Audits, Litigation, and Remote Workers with Masha Yevzelman

Hosts & Guests

Masha Yevzelman, Litigator at Fredrikson & Byron, P.A.

Meredith Smith, State and Local Tax Senior Manager

Judy Vordran, Leader, Educator, Advocate, J.D., CPA



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


  • “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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Meredith: [00:00:00] Masha, thank you so much for being with us today. It's great to have you and to speak with you. You are a litigator with Fredrickson and Byron in Minneapolis. Um, can you share your background and how you ended up there for almost 16 years?

Masha: Yeah. Um, so I knew that I wanted to become a lawyer in high school.
I was like on the debate team, did mock trial, and I just thought law would be super interesting and fun. Um, and I, I went to undergraduate at Macalester in St. Paul and then went to law school at the University of Minnesota. Um, and when I was in law school, even my 1L year, I had no idea that large law firms even existed.
I just thought law was [00:01:00] cool. Um, and so then I learned about these large law firms and I started working at Fredrickson during my second year of law school. So in fall of 2005, right before I was a summer associate at Fredrickson and, um, really, really loved it. you know, law firms, they say, like, have a culture.
And when I was in law school, I was like, No, that's not true. A law firm is a law firm. But when I was here, I really, like, felt that culture where everyone Um, is very unique and kind of individualism is really respected. So there's no like cookie cut lawyers at Fredrickson, which is what I really liked. Um, and I liked how the firm, um, is very entrepreneurial.
So it lets you kind of make your own practice, build your practice, set your own destiny. Um, and so I really love the people here and kind of how it operated. So ever since then I was like, well, this is going to be my work home forever.

Judy: But your practice area in state and local is [00:02:00] not a natural segue.
Right? You could have been a litigator in employment law or You know, I mean, a lot of contract law, you know, construction. I mean, you're state and local.

Masha: What about that? The very first project that I did as like a baby law student was a state and local tax project. It was just coincidence and happenstance.
It was with the person who would become my forever mentor, Tom Luck. And, you know, he saw this little law student law clerk and thought like, What a great person to do a 50 state survey for me. Um, and it was, it was, you know, it was, it was a little tedious, but it was a lot of fun. And I loved working with him.
And at the end of the day, you know, I knew that I wanted to work with someone who would be really, really amazing to work with. And he was that person. And I was like, it doesn't matter what kind of law we're going to practice, um, because I really want to work with you. But also I found it [00:03:00] obviously like.
fascinating and intellectually stimulating. And so that's how I became a state and local tax lawyer. Yeah, that's really funny,

Judy: really. And then that continued from there, right? Okay. Yeah, that's kind of, I mean, Mara and I too, we all fell into state and local. Like it wasn't, I'm a master's of tax lawyer as well, but I did federal compliance and then I got outsourced to do sales tax returns and I'm like.
This is really interesting. Um, Hmm. This is a whole practice area that no one's really paying attention to. I kind of like it and it doesn't have an April 15th deadline. It's kind of a different deadline, you know,

Masha: totally. And then like everyone you meet in the salt community is amazing. Right. And it's like, we go to conferences and we love everyone we hang out with.
Like everyone in the salt community is just so great and fun. And it's like, you tell people like I'm hanging out with a bunch of tax lawyers. They're like, wow, that must be a party. But like. It is. It kind of

Judy: is. Yeah. Well, it's true. And there is a little nuance to our little, we have a little bit of a, it's just very different in [00:04:00] how we practice, I think, is you're correct.

Meredith: and it's funny because that same summer in 2005, it was my first internship at KPMG. And I also did a 50 state study. It was on the, it was on the taxability of downloaded movies, which didn't exist in 2005. It was very new as now it's, you know, readily available.

Judy: Very common. We wouldn't have made it through COVID without streaming.
Yeah. I did Netflix. They were my client and they were selling discs then, right? Shipping discs. It was like, do you have tax, you know, what do you do? You have sales tax duty in every home, right? Even the home rural cities of Colorado. So huge compliance because they're got the membership of the disc.
rental, and then they stream to streaming. So I'm one of the first Netflixians, um, I subscribed. So I was like, Oh, they're my client. I'm going to go ahead and do work for them or buy their service. I've still been doing it. I remember when they were going to switch to streaming. I'm like, what is that? Now I don't even have a CD player, like I can't even play a disc if I wanted to now.

Masha: My dad just asked me for a DVD player for his birthday. I'm like, do they sell those still?

