Multistate Tax Commission with Helen Hecht
Hosts & Guests
Helen Hecht from, Multistate Tax Commission (MTC
Multistate Tax Commission with Helen Hecht
Meredith [00:00:02] Welcome to SALTovation. This alteration show is a podcast series featuring the leading voices, Insult, where we talk about the issues and strategies to help you make sense of state and local tax. Hello, everyone, and welcome to another episode of the SALTovation podcast. Today, we are lucky to have Helen Hecht with us. Helen is uniformity counsel at the Multistate Tax Commission and will be able to give us some insight as to how the MTC works towards its mission, which is to achieve fairness by promoting compliance and consistent tax policy and practice, and to preserve the sovereignty of state and local governments over their tax systems. Helen, thank you so much for being here with us today. Thank you for having me. And of course, SALTovation’s boss lady Judy Vorndran. Hi, Judy. Hello. So, Helen, we love to know from all of our guests the path that brought them to their current position. So can you please share with us the progression of your career and how you ended up at the MTC?
Helen [00:00:58] Well, so I started out one hundred years ago in this field being a great basketball player. So I was an accounting student at New Mexico University. I was in my junior year and the New Mexico Tax Department had a great paid internship program. So six month internships paid at a decent rate of salary. And I was working in the office that handled these programs and I thought, well, that's great, I want to do that. So I wasn't sure I wanted to be an accountant, actually. So I thought this will help me figure that out. So I did this first six month internship and then I liked it so much that I went back and did a second one. So it took me a year longer to graduate as a result. But it really confirmed, one, that accounting was probably the right major for me. And when I graduated, finally I went to work at the tax department. They were not only having this really progressive internship program, but they had a program back then that would pay you to get your degree. So I wanted to get my master's degree in accounting. And so they would pay your salary and benefits while you went to school and finished your degree. And then you had to work a certain amount of time after that for the tax department. You had to sign an agreement that you would do that. So I actually got my master's degree that way. And they had at that time also a really good program that they were trying to professionalize their audit staff. This was something that they had been working on for a number of years. And so another cool thing that I got to do was I wanted to get my CPA license and to have that to get that into Mexico, I needed a year's worth of experience and it had to be actually working in the audit practice of a firm that did financial audits. So I couldn't get it while working at the tax department. So they let me have a year off essentially to go get my CPA certification requirements met. And I brought all that experience back and worked within the tax department with a number of other people to try and professionalize the audit function within the New Mexico Taxation Revenue Department at that time. So this was the nineteen eighties. I really, really could not have gotten that experience. I think any place else I tell people today that there's a downside working for the government because it doesn't pay as much. But there is a huge upside in that you get to do all kinds of things that you wouldn't get to do typically, especially at that stage of your career. I left eventually to go back into private practice at KPMG. So I went back to the firm that I had worked for to get my experience and then worked there for a while and decided I wanted to go to law school. So I was not a traditional student. I was what they call a nontraditional student, meaning that I didn't go right after until
Judy [00:04:03] I worked for a couple of years. Did you really? Yeah. Yeah. And I was like, OK, is this it? I'm going to go to law school. Yeah, yeah. I just see that. And yeah. So I was an older student, which is kind of challenging, if you know what I'm saying. Yes.
Helen [00:04:17] No, I know exactly what you're saying.
Judy [00:04:18] Why would you see. And it was too poor for the wall of that brewery and too old for the walrus you know, and I like to get this tweenerspace of like I'm just not that twenty two year old, you know, going to law school. Yeah, yes.
Helen [00:04:35] Yeah. Now and in some ways I'm glad that I waited for me personally. I'm glad I waited because I got a lot more out of it that I think I would have gotten. Yeah. The age of twenty two. Yes. Plus I knew what I wanted to do with it. I know I. Yeah. Being in the tax field I said I really have to, I really want this experience, this, you know, expertise that I don't have as an accountant. So I decided that that was real. Add on to what I was already doing, it was sort of like, oh, OK, I'm going to change everything I'm doing. So I really enjoyed it because I could sort of take away from the classes that I think other students were struggling to go to. Why is this relevant? I could sort of take away a little bit better from the classes. What was going to be relevant to me?
Judy [00:05:18] Is that just studying criminal law and constitutional law, which is relevant, and then property law. And, you know, I'm not I'm not sure to this day.
Helen [00:05:26] I am shocked to this day how much that has helped me, though. But the one thing they don't teach at law school, I think very well, at least the one I went to. And from what I can tell, this is why we have LLN programs. And I think in the tax field it is because they don't teach statutory law very well. And of course, all tax law is statutory law. Yeah. And so we are good boys. Like, you know, you're you're you're you're you're you're you're learning about the 19th or the 18th century and you're learning about the Constitution, but you're not learning about how, you know, legislatures and Congress make tax law and how to interpret it and apply it.
Judy [00:06:03] You don't really learn how to be an actual lawyer. You learn how to think. That's right. That's what they tell you. Yes, that's exactly. Yeah.
Helen [00:06:11] But anyway, so then after law school, I got a job here at a local firm, this here in Albuquerque, and went to continue to practice in the state local tax field, but also got some experience practicing in court. And I decided I liked that a little bit, but wasn't exactly a missed tax administration. So after about five years of doing that, a man I know, Jim Edes, who had been the executive director of the New Mexico Tax Research Institute here in New Mexico, which is a great organization, highly recommended it. He was then the executive director of the Federation of Tax Administrators, and that's a sister organization to the FTC. The FDA is a membership organization for all the states and every state is a member. And it's not a policy organization. It's not really an organization that does the kind of work that we do or that streamline does. But they bring states together to sort of share information and to work together. So that organization is based in D.C. and I started to work there remotely. That was my first experience ever working remotely.
