulemaking and Request for Comments (“NPRM”) was announced in September 2020, and we summarized it here. The final rule largely adheres to the rule proposed by the NPRM. In the final rule, the DOL has attempted to harmonize decades of its own employer- and industry-specific opinion letters and court decisions that have considered slightly different factors and interpreted similar factors in different manners. It has done so by articulating five non-overlapping factors to be considered in the determination of whether an individual qualifies as an employee or an independent contractor under the FLSA.

Be forewarned that it remains to be seen whether president-elect Joe Biden’s administration will permit the final rule to take effect, whether it could be rejected under the Congressional Review Act, particularly if the Senate majority changes, and whether certain state attorneys general might seek an injunction against the rule the way they did with respect to the DOL’s recent interpretation of the joint employer standard under the FLSA. Further, the independent contractor standard under other federal laws and some state laws also need to be considered for compliance. Nonetheless, the DOL’s new rule provides clearer guidance for companies on independent contractor classification under the FLSA.

What Does the DOL’s Final Rule Provide?

The DOL’s final rule adheres to the earliest Supreme Court decisions and long-standing DOL guidance by continuing to focus the inquiry on whether, as a matter of economic reality, the worker is dependent upon the company for work or is instead in business for him- or herself. The new rule, however, offers previously missing guidance on what factors should be used to assess a worker’s economic-dependence or independence and how much weight should be given to each factor. And while the rule falls short of providing absolute clarity—indeed, it expressly declines to set forth an exhaustive list of considerations—it provides a balanced approach to analyzing independent contractor status under the economic realities test, and sets forth five factors, with two of the factors being “core factors” on which greater weight should be placed.

These two core factors are (1) the nature and degree of the worker’s versus the potential employer’s control over the work; and (2) the worker’s opportunity to earn profits or incur loss based on either the worker’s exercise of initiative or the management of investments in or expenses for items such as helpers, equipment, or material to further the work.

With respect to the first core factor, examples of a worker’s control include setting one’s own schedule, selecting one’s own projects, and having the ability to work for other entities. More critically, the rule provides that a number of issues some courts have previously afforded weight—such as requiring compliance with laws and regulations, health and safety standards, contractual deadlines, and quality control standards—should not impact the analysis. On the other hand, a company’s vigilant enforcement of a non-compete clause or its punishment of a worker for turning down available work may demonstrate control by the company over the worker that is indicative of an employment relationship.

With respect to the second core factor, the worker need not have an opportunity for profit or loss based on both initiative and management of investments or expenses. The ability for a contractor to satisfy this factor through initiative without also needing to show investment, or vice versa, was a point of dissatisfaction for some commenters but, as the DOL noted, makes sense in the modern economy in which many contractors are in knowledge-based jobs that require little investment in materials or equipment. In addition, the DOL states in its preamble to the final rule that it agrees with comments submitted by Seyfarth Shaw that the worker’s use of initiative to impact profit or loss is intended to cover acumen that can be present in a wide variety of contractor jobs, such as acumen in sales, management, customer service, marketing, distribution, communications, and other learned and technical skills, and can exist independent of the skill set needed to perform the work, as in the case of the exercise of general business acumen that impacts a contractor’s ability to profitably run their own business.

If these two core factors point clearly toward either independent contractor or employee classification, they are substantially likely to yield the correct classification. If, however, these core factors do not point toward the same classification or if the considerations under one or both core factors point to different classifications or cause the factors overall to be in equipoise, then the three remaining factors gain importance in determining the correct classification.

The three remaining factors are (1) the amount of skill required for the work, (2) the degree of permanence of the working relationship between the worker and the company, and (3) whether the work is part of an integrated unit of production.

Significantly, the rule places the focus for all five factors primarily on the actual circumstances of the working relationship rather than what is merely contractually or theoretically possible in the relationship. And notably, with respect to the last factor, the rule declines to place import on whether an individual’s work is “integral” to the potential employer’s business, focusing instead on whether the individual’s work can be segregated from the potential employer’s production process.

What Happens Next?

The DOL’s final rule provides much-needed guidance for businesses and workers alike, particularly as technological, social, and business developments have highlighted a need for clarity and uniformity in the economic realities test. However, for now, businesses are well-advised to treat the new rule as precisely that: guidance.

