This week on the SALTovation podcast, Katherine Loughead, Senior Policy Analyst at the Tax Foundation, discusses the importance of sound tax policy and how the Tax Foundation is conducting tax policy research to inform policy deliberations at the state, federal, and international levels. She talks about the impact of the Tax Cuts and Jobs Act (TCJA) and the Wayfair decision on state tax policy. Katherine also emphasizes the need for states to adjust to the new normal, including the rise of remote work and the need to attract businesses and taxpayers. 

Topics discussed in this episode:

• The role of the Tax Foundation
• Trends in tax policy over the past five years
• States' unexpected revenue surplus post-pandemic
• How income tax complexity makes it hard to predict liabilities
• Challenges of property assessments and the public perception of taxes
• Helping the public understand tax systems 

Quotables:

• "The Tax Foundation is a nonprofit, nonpartisan 501 tax policy research organization and we've actually been around for over 85 years now and we work to advance sound tax policy at the state, federal, and international levels.” -Katherine Loughead [00:50]

• "Switching from federal to state has been interesting because so much happens every single year at the state level. So there are many ways you can help move the needle in the right direction. Instead of being a very small part of a big wheel, you're able to be one of a few players that are really having an impact, and that's been highly rewarding.” -Katherine Loughead [05:35]

• "We've had, of course, the pandemic and all of the state responses to that, everything that's happened at the federal level since then with federal aid and then now coming out of the pandemic, we've seen states have a lot more revenue on hand than they initially expected.” -Katherine Loughead [12:13]

• “People remember exactly what they paid in property taxes in a certain year, but don't add up all their receipts or have a strong sense of how much they're paying in sales taxes. It's a little bit here and a little bit there, but over time that adds up quite a bit. With income taxes, there's so much complexity to the income tax system where you get exemptions here and deductions there and then clawbacks here.” -Katherine Loughead [16:01]

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In this episode of SALTovation, we continue our conversation with Olga Goldberg, SALT Partner at Pierce Atwood LLP. They discuss the importance of taxpayer advocacy and the surprising stance taken by the New Hampshire Department of Revenue Administration in a recent tax case and delve into the topic of taxpayers litigating against tax assessments, even when the amount at issue may not be significant. They highlight the importance of pushing the issue to get answers and establish precedents for future cases. They also touch on the uptick in battles over disclosing information in recent years and emphasize the need for clients to be prepared for the additional costs and challenges that may arise in tax litigation.

Topics discussed in this episode:

• Potential risks associated with disclosing confidential taxpayer information
• Additional costs and risks associated with public disclosure
• How states like Massachusetts and Connecticut handle residency and income tax
• Maine’s recent confidential taxpayer decision
• Challenges businesses face in protected information during legal proceedings

Quotables:

• "To establish a true answer, like Wayfair, it's probably not a big deal. Just go ahead and collect. You can agree on something, but at least you have that public answer that in theory, you know, people are going to be held to or states or businesses or whatnot.” -Olga Goldberg [02:51]

• "One of the recent battles that we've had which is not even a tax issue is confidential. The attorney general or the assistant AGs have been really pushing for the disclosure of confidential taxpayer information, like tax returns, and then just confidential information of the taxpayer, like details, of contracts and other information.” -Olga Goldberg [04:40]

• "Luckily, at least so far, trial courts seem pretty skeptical of the AG's arguments, they've been ruling in our favor, and they've been protecting this information. So, that's the good news, that it's not getting out there, but the bad news is that it's adding to the costs of a case that might not have a ton of evidence.”  -Olga Goldberg [08:07]

• “Maine has a court-created second avenue to an exemption, which is that you can just file a declaratory judgment requesting an exemption, whether or not you have filed an application or whether or not you have requested abatement. So, you have two options, you can go the abatement route or you can go this declaratory judgment route.” -Olga Goldberg [20:22]

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In this episode of SALTovation, Meredith Smith and Alexander Korzhen speak with Olga Goldberg, SALT Partner at Pierce Atwood LLP. Olga shares her journey into the field of law and specialization in state and local tax. Olga delves into the challenges and concerns surrounding remote employees, particularly concerning nexus and withholding. She discusses the current legal issues she consistently argues in state and local tax and the challenges and concerns associated with remote employees, particularly regarding nexus and withholding. Tune in to hear more about Olga’s unique journey and insights into state tax.