Judy [00:07:27] And when technology was awesome.
Helen [00:07:29] Right. Didn't know how much that would come in handy eventually. But so I did that for about five years. And then the general counsel job at the moment. And that's how I got to the MTC shortly. Sicilian, my predecessor had left to go to KPMG.
Judy [00:07:48] Yes, I remember when
Helen [00:07:49] that had yeah. At that time, the MTC was facing some challenges, mainly lawsuits challenging whether or not they should continue to exist in the form that they exist. It was putting a lot of pressure on states to decide whether they were going to stick with us and we were having to defend their organization against these lawsuits. And so I thought, what better time to go to the general counsel organization? And it's facing this potentially existential crisis. So I could not respect that. The people at the MTC are some of them I've known for a long time. And so I thought this would be great. It'll be fun. And it really was a great experience. I got to file briefs in the U.S. Supreme Court. I got to work on uniformity projects. We got to do training on these sort of cutting edge issues. So it was again, you know, if I could say one thing to people starting out in this field, don't discount working in government because some of the work can be the most fun you'll ever do. About a year ago, I decided I really wanted to focus on uniformity. We didn't have a position within the MTC that did that. I mean, we just sort of worked on it, but nobody really focused on directing that work. And we decided, yeah, that was a pretty good idea. And if I wanted to do that, my boss said fine. And so we created this position called the Uniformity Council, and that's what I do now. And so my new boss is Nancy Prosser, who was the general counsel in Texas. So she joined the organization a year ago. And that's been a great addition. So it was a win-win -win for everybody.
Judy [00:09:37] And that's it. You know, it's an important point for you to say the whole thing about the government, because with, you know, our side represents business and that's great. But you have lots of businesses. And so a government can, like, look at all the pie and go with that, you know, as opposed to everybody's like, I don't like the way it happens to me and change it, but it's like the government is kind of trying to do a broad swath. That they don't really just care about software and this or that or the other, right, and it
Helen [00:10:04] has got to fit together, right?
Judy [00:10:06] Yeah, right. Yeah. And my husband used to work for the state of Colorado. He was at the attorney general's office. And it's the biggest law firm here in Colorado and in the state's interests. And it was a very rewarding job for him. I think he did it with seven great coworkers, a great relationship with his peers, and then the opportunity and the autonomy to pursue initiatives without having to work about the billable hours per say, whereas I provided value and paid. Am I making money? No, you are doing it all. Altruistic kind of best practices do things right for the citizens of the state. And you have that situation for your members interests. Yes.
Helen [00:10:44] No, I think that's it's it's very valuable in a whole lot of ways. Not the least of which is the one thing I miss about private practice is billable hours. And everybody always laughs when I say that. But the government has so much to do. Yeah. Prioritizing is hard. You know why it's built in priority when you're in private practice, which you don't have a government. And it's hard sometimes to
Judy [00:11:08] and you don't go to fruition because the client makes you kind of make you have a beginning and ending because they don't want to keep paying you forever and ever just to have some fun. Right. And so the answer to this problem, so we have to learn to be very, very efficient and strategic. But even with you, like, OK, I'm strategic, but somebody needs to make a decision and how do I make this worth it? But, you know, it's interesting, this uniformity thing. And I feel even with myself in my career, we have finally got the set system in place in Colorado for sales tax. And I've been on this commission with our governor for the last six years. I think I just got reappointed for the next tranche, which is on a deficit commission, but that we could get our home rule cities to come on board. But one point of registration, of filing, what a blessing that is and that people sort of could never be done. And so what I'm thinking you're trying to do is say we can do this. There is more information, there is technology. We could create more parity among the states. And if we could do that, how much better that would that be for tax payers like me? The cost of this, given technology, give and data, given information that we can do more now may be built to find more places, but it will be easier right now.
Helen [00:12:20] Technology is a heritage tool for everybody. Yeah, we would not be where we are today if it weren't for the advances in technology.
Meredith [00:12:28] What do you mean? We're talking and we're going to push our conversion. We're going to record our conversation and we're going to put it out into the ether like e-books and like,
Judy [00:12:38] hopefully we'll find it. Yeah. Yeah, exactly. Yeah. I just got a call actually to connect with somebody from an international organization in France. You know, immediately as I'm looking at the calendar this morning, I'm like, what am I got? That translates to my time zone. I'm like, I don't think I did this go away.
Helen [00:12:57] Yeah, good luck. I know, right.
Judy [00:12:59] But you know it because, you know, we're dealing with people internationally and nationally because the world is opener.
Helen [00:13:05] Yes.
Judy [00:13:06] So, of course, people want to sell Americans because we like to buy stuff
Helen [00:13:12] exactly as we do.
Meredith [00:13:15] Then how long can you just give us a high level overview of, like, what the MTC is and kind of like what its purpose is?