While the final rule is slated to go into effect on March 8, 2021, it remains to be seen how the new administration will deal with the rule. Nevertheless, the rule provides necessary guidance that can be used to assist companies in understanding the impact of various modern workplace and business practices for independent workers and the businesses with which they contract.  A question remains as to the impact of the balanced approach provided by the DOL with respect to interpretation of various relevant factors that are present in the economic realities test under the FLSA and are also relevant to determination under other federal and state tests used for determining independent contractor status. The DOL has noted specifically in the rule that the various versions of the ABC test used in certain state laws have defined employment more broadly for certain purposes.

An unofficial, advance copy of the final rule is available here.

If you would like to discuss the impact of the DOL’s final rule, or the various state laws that are unaffected by the rule, please feel free to contact the authors or your typical Seyfarth contact.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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DOL Guidance on Electronic Posting of Federally-Required Notices

Originally published by Michael E. Brewer, Caroline B. Burnett and Emily Harbison.

While most employers transitioned large segments of their workforces to remote work over the course of the past year, many also questioned how to satisfy various posting requirements when their workforce is at home. Fortunately, in late December, the Department of Labor (DOL) issued guidance on how employers can use virtual means to distribute and maintain the various posters required by federal employment laws.

Background

By way of reminder, several federal laws, including the Fair Labor Standards Act (FLSA), Family and Medical Leave Act (FMLA), the Employee Polygraph Protection Act (EPPA), and the Service Contract Act (SCA) require employers to post a notice of rights in a conspicuous location. Typically — and pre-pandemic — employers met the notice requirements by placing posters on bulletin boards in well-trafficked locations such as break rooms or lobbies. But with the increase in remote work, many employers used company email and intranets as a workaround to notify employees of their rights. Now, employers have guidance to ensure their practices are compliant.

 

Field Assistance Bulletin 2020-7

On December 29, 2020, the DOL issued Field Assistance Bulletin 2020-7 that guides the DOL’s field staff on enforcing posting requirements in circumstances where there is no traditional workplace. (Note that the DOL’s guidance applies only to federal posting requirements enforced by the DOL; it does not address posting requirements enforced by other federal agencies, like the EEOC, or state-mandated posting requirements.)

Continuous Posting

The FLSA and FMLA do not permit employers to meet their notice obligations through a direct mailing or other single notice to employees. If a statute and its regulations require a notice to be continuously posted at a worksite, usually electronic posting is an acceptable substitute if:

  1. All of the employer’s employees exclusively work remotely,
  2. All employees customarily receive information from the employer via electronic means, and
  3. All employees have readily available access to the electronic posting at all times.

Restated: Relying exclusively on electronic posting is permissible only where the entire workforce works remotely. Where an employer has employees on-site and other employees teleworking full-time, for example, the employer may supplement a hard-copy posting requirement with electronic posting. The Department encourages both methods of posting in this circumstance.

Individual Notices

Where particular statutes and regulations permit delivery of notices to individual employees, the notice requirements may be met via email delivery (or another similar method of electronic delivery), only if the employee customarily receives information from the employer electronically. This is consistent with the Wage and Hour Division’s existing regulations, which permit electronic delivery of required communications only where employees already regularly use such electronic communications.

Required Access

  • All employees have “readily available access” to the electronic posting at all times, such as on an internal or external website or a shared network drive or file system. The DOL notes that whether access is readily available is fact-specific and requires, for example, that employees be able to access the notice without having to request permission.
  • The employer must take steps to inform employees of where and how to access the notice(s) electronically.
  • If the employer has multiple groups of employees for whom different notices apply, the employees must be able to “easily determine” which posting applies to them.

Takeaways

Employers may wish to consider designating an easily accessible space on their company intranet or employee portal for federal and state posters. We recommend using the employee handbook (or even the handbook acknowledgement page) to inform employees of the virtual location of postings. Last, be sure to check applicable state and local agencies for guidance on electronic posting of state/locally-mandated notices.

For assistance, contact your Baker McKenzie employment lawyer.

Curated by Texas Bar Today. Follow us on Twitter @texasbartoday.



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