Meredith: I think

Judy: [00:05:00] so. In fact, I was holding on to some of my discs from Netflix for a while. I'm like, I need to send those back. But what are they going to do with them? They're worth nothing, right? On the secondary market.
Yeah. Well, I guess in other countries, they just gobble them up and send them to other countries that don't have the same technology that you and I have. Although we still, we still

Meredith: pull out our discs. That's funny. We have little kids and when your internet doesn't work. And they want to watch a movie, we still have that library of DVDs

Masha: because they can't always rely on the internet.
Yeah, I like it.

Judy: What is funny if you've got to depend too much on the internet and then it goes down. It's not bueno. Yesterday I was doing, I was at a doctor's office and they had this, you know, the wheel of death and they're like, this isn't accessing the database so I can add this and they're like, ah, and they're used to just like working right?
And when it doesn't work, you're like, we can't do a paper file. We only have the electronic. Yeah, interesting.

Meredith: Circling back, what kind of law, you know, obviously specifically to state and local tax, but what type of law are you kind [00:06:00] of practicing today? Um, you know, you're kind of a big deal. You did just litigate something in front of the Minnesota Supreme Court.
So I know you're not allowed to talk a lot about that. That's kind of exciting. But, you know, obviously you're... You're showing up in court, you're litigating things. So what kind of, what does your practice look

Masha: like? Yeah. So I chair, um, Fredrickson's tax disputes and litigation group. And so that actually covers all types of tax controversies and even pre controversy work.
So like pre controversy would be like voluntary disclosures or taxability or nexus evaluations, right? And then controversy work. So audits. appeals, um, tax court litigation and appellate litigation. Um, so kind of oversee all of that. I don't necessarily personally do each of those things, but I do most of them, um, kind of as they come up.
Um, when I started out, um, 16 years ago, um, the practice was very heavily [00:07:00] focused and my practice was very heavily focused just on Minnesota State. Tax controversy work. Um, but then right here's like we added on to that So then there were other states and then there were there was federal controversy and various tax types And so it's really grown in kind of breadth I would say over the past 16 years in terms of what our practice is like

Judy: And then how do you deal with the licensure issue given you're a Minnesota attorney?
I assume you're not licensed in our state So,

Masha: so licensed in Wisconsin and then we have an office in, um, in North Dakota. We have two offices actually. So we have folks who are licensed in North Dakota and South Dakota, and we have an Iowa office as well. Um, but also it's just the amazing network of state, local tax lawyers across the country where, you know, if we need to go into court in another state, we will partner with.
Um, local council [00:08:00] in that state, and that works really well, and I do think it's important to do that because knowing kind of the people on the ground, whether it's at the department or, um, as opposed to in council or the court, um, it's really good to have local representation and local flavor, so I'm a big proponent of that, um, and have really enjoyed getting to know people kind of around the country in that capacity.
And sometimes I function in that capacity, right? So people will say like, Hey, Minnesota local council, um, or we need someone in North Dakota or Wisconsin. And so we can help out with that too. And

Judy: then what about if you do a multi state study, right? I mean, that's sort of practicing in other areas, sort of, we do those.
So how do you deal with that from the expertise?

Masha: You know, making sure you got it right. Same idea you draw on folks you know, if there's lack of clarity in a space, um, uh, from around the country to the extent there is clarity, you know, it's easy, but you know, in terms of like practice of law, really [00:09:00] that comes into play more in litigation.
So anything that's pre litigation is really permissible under the ethics rules because it's a multi state or a nationwide practice that's substantially similar to the representation you have of your clients in the state where you're practicing.

Judy: Yeah, that's a big deal. I think

Meredith: I'm kind of playing off that, you know, one of how we know you, um, you know, is through kind of your leadership positions and various organizations.
Um. What kind of leadership positions have you had? Obviously, you have something specific, um, you know, to Fredrickson and leading that group, um, kind of on those national kind of committees, organizations that help you maintain that, you know, web of, you know, resources and friendships that you, you know, kind of come to rely on as you're dealing with the law and outside of your, you know, licensure state.

Yeah. So I've been on several, um, like planning committees for IPT, [00:10:00] for example. So you make a lot of contacts and get to know a lot of people through IPT and then also through the American Bar Association SALT section. So I'm on the, um, executive committee for that. And you just meet a lot of people that way.
Um, and I, you know, actively participate in cost events and kind of other national organizations. And you just sort of start. Getting to know people, um, your peers all across the country through those types of organizations.

Judy: And I guess we should explain who KOST is to the audience. Like, I think a lot of people do not know who KOST is, especially in the small to medium business space.
They don't know what that is. Because that's only large, large multinational companies that were, that belong to that. Typically you don't see the mom and pops that are, might be multi state not being actively involved. So

Masha: COST is the Council on State Taxation. It's a nonprofit organization that represents, um, large taxpayers.
Um, so it's a taxpayer [00:11:00] organization and they put on, um, continuing education, but they also do, you know, lobbying efforts. So they monitor legislation on a multi state basis and get involved and testify, um, as appropriate. They also, um, file amicus briefs, um, so an act of litigation that their, um, members have an interest in.
Um, so it's a real, it's a really great organization for taxpayers.