Topics discussed in this episode:

• Law is problem-solving in the real world
• Navigating remote employee tax issues
• Compliance with remote work taxes
• Residency audit complexities
• Maine Safe Harbor 
• New Hampshire residency requirements explained

Quotables:

• "One of the reasons I like to work with our employment lawyers is because we talk a lot about, how we are going to document this information, and what kind of policies the company should have in place.” -Olga Goldberg [16:13]

• "There are two paths to being treated as a resident. One is common law domicile and two is statutory residency. So New Hampshire does not have a statutory residency. It's common law principles and they have a statute that defines what a residence is.” -Olga Goldberg [25:25]

• "If you're in a situation where you have this super low bar to clear to be treated as a New Hampshire resident under this department position, and you don't have a resident tax credit, which, to me, does not seem entirely constitutional, it's going to result in a lot of double taxation.” -Olga Goldberg [29:33]

• “The pandemic opened the playing field, but then you have these established larger employers who maybe they did and maybe they didn't shift their policies during the pandemic, but then they contracted again. So they're kind of shifting back because of these tax policies, tax rules, and the difficulty of compliance.” -Olga Goldberg [18:01]

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In this episode of SALTovation, Meredith Smith and Judy Vorndran continue their conversation with Masha Yevzelman, Litigator at Fredrikson & Byron, P.A. They discuss the challenges of litigating tax cases and the lack of consistency in state tax laws. They highlight the need for factor presence thresholds and small business exemptions. Masha shares examples of significant cases, including a property tax exemption dispute between government entities and a residency case involving conflicting state interpretations. Masha, Judy, and Meredith emphasize the importance of understanding the impact of tax decisions on individuals and businesses.

Topics discussed in this episode:

• Factor presence threshold standards for income tax
• Challenges faced by large businesses in tax litigation
• Impact of state tax rates on controversy
• Tax consequences of residency decisions
• Shift in remote work and its impact on tax considerations

Quotables:

• "When you look at a visual of which states have factor presence for income tax purposes, it's pretty clear that it's a very small number of states. But what's interesting about the MTC position is the MTC said if you're going to adopt this website position state, you should have factor presence.” -Masha Yevzelman [01:27]

• "That's why the litigation is a challenge. You've got to have the big taxpayers doing it, not the little guys unless there's a giant class action that takes time, effort and bandwidth to support. So you just don't see the advocacy unless you're a large multinational business.” -Judy Vorndran [03:01]

• “Some cases really aren't suitable for settlement. Like I said, it's kind of an all or nothing proposition. It's an ongoing issue. Clients need certainty, too. And so even like settling a few years in an unprincipled way doesn't fix it because then what about all the later years where the facts are the same and the law is the same and what are we going to do then?” -Masha Yevzelman [04:50]

• "We're seeing more aggressive state positions. If you know that that's the position of the Department of Revenue and the auditor is applying it and the appeals officer is going to apply it, then really the only way to challenge it is through litigation.” -Masha Yevzelman [06:01]

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In this episode of SALTovation, Meredith Smith and Judy Vorndran speak with Masha Yevzelman, Litigator at Fredrikson & Byron, P.A. She shares her journey into the field of law and discusses the various areas of law she practices, including tax disputes and litigation, and the increasing trend of audits and enforcement in state and local tax. Masha talks about her experiences with audits and trends in the field, including the increase in Nexus audits and residency audits. She also provides insights on remote employee compliance and the impact of marketplace laws.

