State and Local Tax Compliance Simplified with Brad Scott: Part 2
Hosts & Guests
Judy Vorndran, Partner, State and Local Tax
Meredith Smith, State and Local Tax Senior Manager
Brad Scott, Director of Finance, Haldstead Bead INC
What You Will Discover:
As we continue our discussion with Brad Scott, Director of Finance at Halstead Bead, Inc., an eCommerce wholesaler supplying jewelry businesses worldwide, Brad shares the challenges faced by small businesses in complying with state and local tax (SALT) regulations. He highlights the high costs of compliance and the potential consequences of non-compliance. Brad emphasizes the need for amnesty and a simplified and streamlined approach to help small businesses become compliant. He also calls for a centralized database of SALT rules and regulations to make compliance easier for businesses.
Talking Tax Reform: https://taxfoundation.org/event/post-wayfair-remote-sales-tax-reforms/
Topics Discussed in this Episode:
- Compliance with SALT regulations is costly and time-consuming for small businesses.
- Non-compliance can lead to significant financial penalties and even the closure of businesses.
- Amnesty should be considered as a solution for businesses that are not currently compliant.
- A centralized database of SALT rules and regulations would greatly simplify compliance for businesses.
- “There is an equal lack of awareness on the part of policymakers about what goes on within a small business, the challenges that we face, and what kind of resource drain they present. That has been the key focal point of our advocacy, bringing to bear the actual resource that we have to put into this and helping legislators to understand what a reasonable expectation is so that we can comply but also serve our customer base.” -Brad Scott [04:40]
- “If you start thinking about the sheer volume of businesses that are out there, I question how any state Department of Revenue could reach out to all of the businesses in every single state outside of their territory. It’s just not a fair ask. So when you start talking about the sheer volume of communication that’s not occurred, how many businesses are unaware of the Wayfair decision?” -Brad Scott [11:39]
[00:00:00] Meredith Smith: Welcome to SALTovation. The SALTovation Show is a podcast series featuring the leading voices in salt, where we talk about the issues and strategies to help you make sense of state and local tax.
[00:00:14] Judy Vorndran: And during our, one of our task force meetings recently, I, we interviewed a person from Martin Marietta, which is sort of like construction.
[00:00:20] Judy Vorndran: And so they have projects all over the nation. And so that one of their people who is dedicated solely to the use tax. That they have to calculate it. All the jurisdictional issues. It was fantastic to get her testimony, right? And have these legislators here, like how nuance it is, how specific she's created a matrix to manage her client as a business that is not out in the universe for other people to borrow.
[00:00:44] Judy Vorndran: They got to create it themselves. That's very costly to figure that out. Where am I? Who am I? What do I need to do? They've had to do it. They're a multi, you know, large, very, very big company. You don't have that from the small mama pops. And I thought America, the bulk of our [00:01:00] businesses are small business, not big.
[00:01:03] Judy Vorndran: So are we Create that culture or not,
[00:01:06] Brad Scott: you know, and it's, we talk about American small businesses as being the background, background of the American economy and you know, we're all familiar with a death by a thousand cuts. This is death by 12, 000 cuts and that's only if you're talking about one item. If you start talking about multiple TICs, now you've got a multiplier factor in there, and if you start talking about the fact that it's impacting not just sales tax, but income tax, and gross receipts tax, and customer privacy, and consumer protection, and all of these things, they're all different.
[00:01:39] Brad Scott: I mean, now you've got death by some exponentially huge number of cuts. Yes. And it bleeds us out.
[00:01:48] Meredith Smith: Well, and, and kind of circling back on something you just touched at on the small businesses that aren't necessarily compliant. One of your suggestions has to do with those companies that are not in [00:02:00] compliance.
[00:02:00] Meredith Smith: And you know, do you want to talk through maybe what, what that strategy is? or what that recommendation is for those noncompliant taxpayers, right? Judy and I make a living doing voluntary disclosure agreements, but those, you know, cost a lot of businesses money. So there is some remediation out there, but it sounds like you may have a more simplified or streamlined or.
[00:02:25] Meredith Smith: Something that's easier for those companies that can't afford to spend hundreds of thousands of dollars getting into compliance.
[00:02:32] Brad Scott: Well, I don't actually have a very good answer for this, um, and I'll tell you why. So the, the national director of the streamlined sales tax governing board, Craig Johnson wrote an article a year or two ago, basically stating that there needs to be a degree of amnesty provided to those businesses that are still not compliant.
[00:02:52] Brad Scott: Um, he was completely rebuffed by the states. Uh, whenever you try to talk about amnesty, it [00:03:00] blows a conversation up. So there is no, there's no good answer there. But what I think really has to be part of that conversation, and this is I'm going to pivot a little bit here going back. to the constituent small businesses and recognizing what the potential cost of not offering some form of amnesty are.