Helen [00:13:24] So I mentioned the Federation of Tax Administrators where I worked previously. So the Federation of Tax Administrators was around back in the nineteen twenties. It started really when states began to tax fuel. So fuel was the first big excise tax. And of course fuel gets used in multi-state uses. Right. It's used in vehicles and things that are moving around. So that was the first time the state said we've got we're going to have to cooperate to make this work because now we're all taxing the same thing and there's going to be overlap. So that was an organization that as state taxation developed and you had the sales and you use taxes coming online and the United States is coming at her. Right. So then we had this organization that was just sort of, again, sharing information, letting states talk about the problems that they were seeing or the or the things that they needed to do, but not setting out any kind of uniform or common practice for the states. And then we had this case in nineteen fifty nine called the Northwestern States Portland Cement Case, which is a mouthful. And that case was sort of a watershed moment for the US Supreme Court. So sometimes things happen at the Supreme Court that the rest of us don't realize are happening. But what happened in that case was clear and anybody who was following this issue knew it was clear that the factions had been fighting. The two factions on the court have been fighting about to what extent should states be able to tax what was called interstate? Commerce back then, which just meant people coming into the state to sell things and prior to that the old school said they shouldn't be able to tax it at all. And there was a new school developing on the court that said, yes, we're going to let states tax it. So this was a case in which that second faction won out and they were and they ruled that the states should be able to tax this situation, which we wouldn't think is unusual today. It involved a company that all its production was out of state, but it had a sales office and a lot of customers in the state. So when that case came down, that spurred a whole lot of activity. First of all, Congress passed this law that we now call Poletti 60 70, to which this is still affecting everybody's lives to this day. But in response to the state's opposition to that federal law, Congress said, OK, we're going to study this issue. We're going to study what states are doing in terms of taxing multistate income. And we're going to decide maybe we'll do more, maybe we'll impose a uniform unfair approach to this. So quit letting the states do whatever they want. It was far less uniform back then, if you can believe that was far less uniform back then. Well, not every state, not every state used the federal base as its starting base. Not every state used formulary apportionment. A lot of states did what's called separate accounting, which is kind of the international approach. So geographic accounting for your income. And clearly, these approaches were not working anyway. So the federal government put together something called the Willis Committee, named after its chairman, and they started studying this for the first four years of the 1960s. The federal government and the states were kind of working on this project. And again, this is before the Internet. This is before fax machines. This is before conference calls or any of this stuff. So they didn't even have things like Bloomberg or they couldn't even figure out what the states are doing without sending out surveys to the states and say, tell me tell us what your rule is on this. So they sent out a bunch of surveys to the states saying, do you tax this? How do you tax it? Would you oppose the tax here? And they sent out a bunch of surveys to taxpayers saying, tell us what you do in all these states and whether or not you're paying tax. And then they got all that information together. We actually have a picture of this big room of people tabulating all this stuff by hand. And then after four years, Chairman Wallace came to the National Association of Tax Administrators, which is the prior name to the FDA, and presented the results of that study to the states, to the state tax administrators. And you would have thought that he would just say you guys are crazy, right? You guys have every other kind of way of taxing income that's out there. And you guys need to get your act together and this has to stop. But he didn't. His number one finding from the study was taxpayers are not complying. Well, they're not complying because it's too complicated. You're not complying because they can't. I mean, again, this is before all the technology that has made our lives so much simpler, but also the complexity and the lack of uniformity. And I think the state tax administrators generally went away from that meeting saying, yeah, we get it, we get it. This is not working. So then what do you do? Well, the WOOLAS committee said let's have a uniform federal law and let's just have a uniform federal apportionment law that will work for everybody and will make all the rules. But you can't do that without an administrative agency at the federal level. So who are we going to give that authority to? They said, well, let's give it to the IRS and business community, which had been sort of yes, let's do this. Went wait a second. Now you're going to have this giant federal agency that is probably going to be more responsive to the states when everything is said and done and they're going to be controlling all of the apportionment, the income tax reporting for the states. Maybe we don't want that. Maybe we kind of like the fact that we can go to the state that we're in and say change this rule for us, even though it's not uniform. Make this change for us. So now there's no more cohesive support for this. So the second idea was let's let the states band together themselves and see what they can do in terms of creating more uniformity. So not have the federal government do anything or take on this whole area. But let's let the states see if they can voluntarily. We operate to create a better system, so enter the multi state tax commission, and that was an idea that had been floating around for a while. But how do you do it? And the states ended up agreeing that the best way to do this is through an agreement that says we're going to fund this organization, we're going to support it, we're going to provide resources to it, but it's not going to have any ultimate authority. So that was sort of the compromise that they agreed to back in the day. So 1967 got enough compact members to kick off the organization and it grew over time and some members came in and some members left. But it's been a functioning organization since 1967.
Judy [00:20:45] So it's interesting, though, because you're organizing ideas, but you have no teeth, right? Yes. There's no right to your will to make people agree right there now.
Helen [00:20:59] And we had really good success early on with both the adoption state's adoption of the Uniform Division of Income for Tax Purposes Act or what we call you, DIPP, which was not something that the FTC did. This was a uniform law commission model law, but states widely adopted that. So you saw states moving from the separate accounting method of taxing multi state income to apportionment and then adopting Yuda. And so we had a built in thing to work on at that point, which was the regulations, the general allocation and enforcement regulations for the statute, because it's not, you know, the statutes great. But it's like, you know, two pages and you need about one hundred pages of regs to make that work. So there was a lot to do at that point. And we had good success early on in bringing the states together and saying let's, you know, capitalize on this momentum and work on the things that we all know we're going to need. So that was the early part of the work of the uniformity work of the FTC. And then over the years, we've changed our focus as the years go by.
Meredith [00:22:10] So, wow. Yeah. All I can think of is just like the cost performance model statute. That's almost like there's like four states now that are what, like a greater cost performance. But it's like, oh yeah, you solve a lot of the old like the old language that probably got adopted. Right when
Helen [00:22:26] right in 1970s, that
Meredith [00:22:29] kind of statue was coming out of like, hey, you don't know what to do, here's what you should do and it's still there. And yes, that's obviously few and far between. But I just I just, like, stuck on I can even, like, see what it looks like because it's even like the Virginia like this statute, like the formatting is exactly the same between all of those. And so like. Yeah, like my brain is just stuck on this picture of like one particular thing. And now I know the back story.