Topics discussed in this episode:

• The increasing trend of audits and enforcement in state and local tax
• Licensure issues when practicing in multiple states
• The potential impact of new legislation in Minnesota
• The challenges and compliance issues related to remote employees
• The Wayfair decision and marketplace laws

Quotables:

• “I'm seeing marketplace audits, because of the proliferation of the marketplace laws across the country, faster than anything has ever happened in the history of state and local tax, in two years.” -Masha Yevzelman [06:14]

• "I think in terms of audit trends, I think they're going to be going after 86 to 72 really hard, and that is getting litigated, and it's going to be litigated more and more.” -Masha Yevzelman [08:33]

• "I tell some of my clients it's three thousand a year in compliance costs to hire a remote employee. I'm sorry that you didn't realize your agnostic hiring policy was going to create all this compliance. You're there and you may not make any money, but you still have all these compliance duties.” -Masha Yevzelman [19:40]

• “I think remote work is a really big space right now in the advice side because I think the taxpayers and clients are kind of trying to figure out what do we do with all these remote workers. I think that will transition to the states doing something about it, too.” -Masha Yevzelman [20:34]

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Tax and Legal Challenges in the Cannabis Industry with Nick Richards: Part 2

In this episode, Meredith and Judy continue their conversation with Nick Richards, partner and co-chair of the cannabis law group at Greenspoon Marder LLP. They explore the differences between the psilocybin and cannabis industries, specifically focusing on the challenges they face with federal regulations, taxes, and audits. Nick talks about the implications of the federal tax code 280E. He also discusses the economic benefits of marijuana businesses to their local communities, the stigma and education that still need to be overcome for progress to be made, and the potentially life-changing palliative effects of psilocybin for those suffering from terminal illnesses.

Topics discussed in this episode:

• Tax implications for the psilocybin industry 
• Cannabis industry challenges and opportunities
• The battle against stigma in the psilocybin and cannabis sectors

What You Will Learn:

01:00 The 280E “add-back”

08:37 Stigma and challenges surrounding the use of psilocybin for terminal illness

18:27 How tax professionals can help in the cannabis and psilocybin industries 

Quotables:

• “The psilocybin industry doesn't want to be compared to the marijuana industry. The problem is that the federal government is going to see them the same and the roadmap that we have, the experience that we have, is from the cannabis industry.” -Nick Richards [00:25]

• “When the cannabis industry got started, people didn't understand 280E. When 280E showed up, they sort of said that can't be right. Here is the reality of 280E in a very simple example. 280E applies to deductions but not to the cost of goods sold. If I buy a mushroom to sell and I pay $2 for that mushroom and then I pay my salesperson a $2 salary and they sell it for $5, I just made a dollar. But because of 280E, I am not going to be able to deduct the $2 I paid on my salesperson.”  -Nick Richards [02:37]

• “Because of the way our system works, state tax returns start at line 35 of the federal tax return. So if you're in a company that is subject to 280E, you're going to pay that tax again at the state level because it takes off from line whatever of the local level.” -Judy Vorndran [04:45]

• “I don't think it is fair to treat a legitimate business like it's not a legitimate business. It's kind of what you're saying Indirectly by disallowing expenses and otherwise, and then regulating and retransferring things that are muddled.” -Nick Richards [10:20]

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In this episode, Meredith and Judy speak with Nick Richards, an expert in taxation for the cannabis industry, and partner and co-chair of the cannabis law group at Greenspoon Marder LLP. Nick shares his journey from working in the IRS to becoming an expert in cannabis taxation. He also discusses how he navigates the ever-changing landscape of taxation for cannabis businesses. Together, they discuss the high taxes and legal challenges that cannabis businesses face. They also explore the recent changes in the classification of Delta Eight and Delta Nine and psilocybin, and how they impact the industry.