[00:03:19] Brad Scott: I'll use Halstead bead numbers because I know them. Um, if I go back to the Supreme Court's decision in 2018 and I don't comply at all, whether it's out of ignorance or just out of a refusal, it doesn't really matter. They're both equivalent. Um, I've done about 32 million worth of sales since that decision.
[00:03:37] Brad Scott: And if I am audited by all of the states where we have a compliance obligation, it numbers about 20, then I'm looking at about 20 million worth of transactions where I have not collected sales tax. Using 8 percent for argument's sake as a, as a sales tax rate. Now I'm looking at 1. 6 million worth of sales, uncollected sales tax.
[00:03:59] Brad Scott: And the penalties and [00:04:00] interest. They're punitive. 2 million is what I owe. Um, I
[00:04:05] Judy Vorndran: think that's low. Well, here, I always feel like it's almost double the tax because the interest adds up, right? Each month it's due. And then you compound that it's not compounded. You know what I mean? It just adds up and all the filings.
[00:04:19] Judy Vorndran: And then next thing you know, your interest cop is insane. And the penalty is like 50 G's or more. Yeah.
[00:04:26] Brad Scott: Well, okay. So let's, let's work with 3 million because that's a more fun, more
[00:04:31] Judy Vorndran: terrifying. Okay, I'm just going to, 2 million is crazy.
[00:04:34] Brad Scott: So we'll, we'll work with 3 million because that's, that's even more fun.
[00:04:38] Brad Scott: Halstead Beads assets in total are worth about 1. 5 million. So. We have to liquidate the company, terminate 22 employees. My wife and I are now, uh, you know, out of unemployed as well. So there's 24 jobs that are gone. We've lost our business. That's a million, five that are gone, but there's still another million, five we've got to come up with.
[00:04:58] Brad Scott: Right. So [00:05:00] because sales tax failures to collect and remit and report sales tax via or breach the, um, the protective shield between a corporation's misdeeds and the owner's personal finances now. Those, uh, different departments of revenue can take my home, they can take my retirement account, they can take my kids college fund.
[00:05:22] Brad Scott: All of this adds up. So basically you're talking about a complete, the complete annihilation of my economic past, present and potentially future as well. Now, going back to the constituents. These are people you're talking about. We talk about businesses as if there's some abstract. There are people behind every business.
[00:05:39] Brad Scott: So what you're doing as, let's say it's my lawmakers here in the state of Arizona, and they're doing this to a business in Iowa. They're not going to feel the consequences, but they are certainly going to feel the consequences of it when California does it to me or to my neighbor or to one of the, Okay.
[00:05:57] Brad Scott: You know, 40 or hundreds of thousands of [00:06:00] small businesses across the country. I think there's what, 31 million small businesses across the country. According to the SBA, let's say 10 percent of them should be doing this. So that's still over 3 million businesses. I know for a fact, uh, two years ago, there was only 8, 000 or so businesses that were registered with Arizona as remote sellers.
[00:06:19] Brad Scott: Where are the rest? So when you get into this. I think the solution is going to be unpalatable from a policy position, but from a humane position, amnesty is something that really has to be considered and it's going to have to come out of the state houses of, of, uh, of regulation and, and, and legislation, because coming from Washington is going to be seen as a preemptive attempt.
[00:06:44] Brad Scott: It's going to have to be coming from the, the, the ground, it's going to have to be grassroots effort, basically at the local level, and it's going to have to be a recognition by city managers. Town managers, county managers, state managers, you name it. Every single jurisdictional manager is going to have to [00:07:00] look at this and say, wow, we have a real financial calamity on our hands if we don't address this properly.
[00:07:06] Brad Scott: Um, now what we recommend in the bill is a little less draconian than what I was just talking about. It's, uh, it's really just saying that there is nothing. The states cannot go back beyond, uh, June 21st of 2018 and apply Wayfair retroactively. And it's the expectation that perhaps they'll allow for voluntary disclosure agreement so that that one and a half million dollars and penalties and interest that we were discussing a few minutes ago isn't part of that calculation.
[00:07:36] Brad Scott: So it's still a million five for us or a million six, which still wipes out our business. But maybe we can take out a loan. I don't know. Um, and then Also, recognizing the fact that a lot of businesses just are not compliant because they don't even know. And how do you address for that? Um, I think that's probably one of the biggest loose ends that has to be has to be addressed.
