SALTovation: Navigating the Complexities of State and Local Tax by Aprio

This episode originally aired on: https://www.boomer.com/post/e174-billing-time-vs-delivering-value-shifting-mindsets-in-the-cpa-industry

On this episode of the Boomer Briefing Podcast, Allen Gregory, Partner, Federal Tax at TaxOps, talks about billing time versus delivering value to clients. Allen and host Marc Staut, Shareholder and Chief Innovation and Technology Officer at Boomer Consulting, dive into how removing hourly rates can add value to client relationships and improve an accounting firm’s client retention.

Allen shares how TaxOps has used value-based pricing since its inception. This experience has taught us how fixed-fee pricing creates collaborative client relationships and a culture of trust and accountability within the firm. Two key components, clear communication and experienced staff, are also key to ditching charge hours and making fixed-fee engagements work for clients, staff and partners.

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Introductory Call

This week we continue our discussion with Paul Miller, Vice President & Deputy Director of the ACMA, and David Swetnam-Burland, Partner at Brann & Isaacson. As remote sellers navigate the new state tax laws and consumer privacy regulations, the need for federal legislation to provide clarity and consistency for businesses operating across multiple states has increased. Listen as we discuss the impact of local home rule cities, such as in Colorado, on compliance efforts and how the ACMA advocates for federal solutions to protect their members and promote industry growth. 

Topics discussed in this episode:

• The MTC's updated interpretation attempts to align tax laws with the digital era, impacting businesses that operate online.
• The definition and application of 86-272 is a central point of contention, with states leveraging different interpretations to expand their tax bases.
• Legal challenges, especially in California and New York, are proving pivotal in establishing how nexus laws apply and are enforced.
• Local compliance, notably in Colorado's home rule cities, adds complexity to the remote sellers' tax obligations and merits close legal attention.

Quotables

• “From the ACMA's perspective, our approach, as I mentioned earlier, is always to try to get a federal bill passed into law, because organizations like ours, we're very small comparison to, say, the milk industry or something. We're serving a pretty specific constituent, and they are located throughout the states and they're being chased by different states, and we don't have the means to chase after those states to defend them.” -Paul Miller [17:51]
• “It is one thing for the Supreme Court to say we created a rule in 1992, now we're in 2018. We don't like our rule as much as we did then, or the composition of our court has changed sufficiently so that we no longer have five votes in favor of that rule.” -David Swetnum-Burland [03:50]

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Introductory Call

In this episode of the SALTovation podcast, Meredith interviews Paul Miller, Vice President & Deputy Director of the ACMA, and David Swetnam-Burland, Partner at Brann & Isaacson. Both discuss the changes in tax regulations that have taken place after the Wayfair decision, the ACMA's mission, and the legal challenges that businesses face today. They also talk about the efforts being made to address the complications that arose after the Wayfair ruling, which led to a significant shift in sales and use tax obligations for remote sellers.

Listen to the SALTovation podcast here: https://saltovation.captivate.fm/listen.

Topics discussed in this episode:

• The ACMA has extended its advocacy from catalog mailers to encompass a broader range of remote marketers, responding to the industry’s digital transformation.
• Wayfair ruling's aftermath has led ACMA to push for federal legislation that simplifies sales tax collection, addressing the complexities of state-by-state compliance.
• The legal challenge against California's interpretation of Public Law 86-272
• California's Technical Advice Memorandum and Publication, which may affect future state tax policy.
• The intricacies of sales and income tax laws post-Wayfair pose significant burdens on businesses, especially smaller entities, and ongoing advocacy and legal efforts are crucial in addressing these challenges.

Quotables

• “The ACMA's original mandate was to keep postage rates in checked for catalogs, and we've done so quite effectively throughout to the present day. We evolved over the years, and in the early two thousand and ten s, I guess we call it, we picked up on the growing efforts to overturn the 1992 standard in quill versus North Dakota, which upheld that catalog, and other direct marketing companies were not required to collect sales or use taxes from customers residing in states in which those companies have no physical presence.” -Paul Miller [01:54]
• “As much as the states might like to change the policy in this area, we don't believe, and the ACMA doesn't believe, that a public guidance document or a state tax regulation from a state level is a way to do that. This is a federal statute under the supremacy clause. It provides a clear rule for and I think one thing the states tend not to appreciate is the ACMA and our client base are businesses of all sizes.” -David Swetnam-Burland [08:35]

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Introductory Call

In this episode of the SALTovation podcast, we continue our conversation with Mike Bernard, VP of Tax Content and Chief Tax Officer at Vertex, a global provider of indirect tax software solutions. We examine the threefold increase in fee impositions within three years, underpinning the expectation of continued expansion in this domain. We also explore the burgeoning landscape of state and local taxation, where green fees, neighborhood assessments, and intricate policies intertwine with local economies and legislative nuances. Mike also shares insights on the future of sales and use taxes, the impact of commercial real estate devaluation, and the potential taxation of services. 