Topics discussed in this episode:

• Nick's Journey to the Cannabis and Psilocybin Industries
• Regulatory Changes in Colorado for Psilocybin and Cannabis
• Mycelium and the Cannabis Industry

What You Will Learn:

04:34 Tax Ops' Proactive Approach to Cannabis and CBD Companies

06:11 Tax Implications of Hemp and Psilocybin in the Cannabis Industry

13:48 Understanding the Language of the Psilocybin Space

15:14 The Benefits of Psilocybin and Mushrooms

Quotables:

• “There are not robust regulations around the marijuana industry. So this year what we're seeing in that space is that a lot of those CBD manufacturers went ahead and were doing something called Delta Eight and Delta Nine, which is THC derived from hemp. Now many states are going back in and saying they think you're a marijuana company. Guess what tax applies to all of your sales for the past four years? The marijuana tax.” -Nick Richards [05:16]

• “There's just so many things I think that are still wrong about how we're handling this legal industry. And now we're, like, going after it more for classification issues when there's no alternative substance in a THC, going back to penalties.” -Judy Vorndran [06:31]

• “The rules are still being written in the mushroom space. It looks to us like it's sort of less retail and more medical, which is good for the industry if that allows them to be profitable. Because it starts to align with a case out there in the marijuana space called Champ rather than subsequent cases that found that all the activities of a cannabis-related enterprise were subject to a code section called 280 E rather than just the specific area where the sale of marijuana was occurring.”  -Nick Richards [09:20]

• “The problem with a lot of the cannabis cases was that they put so many expenses on the other non-280 E company that it could never make a profit. So it was found to be not a legitimate company and merely just part of the cannabis company. And again, that's because they're so limited, the only other thing they can sell are bongs and T-shirts. -Nick Richards [13:24]

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Meredith Smith and Judy Vorndran continue their conversation with Wendy Walker, a Solution Principal at Sovos, in the latest episode of the SALTovation podcast. They talk about the state of the IRS, federal tax legislation, and how the current policies are trickling down into states. Ohio, Colorado, the District of Columbia, and Maryland eliminated paper processing for withholding taxes, 1099s, and W-2s, drastically reducing electronic filing threshold requirements. Wendy, Meredith, and Judy discuss the challenges that come with trying to stay on top of different reporting regulations across different legal entities, both at the federal and state levels.

Topics discussed in this episode:

• Tax compliance challenges for businesses and governments
• Tax Reform in Colorado 
• Understanding the challenges of the IRS caseload

What You Will Learn:

• 03:20 The Challenges of Tax Reporting and Government Iteration
• 15:31 Tax Compliance Challenges for Businesses
• 25:02 Practical Solutions to Simplify Taxpayer Systems
• 33:06 Cybersecurity and Taxation

Quotables:

• “We see the IRS reducing the electronic filing threshold requirement so that they can get at paper processing. They're trying to eliminate paper, they're kryptonite according to the taxpayer advocate. Even the IRS recognizes that there's a subset of the population that's never going to get off paper so they do need to offer that.” -Wendy Walker [01:23]

• “There is no happy medium. It's like the government's forcing businesses into sending it into their formats and their requirements. But on the flip side, business needs to conform to gap rules and other regulations and legal requirements. So it is very difficult, particularly when there's such disparity across so many agencies.” -Wendy Walker [05:09]

• “Small startup businesses are not complying for good reasons. They can't they don't have the wherewithal, and they don't have the tools. But here they are taking a chomp out of the native businesses, taking away from all the bricks and mortar, but they're not fully compliant. So they're taking tax dollars away from governments to change the character of how you and I do business. And all those legacy companies are gone.” -Judy Vorndran [05:36]

• “The IRS is promoting more bank account reporting or expanded bank account reporting for certain taxpayers. So if we're going to fix them, let's fix the problem. If they need transparency, let's find a way to give them transparency instead of giving them more information that just sort of directionally gets them there from a compliance perspective.” -Wendy Walker [23:10]

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Meredith Smith and Judy Vorndran host Wendy Walker, a Solution Principal at Sovos, in the latest episode of the SALTovation podcast. They discuss the Inflation Reduction Act, which provided the IRS with $80 billion to upgrade the taxpayer experience. The recent Taxpayer Advocate Report to Congress, however, revealed that the IRS is short-staffed and underfunded, resulting in a surge of unanswered phone calls and delayed correspondence, which is causing a rising federal deficit. Wendy and Meredith suggest potential solutions for the IRS, such as acquiring funding to improve their service and transitioning from conventional communication methods to modern ones.