[00:07:57] Brad Scott: And I don't know that I'm the most appropriate [00:08:00] person to discuss it primarily because we have been compliant and I'm just spitballing. I think the real world ramifications and implications of not doing it. are going to be felt quietly at first, uh, because small businesses die quietly. Um, but as jobs start disappearing and state legislators start wondering what's happening to their revenue, uh, maybe they're going to recognize the correlation.
[00:08:22] Brad Scott: I don't know.
[00:08:24] Judy Vorndran: Well, I, uh, a few years ago, I think it was the multi state tax commission offered up an amnesty. And if you recall, that was like, I don't know, 20 something states participated, um, and they. Advertise it. And I remember being on a feedback to say, you should push this to January one and not have it be November, which is the middle of the tax year.
[00:08:42] Judy Vorndran: So now you're gonna get them sales tax compliant, but not income tax compliant. So it's just such silly, I thought. So in the end, they put this out. It's out in the media. People are talking about it. 900 companies, 900. And they were excited. That was a good amount. I'm like, That's the [00:09:00] thing that obviously you didn't get in front of the millions of taxpayers that are just playing the game of the lottery, you know, because the truth is that 3 million that you owe, you don't know what from every state, right?
[00:09:12] Judy Vorndran: So it's a matter of who's going to pick you off first. I'm going to honor you. Like you said, at the same time, because I don't do it that way. So you really, your chances of like, Having to owe that true three million is are slim to none, which is another reason why people don't comply because they're like, let him catch me.
[00:09:28] Judy Vorndran: That is not the way to deal with voluntary compliance. Catch me if you can. That's not best way to be a business owner. I mean, I appreciate we're entrepreneurial, but why would we want to do that? We would want to comply, right? So it's like, let the train leave the station. Here you go. You're protecting yourself as a business owner, but the cost.
[00:09:47] Brad Scott: So I've never, I've never talked to a business owner that says, Forget them. Right. Screw them. I don't want to do this. Um, you know, basically every business owner that I've talked to says I do want to comply. I [00:10:00] just don't know how or it's too expensive or I don't have the tools. I don't have the resources.
[00:10:03] Brad Scott: And for small businesses like ours, we cannot afford one of the big four. They're not going to talk to us. Our local professionals don't understand it. So we're left with a really big and in providers that can assist us. And so it does become an internal thing. No.
[00:10:18] Judy Vorndran: Okay. Cool. Right. And software is trying to solve that problem, but they're software companies.
[00:10:22] Judy Vorndran: They're not tax advisors. And so there's a disparity there. A lot of people have avoided sales tax, even in my career. Like I remember thinking after I did a couple of busy seasons, like I kind of liked this sales tax thing. There's, if you're kind of on the curve, lots of different states kind of get to travel remotely.
[00:10:37] Judy Vorndran: I don't know. I just found it really fascinating in a way to be an advocate. Yeah. But not a lot of people like it because it is very complicated. And there's a lot to think about state by state that is not black and white. You can't take a one size fits all approach. You've really got to understand those nuances.
[00:10:51] Judy Vorndran: One of your
[00:10:51] Meredith Smith: suggestions was to kind of have like a centralized database where kind of all of these rules live, right? That [00:11:00] would be great, right? Because we even have had that discussion with some of, you know, our, we participate in the Colorado tax auditors coalition. So it's, you know, a group of the 70 home rule cities, their auditors, they get together once a quarter, they collaborate.
[00:11:16] Meredith Smith: You know, we are members of this, you know, we've become friendly with them. We speak at these kind of conferences and whatnot. And even we were saying like, Hey, Denver, Boulder, Golden, if you all kind of came together and like maintained a list of like, Hey, well, what is your exemption certificate? What is this?
[00:11:35] Meredith Smith: That would be incredibly helpful to your potential taxpayers. So we knew it's again, kind of the central theme. We're not against giving you money. We just don't know how. And so it sounds like, you know, if we can't even get, you know, 70 Coloradans together, right? Do we, like, how much or how, you know, how willing do you think the states would [00:12:00] be to kind of create the centralized positorian?
[00:12:04] Meredith Smith: You know, it's, it's, it's a wonderful suggestion. Yeah. Cause information data, information gathering is difficult, but yeah. How, you know, the best way to maintain it or who's responsible for it
[00:12:17] Judy Vorndran: or. Streamline was a start, but not everybody participates. That was at least like, we've got a common set of definitions you could opt in or out.
[00:12:26] Judy Vorndran: And then if they adopt it, then they kind of have that, which I think is phenomenal. And if we could just get the other 20 something States participate. Right. I mean, and some of them are not even that far off, but there are enough off that you can't just check the same box. Right. So I mean, I thought that was a phenomenal start.