Topics discussed in this episode:

• There's been a significant increase in environment-related fees, which is reflective of a broader trend towards eco-conscious taxation.
• Fees are emerging as a preferred alternative to sales tax increases due to the ease of implementation and their transaction-based nature.
• Diverse new fees create operational and compliance challenges for businesses, requiring sophisticated tax software and calculated strategies.
• The sales and use tax is positioned to become more prominent in funding state budgets, especially considering economic downturn resistance and recovery.
• Professional services taxation complexity may continue to be addressed indirectly through audit practices, while explicit taxation of services remains a point of debate.

Quotables

• “Fees can be passed with relative ease. They're easy to audit because it's on normally a per-transaction basis. And so I think if you think about how local communities or local districts want to continue to raise revenue without raising the sales tax rate, these are going to be a significant portion of that. And I will tell you this, a lot of our customers are very aware of this and they want to make sure that at least we stay apprised of making sure that in our monthly data update, we get those fee positions updated with that as well, so that they're charging proper fees as well.” -Mike Bernard [01:43]

• “The devaluation of commercial real estate in the urban cores puts pressure on budgets. So you're seeing this massive kind of revaluation because people are either hybrid work or they're not having to go in five days a week. And so now these commercial buildings are being revalued. And so property tax revenues are starting to be greatly impacted.” -Mike Bernard [13:37]

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Introductory Call

In this episode of the SALTovation podcast, we speak with Mike Bernard, VP of Tax Content and Chief Tax Officer at Vertex, a global provider of indirect tax software solutions. As tax complexities increase and technology advances, Mike shares his invaluable insights drawn from his vast experience in the tax domain. We delve into the role of a Chief Tax Officer at a software company, the importance of understanding clients' unique needs, and the challenges of implementing and upgrading tax technology. Mike also shares insights on the future of sales tax compliance and the work Vertex does to advocate for administrative ease and efficiency in tax policy. 

Topics discussed in this episode:

• Mike brings a wealth of experience from his background as US Tax Counsel at Microsoft and now as Chief Tax Officer at Vertex.
• Vertex Inc. prioritizes staying current with tax updates through monthly data updates and maintaining solid professional relationships with Departments of Revenue.
• The conversation highlights the importance of adaptable tax software in handling various sales scenarios, including bundles and emerging digital assets like NFTs and cryptocurrencies.
• The need for upfront investment in understanding business systems to create efficient and compliant tax reporting solutions.
• Engagement with Multi-State Tax Commissions and Departments of Revenue helps Vertex in navigating and influencing the administrative aspect of evolving tax policies without direct lobbying.

Quotables

• “One thing that you find out at Vertex when you serve a larger community of customers is that you have to come with this idea that they're all on their technology journey. Nobody's ever the same. Even though they may be in the retail business as an industry, or they may be in oil and gas, or they may be in leasing, or they may be in financial services, they're all at a different place as you move along their journey as to how technologically capable they are of serving not just their internal corporation, but their customers.” -Mike Bernard [07:49]

• “You always have to gauge yourself and give them the ability to move up or move down wherever they're at in that space and serve them the best that you can. some clients require a more handheld type of service and others, you can put things out there and give them a direction. then check back with them in a week and they will have accomplished some of the things that they set out to do.” -Mike Bernard [12:10]

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Introductory Call

In this episode of the SALTovation podcast, we continue our discussion with Richard Jones, attorney at Sullivan & Worcester, on recent landmark cases and their implications on tax policies and practices. Richard discusses two important state and local tax cases: Akamai and Bass Holdings. We delve into the complexities of determining whether a company is selling software or services, and the taxation implications. We also explore the concept of unitary business and its impact on apportionment. Listen as we provide valuable insights into the nuances of these cases and offer advice on navigating state and local tax issues. Tune in to gain a deeper understanding of these key topics in the world of taxation!

Topics discussed in this episode:

• The pronunciation and role of Akamai in the technology and tax world, exemplify the challenges in classifying software versus services within taxation.
• The significance of the unitary business principle in SALT litigation and its application in recent tax cases, specifically referenced in the 'Vas Holdings' debate.
• An explanation of how court decisions can overturn long-standing tax policies, offering a fresh perspective on statutory interpretations and SALT applications.
• Richard’s experiences in the courtroom, shed light on the strategies used in SALT litigation to secure favorable outcomes.
• The encouragement to question accepted tax policies and insights into the pendulum of taxpayer victories in recent SALT litigation.