Topics discussed in this episode:

• What is the Inflation Reduction Act?
• IRS Funding and Taxpayer Experience Improvement
• Potential Improvements for IRS: Modernization 

What You Will Learn:

• 7:53 IRS Focus on Digital Asset Reporting, Modernization, and Tax Literacy
• 15:00 Benefits of the Child Tax Credit and Taxpayer Education Efforts
• 16:04 IRS Funding for Pre-Filing Services, Education, and Taxpayer Advocacy

Quotables:

• “In 2020, the Taxpayer Advocate Report to Congress indicated that the third most serious problem that the IRS faced is that they are significantly underfunded to service taxpayers and collect tax. The report cited that they're unable to answer millions of taxpayer phone calls, they're unable to process timely correspondence, and that our federal deficit continues to grow as a result of that underfunding.” -Wendy Walker [00:55]

• “How many people want to do a job that feels like everybody's mad at you? Right. How do you encourage a culture that takes care of these people who are trying to care for the people? So we have to make it like, less adversarial, but then also generate those people to come in.” -Judy Vorndran [07:09]

• “99% of the revenues that our federal government operates on get collected by the IRS. So you would think that we would be more concerned with ensuring they had the funds and the people right to make sure those systems can do that efficiently.” -Wendy Walker [07:53]

• “The IRS doesn't have funding to do any of that education outreach on their normal appropriations that they're given from Congress. So funding is important for the IRS to be able to bring things out of paper publications that are really hard to find and are buried and get them out onto the Internet leverage searches so that taxpayers can really take advantage of some education before filing.“ -Wendy Walker [16:47]

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In this episode of the SALTovation podcast, Stacey Roberts is joined by Tim Noonan, Tax Lawyer and Partner at Hodgson Russ in New York, to discuss state and local tax issues. They talk about tax and legal issues related to private equity firms targeting certain companies and the importance of understanding where the target companies operate to determine any filing obligations. Stacey and Timothy also discuss the 2018 Wayfair case, and why tax professionals need to be knowledgeable to help clients navigate the process within state and local jurisdictions. 

Topics discussed in this episode:

• The need for expertise in transaction tax matters during big deals
• What is the 2018 Wayfair case?
• Tax implications of private equity and hedge fund transactions

What You Will Learn:

• 2:10 State and Local Tax Considerations for Private Equity Firms
• 8:07 Understanding Nexus and State Tax Implications for Business Transactions
• 11:54 Residency Rules and Tax Audits in Different States

Quotables:

• “State tax issues and private equity deals are an underrated issue. You and I think it's the most important issue because that's what we do every day. But we've gotten called in on both sides of these deals where someone's getting acquired and they haven't collected sales taxes in many years. We have to clean that up and figure out if your sales are taxable in this many states. We clean that up through voluntary disclosure.”- Timothy Noonan [04:22]
• “With the Wayfair case in 2018, you now have all these sellers who might not be watching what happens at the Supreme Court level and don't realize that every state has come out and said if you have a certain amount of sales in the state, which isn't very high threshold, you should be collecting sales tax in 46 different states and thousands of local taxing jurisdictions. So that can be messy.”- Timothy Noonan [07:11]
• “The rules in most states are either similar or the same. Someone leaving Colorado has the same residency test as someone leaving New York. There's a domicile test. California's rule is a little bit different, but they all sort of sound like the same concepts of this domicile test. So in that sense, the rules are the same.”- Timothy Noonan [12:02]
• “A lot of wealth creation that happens for folks in the private equity world is through pieces of their target companies they acquire and then they sell again. It is carried interest. It is the piece of these companies that are treated as capital gain. It's intangible. So in addition to that capital gain benefit of carried interest, it has an important effect on state taxes too.“- Timothy Noonan [16:34]

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