Brad Scott, the director of finance at Halstead Bead, has been a major advocate for sanity in sales tax since 2019. We’re equally passionate about this issue here at TaxOps! Read how Brad got involved in the nitty gritty of SALT compliance and recommended policy changes to reform and simplify state and local tax for businesses.

By Judy Vorndran based on discussions for the SALTovation podcast. Listen in at the SALTovation show.

Brad Scott, the director of finance at Halstead Bead, has been a major advocate for sanity in sales tax since 2019. Over the years, Brad has advocated for tax simplification and uniformity, and spearheads important conversations around this intricate topic.   

Halstead Bead, which opened its doors in 1973, transitioned from selling jewelry components in-person and mail-order to becoming a fully online seller. The business has weathered many shifts in the economy and sales tax laws, including the controversial Wayfair decision in 2018, which dramatically changed the taxation game for online sellers.  

As leaders at Halstead Bead became aware of the compliance obligations emanating from the Wayfair decision, Scott has learned a lot about not just sales tax rules and regulations, but about the legal system that makes it nearly impossible for a company  the size of Halstead Bead to gain access to due process owing to cost of hiring multiple lawyers in several states and not having claims ripe for a lawsuit and the like. There needs to be reforms to allow more interstate tax cases entry into the federal court system.  

In the meantime, businesses are required to adapt to these taxing changes. Scott is quick to reveal the significant investment Halstead Bead made to integrate tax calculation software and the massive amount of time and resources devoted to understanding sales tax obligations across various jurisdictions. Over five years, compliance in state and local tax has cost Halstead Bead around $429,000 against a collection of $168,000.  

This means a tax compliance cost of approximately $86,000 per year to remit $33,000 in taxes across the nation, while also filing to protect resale sales as the bulk of Halstead Beads customers are resellers. This is a large cost for a small-to-medium-sized business to absorb. It is also why many taxpayers cannot justify state and local tax compliance and instead, wait to be audited.   

Reforming State and Local Tax 

In a call to action, Scott insists on the importance the voice of small businesses be heard as they navigate the taxing consequences of sales tax complexities due to different state and local tax laws. He advocates for numerous solutions to tackle these challenges at the state and local level.  

One pressing suggestion is employing a single, uniform weighted average sales tax rate per state for businesses, which could drastically reduce complexity and cost. Such a policy has been implemented in Alabama, Louisiana and Texas (though some rate policies have since changed), creating a more efficient compliance process. He also proposes a standardized exemption certificate, eliminating the need for different forms for different states and significantly reducing paperwork and the need for expertise to unravel the process from state to state.  

Another suggestion for advocacy is to restrict sales tax audits to one per year, managed by a single designated authority. This change would avoid the overwhelming scenario where small businesses face multiple audits from different states simultaneously. 

Brad also advocates for the establishment of a centralized database for tax rules, which could simplify information gathering and aid business taxpayers in compliance. This has been somewhat managed by the Streamlined Sales Tax system. But only 24 of the 46 states with a sales tax conform to these standards, leaving 22 states continuing with their own definitions. Several of these non-member states represent the largest population of potential customers and include California, Florida, Illinois, New York and Texas, which together represent one-third of the U.S. population.   

Finally, Scott underscores the need for jurisdictional leniency for non-compliant taxpayers. He sets forth that these businesses are not disregarding compliance to evade tax obligations but rather due to a lack of understanding or inability to handle the overwhelming complexities involved.  

Policy Recommendations for Simplification 

The full list of Scott’s Policy Recommendations for Simplification include: 

  1. Option for a single rate per state, following Texas’ model 
  1. One audit per year from a single designated taxing authority 
  1. Protection from retroactive taxation, including a phase-in period for new taxes/fees 
  1. Central clearing house option 
  1. Provide businesses not currently in compliance with state economic nexus rules with relief as they attempt to come into compliance with state and local laws 
  1. Thresholds based on retail sales only 
  1. Limit new sales-type taxes/fees such as the CO delivery fee 
  1. Option for a single, nationally accepted, exemption certificate that puts the onus of proof and payment on the buyer, not the seller 
  1. Provide businesses with liability protection for errors made by third-party software providers 
  1. Minimum simplification for product definitions, classifications, and exemptions across states 
  1. Require states to abide by a uniform, federally-specified definition of where remote sales are to be sourced 
  1. Require uniform tax definitions and tax exemptions within each state, so that local tax bases are aligned with state tax bases (i.e., businesses must track just 46 different sets of definitions and exemptions – 45 states plus D.C. – rather than up to 12,000 state and local jurisdictions) 
  1. Provide taxpayers with the ability to try challenges to state tax laws in federal courts by modifying the Tax Injunction Act 
  1. Simplify bad debt recovery (example, California Schedule Q is overly complex) 
  1. Consistent threshold measurement periods that align with the calendar 
  1. Consider what policies may help businesses meet the high cost of implementing and using third-party software to track registration, sales tax collection, and sales tax remittance (even though many of the more urgent reforms above would reduce the need for third-party software) 

Public Law 86-272 Protections 

In addition to advocating for the above provisions, Scott is promoting separate legislation to reinforce the protections of Public Law 86-272.  

PL 86-272, a law passed by Congress in 1959, sought to protect businesses without a physical presence in a state from aggressive state taxation[1]. Congress told businesses and states that selling goods across state lines did not generate an income tax liability provided there was no other activity in a state. In the years since, the states have found creative ways to circumvent the law. Since the Wayfair decision, some states are asserting their will and may be breaking federal law. In the process, the states are disrupting interstate commerce. It is still Congress, though, through Article I, Section 8, Clause 3 of the Constitution,[2] that has the power “to Regulate Commerce with foreign Nations, and among the several States.”  

Automation 

Separately, Scott notes that software for business tax compliance should not be required, or even necessary, if tax policy is good. Tax authority reliance on software is an attempt to retrofit a legacy, locally controlled sales tax system into the modern business world. Scott insists that focusing on policies driven by uniformity and simplicity would make software a luxury, not a necessity. If one person cannot bring a company into 50-state compliance, Scott contends that  complexity is too high; software is not the answer. 

The Takeaway  

With our long history of guiding businesses in state and local tax compliance, we readily validate each of these positions and points. There is historical precedent, legislative issues, and potential impacts on the economy to consider in resolving the issue of complexity. Like Scott, we believe resolution requires grassroots advocacy and cooperation among businesses, government agencies, organizations and lawmakers.  

It is crucial to continue spreading awareness about sales tax compliance issues and spearheading efforts focused on simplification and uniformity. These concerted efforts are integral to alleviating economic burdens on small businesses and fueling job creation and growth across the country.  

[1] Public Law 86-272, passed by Congress on September 14, 1959, https://www.govinfo.gov/content/pkg/STATUTE-73/pdf/STATUTE-73-Pg555.pdf#page=1  

[2] United States Constitution, https://constitution.congress.gov/browse/essay/artI_S8_C3_1_2/  

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