Helen [00:22:57] Yeah, right. And we have big binders in our lives and we have a little library conference room in our offices in D.C. and we're big binders full of official documents. And, you know, again, this was the 1970s. So they put out this very complicated set of regulations, 50 pages of regulations, white paper. They would mail them to people and it would come into the office and they'd make copies of it and distribute it out. And then they would get letters back as a response to, you know, and someone would have to go through all of this information and try and figure out what to do with it. So, you know, it's a very different world under which they operated. And considering all that, you know, it's kind of amazing what they accomplished
Meredith [00:23:42] and especially so, you know, kind of the foundation of this is to create uniformity. Right. Things change. And then now here you are. Fast forward. Sixty five years later. Such that or not that my math is off. But anyway, you know, that's right up to two years ago, you know that now you are titled Uniformity Council. So then what are you doing now like the Uniformity Council?
Judy [00:24:10] So why isn't a uniform why do you have it? Why do you have something to do?
Helen [00:24:16] Yes. Well, lawmakers in charge, writers and lobbyists. Yes. And if the tax administrators are going just please make it doable. Could we have a workable system? Maybe because that's really all we care about. So, yeah. So why the uniformity council? So we've gone through these phases. We went through a phase where we were focused on combined filing and making sure that states understood how to do combine filing because it's not as easy as it looks and it's awful. Yeah. So I mean, you
Meredith [00:24:48] knows, from like getting to have to like track. I know wells well. One like putting an actual pen to paper and even just like making it happen outside of the rules is complicated. And then you have to. Layer in the rules, it's like, yeah, it's not like this.
Helen [00:25:04] Yes, well, I mean, that's why you have at the federal level these consolidated filing regulations,
Meredith [00:25:11] you know, to regs that are like this.
Helen [00:25:13] Yes, exactly.
Meredith [00:25:16] I'm not in green, but
Judy [00:25:17] yeah,
Helen [00:25:19] right now you're doing this and I agree with that. So that was, you know, very similar. We spent a lot of time on that. And of course, this was the time when people were arguing about the world wide combined following and California's approach to worldwide commodifying. And there was a backlash against that. So we spent a lot of time on that during the 1980s and during the 1990s, we kind of branched out. This is all before my time for kind of MTC kind of branched out in other things. And then we had the court case. And before Cuil I think states were anticipating that there was going to have to be some change in how the sales tax system worked. More and more, interstate commerce was more and more remote sellers without physical presence. What are we going to do about that? Nineteen ninety two came around and the Supreme Court upheld was nothing but a national bolthouse that upheld those stabilities. And in Cuil and then the states said, OK, if we want to be relieved of this limitation on our ability to collect the tax, and that's the only thing that works in the sales tax there is to get the seller to collect the tax. If we want to be able to do that with these remote sales, we're going to have to simplify. And so that's the point at which FDA and the FTC and the states together said we've got to have a new organization, which is where streamlined sales tax comes from.
Judy [00:26:53] I remember thinking I was going to have a job when they came around. I'm like, oh, it's going to be all I know. Well, here we are. However, many years later, they'll have a job because I
Helen [00:27:02] doesn't think that's fair really. But so we stopped working on sales tax stuff as much back then. We've had a couple of projects since then. Mostly having to do with you had a project that followed New York's law, the Amazon law, which would say if you've got a website and you've got affiliates in the state supporting that website, sending people to that website, that's enough of a presence here. We worked on a model for that.
Judy [00:27:34] We also click through Nexus and exactly.
Helen [00:27:37] Click through the nexus of allowances. And then there was an idea proposed by Colorado
Judy [00:27:44] but noticed and
Helen [00:27:45] started having to. Yeah. Instead of having to collect the tax. Why don't you just tell us all the sales you made to the state?
Judy [00:27:50] Thank you, filmstrips. And I give him a lot of great fees for what he and I worked on together. He just spoke yesterday at one of our salt breakfasts filled with people.
Helen [00:28:04] Yes. So this was his idea and not directly, of course, to the Wayfarer case. Yeah. And so we got involved in those issues. But there was a period of time when I think we felt like we were at the MTC, we just sort of didn't know what we're doing and whether that's true or not. The Uniformity Committee in the Strategic Planning Committee at the embassy decided to work together just to see if we were being effective. So what projects have we worked on in the last few years and how many states have adopted what came out of those projects? So we undertook this back in about ten years ago. We started this. So we're looking back now to a period of time. It's 15, 20 years ago. And what they found was we probably need to do a better job at selecting these projects to begin with their time intensive. They take a lot of time and attention. Maybe states are not really ready to do anything or to change. And we need to be more careful about what projects we take up now that we came up with that. Results from that analysis, we were already doing that to some extent, so we are already sort of processed some of this and we're saying to ourselves, let's make sure we work on the most important things where states are really ready to do something. And at that time, we were working on the market sourcing for sales factor personnel. We were a little behind by the time we got started on that for various reasons. But that project showed that we could take on a really, really complicated issue, one where states were kind of disagreeing but moving in a similar direction and get them to at least agree on some of the details. I take a slightly different theoretical approach, but let's all agree that if it's this kind of service, it gets sourced based on this information. I think one of the key things that came out of that project was the creativity of it, really the problem solving that we were in a new sort of unexplored territory with a lot of these detailed rules. And we spent a lot of time talking about, oh, my gosh, how are we going to deal with this or that or whatever,
Judy [00:30:29] like Sirius XM Radio. How do you source that, say, on the user base of the tower, based on what I mean, satellite, that's nowish. Where is it? My home. I'm driving around that service. I'm not I might not even be in Texas where I live. I might just be in. Right. It might also, of course, doesn't work very well because there I'm great Internet service there. But regardless, I mean, that is such a crazy thing. Yes. Technology is interspersed and source and the Goldberg versus cases and all that for telecommunications. I mean, it could be because it's mobile, right. So when you say Jack, are you saying, Helen, that you guys kind of assimilate all the laws and then go, this is how one state's doing it versus this is how another state's doing it and they're how they're interpreting this exact same fact, this disparity here, because they're not interpreting this exact same language the same way, and it's creating an uneven result to taxpayers.