Judy: Did they weigh in on Wayfair? Did they provide an amicus brief?

Masha: I’m sure. I can't remember. Yeah,

Judy: I feel like I was trying to think of like all the different organizations that weighed in on that Yeah, I was trying

Masha: because I were quite a few.
Yeah, I'm not sure that cost that went out did another organization I think probably did was the American College of Tax Council a CTC. So that that's another Organization, so there's just a lot of national organizations of tax Tax Attorneys and State and Local Tax [00:12:00] Practitioners that are, I think, really great to participate in to get to know your peers and counterparts all across the country.
Right. Because

Judy: that's, I mean, state and local law is local. So you have to understand I was just in Charleston, um, South Carolina and Savannah, Georgia and Those, those state cities have been around a very long time and they have a whole set of policies that, you know, impacted our nation hundreds of years ago that had rolled across America.
You know, I grew up in California, so when I live in Colorado, very different tax policies between the two states for the needs of the citizenry, the volume, the industries that we have in our state, very different tax policies. So it was very interesting to kind of really physically see the spaces and see how the shipping industry particularly influenced a lot of, um, the business there and then schools and education was another big area of industry there and then you've got all the tourism, but that's not how it [00:13:00] grew up.
Right. So there was strategic reasons for those locations and very much defensive of like other people invading us. So that creates a different issue. We didn't really have that in Colorado. We're in Colorado. You know what I mean? So, you know, you've got, we've got some of the reservation issues and all that because you had everybody move west and you had the Indian population.
So you just have all these things that affect policy, um, and, and sighting yourself in a home and, you know, that kind of stuff. And it really impacts like how those laws were evolving in our nation. Yeah. And tourism taxes. Who knew there were all these little fees on things. Uh, if you took a carriage tour in Savannah, there's a little tourism tax on it.
Huh, a little grab bag for the visitor to the you know, Savannah and Charleston. There's other little taxes that you don't normally see imposed just by consuming things unless you're a guest. I, you know, I don't know. They're just on my invoice. A couple bucks here and there. I'm like, [00:14:00] interesting. I didn't know there was a tourism tax on a garage ride, but there is

Meredith: notice those things when, uh, when you, when you, you're like looking at five plus in that fee verse tax world.
Right. Yeah. Um, and so I guess kind of in that vein, um, We, you know, kind of personally have seen a lot of uptick and like enforcement and notices and just kind of like the pestering of taxpayers and questioning what they're doing. Um, and kind of audits and whatnot. Are you, are you experiencing that same trend or seeing a lot more maybe influx of?
You know, that questioning of a taxpayer position.
Masha: Yes, I think there has been for sure an uptick in audits. Um. Specifically, I think I'm seeing a lot [00:15:00] more nexus audits and 86 to 72 audits. I think that. Yeah, that's an

Judy: interesting one. That's the whole shift in the last couple of years.

Masha: Yeah, it's huge. So there's been a ton in that space.
Um, same on like the individual side, because I work with high net worth individuals as well. So like residency audits are very much on the rise. So again, same thing, kind of connection to state type audits. Um, corporate income tax, like sourcing issues. I mean, it's like, what does market based even mean? Um, in so many different contexts.
Um, I'm still seeing, um, business, non business, unitary combination type audits. Um, sales tax space, I'm seeing marketplace audits, so kind of based because of the proliferation of all the marketplace laws across the country faster than anything has ever happened ever in the history of state, local, state, local, two years, right?
Like, I mean, that's generating a ton of audits and [00:16:00] confusion and controversy and the auditors are confused by it because they don't know what the law means. Um, and then the other space I'm seeing an increase in just like. Other like miscellaneous taxes, like your tourism fee example, but like just random taxes, right?
Unlike various products that a state might have where there's just no guidance on it. Those are my favorite kind because it seems like the states are trying to come up with like, some sort of positions on it where there has been no guidance at all. Um, and doing that through audit. So it's kind of been interesting.
I was going to say, in Colorado that you're going to be doing, a

Meredith: case will be brought to, because Minnesota just passed theirs, right? That that will be litigated, do you think, or questions? Or are they, you know, because a case was brought in Colorado. Are they, you know, do you think it's just going to see, well, what does Colorado do and is it [00:17:00] worth litigating or is someone kind of.
Getting ready to sue

Masha: on whether or not. But it's not even, yeah, it's not even ready. I think it'll cause time. There's no enforcement. Yeah. I think we'll have to see how it works and what taxpayers end up doing with it and how the state ends up trying to enforce it. Um, and then we'll see kind of what the controversy looks like.
So I, I'm guessing we're a good couple years, few years away from any real controversy. Yeah. Before you see it. Yeah. Cuz

Meredith: I mean, Colorado had to renege on some of their positions. Um, just this last legislative

Masha: session, right. Where.