Quotables

• “Get a good tax advisor to know the difference between the tax rules that really shouldn't be challenged and those that might have some grounds for looking further into.” -Richard Jones [29:40]

• “The pendulum can change, though, if you get more aggressive positions taken by the Department of Revenue, you tend to have more success from taxpayers as long as there's not too much deference and some fresh looks at by the courts or the judges as to the proper application.” -Richard Jones [32:42]

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Introductory Call

In this episode of the SALTovation podcast, we speak with Richard Jones, an attorney at Sullivan & Worcester in Boston, specializing in state and local tax for over two decades. Richard dives into two significant Massachusetts court cases: Oracle USA Inc. and US Auto Holdings. In the Oracle case, the Massachusetts Supreme Judicial Court upheld the ability to apportion sales tax for software sales and clarified the parameters of the Commissioner of Revenue's authority. In the US Auto Holdings case, the court struck down the concept of "cookie nexus" and denied the state's ability to retroactively apply the Wayfair decision. Listen this week as Richard provides insights into the implications of these cases and their potential impact on other states.

Topics discussed in this episode:

• State and local tax issues often involve unsettled and controversial areas, making them interesting and challenging for attorneys.
• Apportioning sales tax for software sales is a reasonable approach and should be considered in other states.
• The concept of "cookie nexus" is not valid, as physical presence requires something tangible.
• The Massachusetts Supreme Judicial Court's decision in US Auto Holdings prevents the retroactive application of the Wayfair decision.

Quotables

• “Many states, like Massachusetts, have changed the definition of tangible personal property to say things that are tangible personal property plus software. We're just calling it a fiction. Fine. Okay. But what happens then is that now you have something that can be used simultaneously and exists simultaneously in many different states at the exact same time.That doesn't happen with the widget. So you have a new question.” -Richard Jones [09:57]

• “After the oracle decision, the floodgates opened for everyone filing abatement claims that didn't think they could before. And we've seen shifting sands in terms of the degree in which the department will be satisfied with the apportionment. I can't say I am happy with the way the sands have been shifting. Sometimes you can find out exactly what percentage of your employee headcount use the software and where they are because the software has a technology and sometimes you can't.” -Richard Jones [21:02]

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Introductory Call

In this episode of the SALTovation podcast, Stacey Roberts and Meredith Smith speak with hosts of the TaxChats podcast, Scott Dyreng, Professor of Accounting at Duke’s Fuqua School of Business, and Jeff Hoopes, Associate Professor at Kenan-Flagler Business School at the University of North Carolina at Chapel Hill. They discuss the $10,000 state and local tax (SALT) deduction cap and explore the impact of the cap on taxpayers, particularly in high-tax states. They discuss various strategies and issues related to SALT, the political dynamics surrounding the cap, potential future changes, and the complexities of filing taxes in multiple states. 

Topics discussed in this episode:

• The $10,000 state and local tax deduction cap and its impact on taxpayers
• The cap's effect on business owners with income flowing through multiple states
• Impact of the cap on taxpayers in high-tax states like California, New York, and New Jersey
• The potential future of the salt cap and the political dynamics surrounding it
• Workarounds implemented by some states to mitigate the impact of the cap
• Implications of state income tax on personal salaries and employment taxes
• The complexity of filing taxes in multiple states and the potential for double taxation

Quotables

• “Another part that we haven't mentioned here is also very important is this deduction only exists for people if you itemize your tax itemize on your tax return. So that's like 90% of taxpayers don't itemize their tax return. And it's pretty much just like with income. So the 90% 90% of taxpayers the lower income people the 90% lower. So a lot of people don't itemize at all. This doesn't have any effect. So you're only starting with the 10% richest people. And then from there only the people that like exceed that $10,000.” -Jeff Hoopes [11:05]

• “It's kind of like letting the business pay the tax at the state level, not having it flow through and then only flowing through the after-tax amount. Whereas in the pre world, I was like flowing through the whole amount and being forced to pay a claim. It was like an individual thing. So it sort of converted it from an individual tax to a business tax.” -Scott Dyreng [21:37]

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Introductory Call

As we continue our discussion with Brad Scott, Director of Finance at Halstead Bead, Inc., an eCommerce wholesaler supplying jewelry businesses worldwide, Brad shares the challenges faced by small businesses in complying with state and local tax (SALT) regulations. He highlights the high costs of compliance and the potential consequences of non-compliance. Brad emphasizes the need for amnesty and a simplified and streamlined approach to help small businesses become compliant. He also calls for a centralized database of SALT rules and regulations to make compliance easier for businesses.