Helen [00:31:30] Well, so every project is a little different. The and what this strategic planning study showed us is if what you're describing the situation you're describing is typically the situation in which we may be the least the least effective, that uniformity. So let's say we've got a problem. Every state faces that problem and every state has already come up with their own solution to it. Right. And it works for them. And they've just you know, it's in the forms and it's in the instructions and it's in the technology to the system and to undo all that and adopt a different approach just to make it more uniform so it can happen. But if we can say it is the kind of problem, by the way, is something that technology is often useful for, because if you've already got a definitive, clear approach to it, even if 50 states differ, maybe that's a solution, maybe that's a problem. Looking for a technology solution rather than uniformity. All we know is it's just hard sometimes to get states to change that because what will move them in that direction is if the technology works better, if you do it this way versus that way. So what we've seen is for some things states will say, oh, well, if it costs us less to implement this technology and do it this way, then we'll change our approach because it's worth doing that. If we're just trying to say, well, we're going to pick a uniform approach and 30 of us are going to have to change the approach we're using, that's a lot to ask. So technology is probably the first tool that states will reach for in that situation.
Judy [00:33:11] So is that like working in lockstep with the software programs that do tax returns, like the go boy oh boy. So they're collectively working together to say, how can you modify the inputs to this to get the right result in my state?
Helen [00:33:25] Yes, I think more personally
Judy [00:33:27] than again and all that. So they're really hoping for more and more technology. We're seeing the Bondar, you know, this
Helen [00:33:33] this approach takes this data set and it's very complicated and subject to all kinds of problems, whereas this approach takes this dataset and only two steps and it's much easier to do so. It'll say, OK, now you've convinced us it's worth moving to this more uniform approach.
Judy [00:33:52] I would just like to know how the states are going to administer a digital tax on advertising. When that's said I like to come on. I mean, advertising is everywhere. It's just citizen based. I mean, oh, I looked at that ad. I mean, how the heck are you going to tax that? So that's to be an interesting pivot, because what I find with the you know, everybody knows where the money's coming from, but they don't know how it's exactly through their invoicing process, if that makes sense. Like you look at interactive, my ad, you clicked on it and booked a room. I get paid on the comp for that room. Right. And that comes back to me. But the room was used in Texas. You looked at it while you're in New Mexico. So, OK, where do you draw that sale? So, yeah,
Helen [00:34:40] it's a great example. Now that's a great example because sometimes it's sometimes a choice between two states and sometimes it's a choice between three or four states in terms of sourcing, which makes it really complicated.
Meredith [00:34:54] And it's funny kind of like, you know, the market sourcing stuff is there's a simple concept of benefit. Right. But then, yeah. Where is it? And who actually is the ultimate benefit benefactor of a coupon. Right. Like a desire to find it, someone selling cereal. Is it the consumer who gets the dollar off that cereal, you know, or is it the company who's helping connect the consumer with the cereal brand so easily? All right.
Judy [00:35:27] And then a zero gets bought at a grocery store or whatever. Oh, that's not even there. Not yet. No one is the buyer, the seller of that. That's not the factor. That's not the buyer. That's the grocery store. So how many times are going to have the same receipt? That's another thing that I think is kind of interesting. Yeah, yeah.
Helen [00:35:44] No, I think, you know, digital advertising. One of the things that's true about it is that it's a B2B sale. I will say this sometimes these problems are if you go into the details, you lose the forest for the trees kind of a situation. So you're always trying to fit the slightly squarish peg into a round hole and. Maybe it almost fits and you keep trying to do that versus backing up and saying, OK, what's the whole point of this tax? Why do we do it this way? You know, one of the things, for example, that you find in the sales tax area, one of the difficulties is sellers having to charge the tax on each transaction. Right. So this is something that was brought home to me when we did the work on the sales factor, market sourcing on the sales factor. You can say something in a situation where it's just too complicated to do exact sourcing when it comes to the sales factor, you can say. Get close, you know, use a reasonable estimate. It doesn't matter that it's exactly right. What's important is that it's consistent and it's mostly right. And if you have to use population, even use population, if you're doing this everywhere, then that's probably close enough, whereas that's really hard to implement in the sales tax area because we've got this traditional view that it's got to be charged transaction by transaction. So sometimes you just have to stop and say quit trying to fit the square peg into the round hole. And let's figure out, is there a different way to do this and why are we trying to do it? And for that, sometimes I know this is counterintuitive because sometimes you have to slow down. Right. So states are saying, hey, let's do this. Digital attacks. Wait a second. Why are you doing that? And what is that? Maybe that is the right approach. Maybe when you think about everything, that's the right approach. But oftentimes it's not very deliberate. It's just sort of a reaction.
Judy [00:37:50] I feel like it's political, like we want to go after Google and Facebook. They're making a ton of money on ads and we want a piece of it. And it's sort of like oil and gas, severance taxes. Like we pivoted to those because they were making a lot of money on oil and gas. And now we want a little piece of it. And income taxes are hard to raise, right? So we can't raise the rates on income taxes. And so anyway, I just think it's like let's just add another tax to go after these particular businesses that are making piles of money on all the digitization they have of the human, I don't know, a really interesting layering in our and our world as technology has shifted the way we deploy. And, you know, we were a good organization. We made things and then they got deployed, you know, and that's not the economy we have anymore. So we still make things now.