Judy: They didn't really, Renee, we pushed them too. I'm on a coalition to simplify cause they, they just, it was so onerous for small to medium business, but even the small media businesses was so low at half a million, I mean, come on, like we're talking 30 million years, small to medium business, I'm sorry, you know, to be able to collect this

Masha: fee.

Meredith: Kind of the original language stating that it had to be collected from your [00:18:00] customer and on an invoice where the department kind of said. Like unofficially, we're not going to chart, like it's okay if you kind of eat that, but now it's like official, you don't have to pass it along to your customer and you can kind of assess it on the

Masha: back end.

Judy: And then we had a huge issue with our cities where our cities want to tax it because it's a mandatory fee that's associated with shipping and handling and they tax it. They tax shipping and handling. So we had to fight that battle internally to say back off and Denver agreed and then everybody kind of followed suit, but we never know.
Yeah, because then that tax becomes 30 cents instead of 27.

Masha: I can't wait to see what we do in Minnesota with it. It's going to be really exciting. But I do think there are lessons learned out of Colorado. So, thank you for going first. Right. Well, you at least all...

Judy: We never go

Masha: first. We like to

Meredith: go first. Um, except for maybe on like, you know, hallucinogens and drugs.
We're on the cutting edge of...

Masha: Right.

Judy: We're ready to [00:19:00] shroom. Everyone got to figure it out. It's a new thing. Um,

Meredith: so then, you know, probably maybe some litigation on the bag or bag fee. Sorry, the bag fee in my head. We're talking about locals. Um, the delivery fee. Anything else you think that might, you know, might not have the ear of the of departments from like an audit perspective that but you think might kind of be the next thing. Hot ticket item from jurisdictions to start

Masha: picking on, um, like, I think in terms of audit trends, I think it's kind of what We've talked about a little bit, which is, I think they're going to be going after 86 to 72 really hard, um, and that is getting litigated and it's going to be litigated more and more.
And I do think it's an area where we're finally going to get more guidance across the country from more and more courts. Um, so, especially with the MTC. position on the website, um, [00:20:00] interaction and, you know, that's being litigated in California, um, but not like as an assessment type challenge. So that will be interesting.
Um, Minnesota came out with a draft revenue notice that was very, um, I would say substantially identical to the MTC position. So that's still in draft form, but, um, that I think there's just going to be a lot of litigation in that space. in 86 to 72, because with, you know, with the MTC guidance, it's any anyone with a modern website cannot have protection according to the MTC anywhere in the country, right?
So no matter where the website's hosted. Um, so I just, I think that that's just going to continue, um, going through litigation because it's, I mean, it's an all or nothing proposition for companies who have been relying on 86 to 72, and it's an ongoing issue. So that one's. a little bit hard sometimes to resolve unless there's been a change in facts and the taxpayer goes like, yeah, I mean, now we're [00:21:00] really present in the state anyway.
Then there's resolution, but for taxpayers who are going to continue taking 86 to 72 protection positions, I mean, litigation is sort of the only answer. Yeah.

Judy: And then at some point you're like, crud. Right. I mean, you get the credit for the tag, you know, so is it just a bunch of more compliance? I mean, that's, you know, of course with remote employees, I mean, I tell some of my clients it's three to 5, 000 a year and just compliance costs to hire a remote employee.
I'm sorry. Like you didn't realize your agnostic hiring policy was going to create all this compliance. I mean, you're there and you may not make any money there. But you still have all this compliance to use. That's the reality of it. So I think we're going to see more of

Masha: that too. Where it's like, what's the impact of remote employees?
And are we going to have more withholding audits? And are the states that require withholding on day one going to start being active in that space? space just because remote work has become so much more [00:22:00] prevalent. And some companies have really good policies in place and some are just sort of like finding out that they have employees in all sorts of different states and, um, didn't have a chance to address the tax impacts upfront and are sort of scrambling on like, Oh shoot, does that mean we have to file an income tax return and a sales tax return?
Um, what property do we all of a sudden have in the space that this employee brought with them? And I think that's a really, really big. space right now in, um, 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? Um, I think that will transition to the states doing something about it, too.
Although you'd be surprised. I think it's great. A government employee like Oh, Did you get withheld on when you traveled for work? Right?
Judy: And then they go, Oh, for a remote, for a remote audit. No. Yeah. It's a little bit hypocritical, isn't it?[00:23:00]