Talking Tax Reform: https://taxfoundation.org/event/post-wayfair-remote-sales-tax-reforms/

Guest Bio:

Brad Scott is the Director of Finance at Halstead Bead, Inc., an eCommerce wholesaler supplying jewelry businesses worldwide. Halstead is a second-generation, family-owned, small business. Scott has been with Halstead for 21 years. He handles multi-state sales and income tax registrations, filings, reconciliations, and all other accounting for the business. Scott also leads Halstead’s legislative advocacy efforts to achieve multi-state sales tax policy uniformity & simplification and is the Chairman of the Committee on Tax Policy at the American Catalog Mailers Association (ACMA). Halstead Bead, Inc. was the plaintiff in a lawsuit against the State of Louisiana, represented by Joe Bishop-Henchman and Tyler Martinez of the National Taxpayers Union (NTUF). Scott graduated from Michigan State University with a BA in Finance.

Topics discussed in this episode:

• Compliance with SALT regulations is costly and time-consuming for small businesses.
• Non-compliance can lead to significant financial penalties and even the closure of businesses.
• Amnesty should be considered as a solution for businesses that are not currently compliant.
• A centralized database of SALT rules and regulations would greatly simplify compliance for businesses.

Quotables

• “I think the solution is going to be unpalatable from a policy position, but from a humane position. Amnesty is something that has to be considered and it's going to have to come out of the state houses of regulation and legislation because coming from Washington is going to be seen as a preemptive attempt.” -Brad Scott [06:20]

• “You've got practitioners, you've got businesses, and you've got policymakers. All of them need to recognize the role they play in this. A lot of business owners are afraid of putting their hands up for fear of being audited. But the reality is, until the people that make the decisions understand the vastness of this problem, they're not going to address it. ” -Brad Scott [21:55]

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Introductory Call

This week on the SALTovation podcast we speak with Brad Scott, Director of Finance at Halstead Bead, Inc., an eCommerce wholesaler supplying jewelry businesses worldwide. Brad discusses the challenges and costs of sales tax compliance for small businesses. He shares his personal experience with the Wayfair decision and the impact it had on his company. He talks about the need for greater simplicity in tax policy to drive compliance and reduce the burden on small businesses. He proposes solutions such as a single audit per year from a designated taxing authority and a single rate model for states. Listen this week as we discuss the need for collaboration between business leaders and policy leaders to find effective solutions. 

Talking Tax Reform: https://taxfoundation.org/event/post-wayfair-remote-sales-tax-reforms/

Guest Bio:

Brad Scott is the Director of Finance at Halstead Bead, Inc., an eCommerce wholesaler supplying jewelry businesses worldwide. Halstead is a second-generation, family-owned, small business. Scott has been with Halstead for 21 years. He handles multi-state sales and income tax registrations, filings, reconciliations, and all other accounting for the business. Scott also leads Halstead’s legislative advocacy efforts to achieve multi-state sales tax policy uniformity & simplification and is the Chairman of the Committee on Tax Policy at the American Catalog Mailers Association (ACMA). Halstead Bead, Inc. was the plaintiff in a lawsuit against the State of Louisiana, represented by Joe Bishop-Henchman and Tyler Martinez of the National Taxpayers Union (NTUF). Scott graduated from Michigan State University with a BA in Finance.

Topics discussed in this episode:

• Sales tax compliance is a significant challenge for small businesses, requiring extensive time and resources.
• Simplifying tax policies and reducing the number of audits can drive greater compliance and reduce costs for businesses.
• The single rate model, as implemented in Texas, can significantly streamline sales tax collection and administration.
• Collaboration between business leaders and policy leaders is crucial to finding effective solutions for sales tax compliance.

Quotables

• “There is an equal lack of awareness on the part of policymakers about what goes on within a small business, the challenges that we face, and what kind of resource drain they present. That has been the key focal point of our advocacy, bringing to bear the actual resource that we have to put into this and helping legislators to understand what a reasonable expectation is so that we can comply but also serve our customer base.” -Brad Scott [04:40]
• “If you start thinking about the sheer volume of businesses that are out there, I question how any state Department of Revenue could reach out to all of the businesses in every single state outside of their territory. It's just not a fair ask. So when you start talking about the sheer volume of communication that's not occurred, how many businesses are unaware of the Wayfair decision?” -Brad Scott [11:39]

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Introductory Call