Helen [00:38:37] That's right. I mean, that's that and our system doesn't fit that. Yeah. Our system doesn't fit that. So this is that if you recognize the problem, the nature of the problem, sometimes you can fix it. I mean, we've had situations where we've said, you know what, if you just move this or change our view of that, then this continues to work just fine. Maybe you do need a whole new tax. Maybe it's the nature of I've seen lots more creative writing in recent months on some of these old problems, you know, intangibles. How do you value them? How do you source them? Why is it that, you know, are expenses for intangibles are expensed for tax purposes rather than the capitalized? How is it that you could create an asset that would be comparable to a plant or machinery, the kinds of things that we're used to? Can we still fit these things into that same box or do we have to create a whole new system? I've seen a lot more creativity around that in recent years, and I think to some extent people are recognizing we just can't continue to tax things like it's the 19th century. We're just going to have to evolve and our systems are going to have to run.
Judy [00:40:07] Well, I think that's why the market sourcing makes more sense, because, you know, you can't really pound up on a company for having heavy industrial operations. So they're heavily situated in a place right now. We've learned people could pick up and move in. If you're in a technology space, you could be anywhere. You could have people in Israel doing coding for you and India like Mexico. I mean, it really just happens in America. So then you're like, well, then I stole
Helen [00:40:34] some things like that, as simple as the annual reporting system, you know, we lose, we lose track of all the stuff. So how do you report taxes every year? That's on you. OK, so maybe my company spent a lot of time and effort developing technology ten years ago that we're just now bringing to market. It's just now creating income for us. Are we going to use what we were doing back then? Are we going to use what we're doing today to source that income? Right. So maybe those employees moved, maybe now have a new headquarters someplace else. Some of this doesn't match up anymore right now. And yet if you don't, if you're not careful in terms of trying to figure out what were our principles, what is this designed to do? Does it still do that if you don't identify the right problem? You know, that's what I always tell you. When you're trying to solve a problem, the most important thing is to make sure you identify the actual problem. OK, so maybe this idea of always looking at this year's property and payroll. Maybe that's not the right answer. Maybe we should say let's look over a longer period or or let's get rid of property entirely because it just doesn't match up.
Judy [00:41:49] Right. Which I feel like that's been the transition. We've been ZEMMOUR, the single sales factor, the sales factor, get rid of the property and the payroll. Just done. We don't care about that anymore. Yes. Well, I never actually felt that nexxus created by a remote employee, one employee in a state, is a fair measure of an income tax filing. I've just always found that to be quite troubling because that's a convenience that has no market. Sure. You might sell there. Fine. Maybe that. But Dash, even an employee index, is a great activity for filing a return. Crazy one. Human events. Just that's not so. There are some things that are just don't make sense, become
Helen [00:42:30] a big issue
Judy [00:42:31] and well now with covid in the remote and people moving and I have next somewhere else that you never anticipated before because you couldn't bring them in the office craziness. New Hampshire, Mexico.
Helen [00:42:42] That's been the biggest issue for the last year, I think. Yes. Yes. And the one that everybody's focused on.
Judy [00:42:49] Yeah, well, I feel like we should talk about politics. Sixty seventy two in the Chatterbox's and that kind of thought about the new standard around, you know, with Wayfair you're going to see more sales tax licenses, which means more companies are going to be registering in states. And I feel the question is going to go, where's your income tax return? Where's everything else you should have been filing here just because you wrote a sales tax license, registration form and signed it. So what do you think about that? Like marrying that? I think I feel like that's going to be that you're just going to file. Everyone is just going away. It's so we've got to create more parity so that you can as a business or you're not going to do it.
Helen [00:43:24] Yeah. So income tax has always been a big issue. We had clients when I was in practice that had to file, you know, had to file small little returns and a dozen different states. And it was a pain in the butt for them and they hated to have to do it. What you're describing, I think, is an even worse scenario, which is OK now. I filed in the four states I really thought I needed to file in and apportioned my income there and pay tax. And now you're telling me, oh, no, it should have been eight states which would have changed everything. I would have paid a different amount of tax. And we understand that. But let me just say as a preface to all of this, we didn't do this was not the state's idea to do P.L.. Eighty six to seventy two in terms of laws, not the greatest end. And we always say we always start these discussions by saying it was designed to be temporary, not because it still is. It's been with us for sixty five years, but I didn't think that hard about it. If they had, I guarantee you, would it have been limited to tangible personal property? Probably not, but it is what I have drawn. The lines were drawn, maybe not. But despite that, has Congress ever come back and done anything to that law? No. This is the problem with federal law often, especially in these areas where they're not used to having to revisit. There's no infrastructure around this. They don't have the Joint Committee on Taxation that's always studying federal taxes. They don't care about 60, 70. Do you don't care about issues like this? There's no administrative agency. You can't issue regs. There's nobody coming back to Congress. Even the states. Right. Are just going. I guess we have to live with this. They did it in 1959 and we're just stuck with it for the rest of eternity. So that's where we all are. We're sort of all in the same boat. And then the question is, should we even though we can't issue binding regulations, should the states at least telegraph here's what our position is going to be. So, you know, the risks you're taking. You can calibrate those risks if you're a seller that may fall into this category. Here's the position we're going to take. I don't see a real downside to that. I really don't, because it's still going to be up to the courts to decide. I mean, all of these issues are up to the courts to decide. Still going to be up to them to say, is this the right interpretation of that federal statute? But at least, you know, ahead of time now saying that, I would also say from the state standpoint, they want to make sure, again, that it's an instrument. If we draw the line in some weird area and nobody can tell when you've crossed that line, that's not going to work very well. So from our standpoint, it's just saying, should we draw the line here or here, here? And how is that going to affect everybody for every seller that says, look, I was protected by this law, or at least I thought I was, and now you're telling me I'm not. And I don't like that there are sellers who say, well, I was never protected by it. And I don't think it's necessarily fair that you were. So we have to balance all of those considerations. But again, I think the number one most important thing is that if you draw the line, everybody agrees. We know where that line is. It's clear and we can tell when somebody has stepped over.
Judy [00:46:56] I can't tell you how many of my clients have said to me, the federal government needs to act, the federal government needs to act. And we would all mean, I remember tracking the history of the federal actions around the Wayfair issue, which, of course, was the Supreme Court, because I couldn't figure it out there and talked about it and said it's a problem and we need a small business exemption. And they said during like 15, 20 years you like the federal government's not going to act. OK, get over it, taxpayer. They're not going to. And then here's the Supreme Court making a decision. Everything goes.
Helen [00:47:31] Here's an unusual situation in which we have a solution. The FTC has a solution and states are starting to look at it and look at the president's Texas standard. Yes. So just kind of like South Dakota, who said to the court, it's not that we just want to tax everybody. Well, we'll create a standard and it'll be a bright line standard. It'll just work better than physical presence. We have a standard we think works a lot better than 60, 70 to. And you've been promoting that as the NTC for over 20 years. This factor presents, you know, half a million dollars of sales. Fifty thousand dollars a property for two thousand dollars to change the numbers if you want to change the numbers, rasam tied to inflation. But that's a much better standard one because taxpayers are going to compute that information anyway. Right. They have that. They know. I've got to figure out where my sales are going to figure out which properties. So they've got it too if you don't have those things, you're not going to over much tax anyway. So why try to tax people under those amounts? States don't want to do that. And three, it's just a much clearer, brighter line than people's ability to somebody who has turned out to be in the context of this new digital economy. Right? Yes, it works great when everything is physical, not so much anymore.
Judy [00:48:56] Well, and it's also the activity around sales. I mean, we have a client that does like they'll do and they'll do C.P.E. kind of classes for free their products. And they go after the community that would sell them or buy them from them, you know, so that exceeds this is only true. But it's really just a marketing ploy to say, hey, we'll get you to come listen to a pitch about our products and how to use it. And we'll give you this little extra accretes, accredit equitation, whatever the word accreditation. And there's the word that you will participate and you're incentivized to count because you get a double whammy. You've got to get that. And you want to learn about this product. Have a nice lunch. Don't feel any of the seven do overwritten or let's absolutely say come into the company and they're an R&D guy. And guess what, that's not really that I do brand and now you have to file a tax return there. So I hear you there, although that would probably exceed fifty thousand payrolls, but you'd have a duty anyway. But there's some things where it would be nice if we saw a little bit more standardization in marriage. We do have clients, though, that are filing all these sales tax returns and then they have to file like fifty cents a tax in a jurisdiction and it costs them more money. The tax return that it does actually gives the government a tax because it's time and time intensive to create these tax returns across our nation, I'm sure that was very easy. No, that
Helen [00:50:25] was the whole intention of the fact the president standard was to say, we know how this tax gets calculated. You can have a gazillion dollars of income. But if but if you've only got 0.01 percent of that income in the state and then you multiply that times the tax rate, you're not going to very much, even if you're making a gazillion dollars of of of income, your profit margin, whatever, all of those things go into the calculation of the tax. And we can set a standard that ensures that people are not going to get away with filing taxes everywhere and reduce the the cost of compliance and then
Judy [00:51:08] avoid the digital add taxes and stop creating new taxes because you're actually getting all the taxes from everybody else. I kind of wonder, though, you know, I've been reading different things that say the state's coffers aren't as low as we thought despite the budget cycle. And I wonder if they're I don't. I wonder what it is that's creating this money.
Helen [00:51:26] I think that's I think the timing could not have been better. The timing of Wayfair, given everything else, could not have been one of those states, for the most part, with a few minor exceptions that had already expanded their sales tax to include especially the marketplace sales is so huge, you know, that the revenue that came in from that offset won the revenue that was not coming in from restaurants and some other businesses that suffered during the pandemic. But also, I think the fact that that consumption continued to create income and jobs and other things during that period of time. So, I mean, I don't know that it would have turned out this way had it not been for the ability of both the market to respond, such as it did and the tax system to respond to it. What I was going to say about the effect of President Nixon's standard is we still very much support that. And I think if effort was put into getting that enacted at the state level, I think there will be a lot of states that would be receptive to it, and may just pass it.
Judy [00:52:39] So why haven't we got in there despite that? And then we're going off of these visits to add digital taxes in Nevada, add in their commerce tax, which is now six years later, you know, gross receipts, taxes. What are we doing here? I mean, I realize I don't have an income tax. That's their issue. They're they they don't want to create an income tax that great the commerce tax. But like, why can't we see that momentum? I mean, you guys have proposed this for years and we start seeing if it's a board says,
Helen [00:53:05] well, that was interesting because Maryland doesn't have combined filing. And so and even states that do adopt combined filing, if they don't do it the right way, are not going to see some of this income that is not right now not being taxed or at least they're not taxing. You are not going to see that income. So you have to do these things the right way. I don't know exactly why. I think sometimes it's a lack of information. I also think that for states that have tried income taxes and said it's just too complicated, gross receipts, taxes, easier, I get that. I mean, I understand how Ohio could have said we tried the income tax and it's just way too complicated. And to some extent it's subject to federal changes. Right. One of the things that makes it complicated is the federal government drives some of its economic policies through the tax system.
Meredith [00:54:04] It's not dependable because your baseline can change so much.
Judy [00:54:08] So let's get rid of the state level and go to receipts tax everywhere. Yeah, yeah. I mean, I think that suggest I
Helen [00:54:17] thinks that's a good idea.
Judy [00:54:20] Right. Right. Well, it's just that the thing that's muddling is the differences of taxes. And I think a lot of taxpayers I mean, even 80, 60, 70 to I can't after I left the big four, I went to a regional forum. I can't tell you how many people thought the L.A. 60, 70 to apply to everything. They just didn't even get it. They get it right. I know they get a break in tax. So there is a huge disconnect with practitioners between what duties apply to you as a business. They don't even understand. They understand federal you know, you're an Escorpion LLC or this or that, but they don't understand state's at all. And we have a real problem. We have forty six thousand or some crazy amount of CPA firms in our nation where they don't understand the state local tax consequences of our business that they represent and they work on behalf of . It's a real problem. I mean, the way everything's been the best thing ever for state local practitioners where it's been nationally prominent news. Where do you see The New York Times
Helen [00:55:14] people now
Judy [00:55:15] talking about? I mean, they are talking about Wayfair. Who cares about taxes? Well, guess what? It's out there. So that's been a fan fascination for all of us, I think, as practitioners to get legitimized, like all the craziness we've been dealing with here is, don't you think, but that we need to take that next step from the income tax perspective. I think I have Selamat empty seats trying to lead that charge, but it's always just dependent on who adopts because you only have so much. You don't have as much authority. You have influence. Right. But the decision making process, the placers
Helen [00:55:48] Well, the decision making also always goes to different places. So even in streamlined, you know, there are states that can pull out, streamline their states. They can say they have influence within the process. And they also have influence by saying, you know, if you do this, we're going. So, I mean, that kind of political will is always ultimately the thing that decides everything. Yeah, but the big trend is probably in the sense that states are going to have to start collaborating more. And that's just the bottom line. It's just not it's not going to work for them. We're kind of back to where we were. You know, when I described the situation in the early 1960s where Chairman Wallace goes to the commissioners and says people are not complying, you're not getting the tax either because your system is outmoded. You know, today it's really that is the problem. The system is not is not designed to handle these kinds of things. So you can either continue to try and make the system fit an entirely new situation or you can cooperate together to say, all right, how do we do something new without adding complexity? You know, can we reduce complexity and do something new? Can we fix the problem? And not everybody tries various different solutions, so sometimes that's good. Sometimes that experimentation is good. But obviously in today's world, that comes with a huge price. So I think the fact that states can while the FTC can't tell them what to do, this is one place where they can cooperate and say, what if we did it this way? What if we did this one? Here's what we're saying. And here's something you may have thought about. There's no place else, really for them to do that kind of work.
Judy [00:57:42] So we've certainly seen that it's possible to get change that you would never in my entire career, I've never seen governments act as quickly as they have in enacting a marketplace. And if two years were a hundred percent, I mean, every state that has sales has a way. There is a marketplace law. It is now Missouri and Texas, Texas, Florida, Missouri, Florida, not one hundred percent enforced yet. Right. We're just on the cusp of that. But crazy, like after one after another, they're getting enacted. So clearly this can happen that allows that here.
Helen [00:58:17] Here's an example of where the solution preceded the ability to implement the solution. So we knew what the solution was, even with the spectrum marketplaces. This was an idea that came out of New York. Rob Platner was with New York for many years, published this article like ten years ago going why don't we collect this tax from the marketplace and everybody freaks out. Well, but, you know, OK, the marketplace may not be the seller in the traditional sense, but we only collect the tax from the seller because it makes sense, just like intellect tax from employers on the employees wages, because it makes sense. So, all right, we're not doing it now, but that doesn't mean it's crazy. So we had kind of a set of solutions, sales thresholds and marketplace collection and some of the things we were ready to go when Wayfair can go, which is not always the case. Right. Sometimes it's like the boiling frog. You know, the water keeps getting hotter and hotter and eventually it's like, oh, crap, we have to do something about this problem and we don't have a solution. We haven't thought hard enough about it to come up with a solution, which is where we are most of the time.
Meredith [00:59:34] Well, and I think well, first, I think that's a really good place to stop because we've come full circle, right where we've you know, the end the starting point for the MTC was just like, hey, there's all of these things happening. Let's all get on board. And again, that's where we are today, you know, over 50 years later. And so, Helen, that's said, yes, this has been incredibly insightful. So we really appreciate your time. And thank you so much for being here and sharing, you know, everything you have with us. This has been the Salvation podcast until next time this. Podcast is for educational purposes only and is not intended, nor should it be relied upon as legal tax, accounting or investment advice, you should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.
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Questions asked and answered in this Episode:
- What is the progression of Helen’s career and how did she end up at the MTC?
- Can you give a high-level overview of what the MTC is and its purpose?
- What is she doing as uniformity counsel?
- How are the states going to administer a digital tax on advertising?
What You Will Discover:
- [00:47] The path that brought Helen to the MTC
- [13:14] An overview of what the MTC is and its purpose
- [20:58] Early success with states’ adoption of Uniform Division of Income for Tax Purposes Act (UDITPA)
- [23:43] What she does as uniformity counsel
- [31:08] Their approach to assimilate the laws
- [33:54] How the states plan to administer a digital tax on advertising
- [42:49] The new standards due to the Wayfair decision
- [47:30] An unusual situation in which MTC has a solution
- [51:28] Why Wayfair decision was great for state and local practitioners
- “If I can say one thing to people starting out in this field, don’t discount working in government, because some of the work can be the most fun you’ll ever do.” – Helen Hecht [08:49]
- “Technology is a huge tool for everybody. We would not be where we are today if it weren’t for the advances in technology.” – Helen Hecht [12:19]
- “It’s interesting though. You’re organized and you have ideas, but you have no teeth, right? There’s no bite to your will to make people agree.” – Judy Vorndran [20:45]
- “Sometimes you have to stop and say, ‘Quit trying to fit the square peg in the round hole, and let’s figure out if there’s a different way to do this. And why are we trying to do it?’” – Helen Hecht [37:14]
- “Identify the right problem. YOu know, that’s what they always tell you when you’re trying to solve a problem. The most important thing is to make sure you identify the actual problem.” – Helen Hecht [41:24]