[00:12:43] Judy Vorndran: And if we can marry off that, why not? Yeah, I don't, I really wish people had looked at the 3 million they're missing out on. If you think about you compared to anybody else, and really we're talking 1. 5, right? Cause it's just tax collected 1. 5, your company. Okay. Let's multiply that by a [00:13:00] million. Can you imagine the money our governments would have?
[00:13:03] Judy Vorndran: We could get so many wonderful things done. We have to make it simpler, but we just piecemeal it. And then we kick off the one or two companies. And like you said, you, nobody cares if you've gone out of business, except the people in your immediate. circle. Nobody really recognizes how many businesses fail for these reasons.
[00:13:21] Judy Vorndran: Is that how we want our society to run?
[00:13:24] Brad Scott: Well, and I, Meredith, you said something earlier that kind of made me think of Lethal Weapon, you know, the 1980s movie where, where the different departments are fighting with each other over jurisdictional control of an investigation. You know, that's a big theme and a lot of the, I don't think it's as big a theme today as it used to be back in the eighties and nineties, but there were all of these different jurisdictions that were basically fighting with each other to accomplish the same thing.
[00:13:50] Brad Scott: And You know, there's nothing I can do as a small business to get Golden to cooperate with Boulder. Yeah. Um, I just [00:14:00] can't. And I, I, I think, I think the part that I'm, I am always missing out on, and I don't know how to address this is, is how to help them to see that by cooperating, they're actually going to be better off for it.
[00:14:10] Judy Vorndran: Yes. Well, I, I gave some statistics on the task force of the money that's gone to all your locals in Arizona. Oh yeah. You have a common point of collection or admittance and it meant real money to the locals. So I don't know what kind of squawking you're hearing now from your locals, but my perception has been wildly successful and I can't imagine that it hasn't been incredibly helpful for the local, but I don't know that.
[00:14:34] Judy Vorndran: directly. I know a little bit. I've done some diligence with some people I know in Arizona, but as an Arizona, do you have any feedback on that? Well, so
[00:14:41] Brad Scott: Arizona, I was, I've, I've worked on legislation at the state level as well as at the federal level. Um, and the state level legislation has been, you know, a couple of key components.
[00:14:51] Brad Scott: And the big one is the single rate. For remote sellers and the local jurisdictions do not like that. [00:15:00] They that is what tanks it every single year. And I understand where they're coming from, but I don't necessarily agree with it. And, you know, I understand that they want their. Jurisdictional autonomy. But the fact of the matter is that jurisdictional autonomy has a diminishing return on it that is actually costing them revenue as opposed to benefiting the businesses that are trying to deal with Arizona.
[00:15:23] Brad Scott: And it hurts the consumer to, um, you know, the cost of compliance for us. I've mentioned it. It's 428, 29, 000. Um, those costs do get passed on. We do not absorb those costs because we can't. That's not the nature of business. Uh, so what does that mean for the end consumer? It actually means that they're paying substantially greater prices before you even get to the taxing point because we have to, we have to cover the cost of that compliance within our wholesale pricing.
[00:15:53] Brad Scott: Um, and it's 428, 29, 000. You know, this is, we've had a lot of inflation in the last couple of years, largely driven by a lot of money [00:16:00] printing, but I think there's some administrative inflation that's already baked into those numbers that nobody fully understands because how could you, there's so many different variables do you have to consider and, um, the states, the local jurisdictions, the cost to them for us.
[00:16:15] Brad Scott: You know, Arizona might see an increase in sales tax collection from us, but they're going to see a greater offset and losses in income tax from us because we're spending more money trying to comply.
[00:16:27] Judy Vorndran: That's funny. That's a really good point. I hadn't thought about that. And what I'll tell you in Colorado, I don't know this specifically to Arizona or not, but.
[00:16:34] Judy Vorndran: We have, uh, tax incremental financing for, uh, projects that are kind of supported by the cities. So they have bonds that the cities in Colorado specifically might be guaranteed by tax income. So they change our rate or they change something, then they could be at jeopardy for losing that financing. And so we've got a lot of things created on top of set ideas, which is you have the autonomy to set your rate.
[00:16:58] Judy Vorndran: You're going to get the certain [00:17:00] amount without really thinking, well, it may not materially affect. a change because you have more taxpayers filing your jurisdiction if you lower the rate and what with the fixed rate and conform with everybody else. But there's this feeling like we don't know. So they don't run the numbers.
[00:17:14] Judy Vorndran: They don't really know what it would. How many more taxpayers would we have to get to make up that differential? If we knew that we might get more compliance. So there's real money happening in Arizona with a one pointer remittance. I appreciate the rate is a mess, but at least you have one place to remit.
[00:17:30] Judy Vorndran: We'd still don't. And when we have our set system in Colorado, but it's not a, at, you know, it's not at full compliance yet. And then you've got, you know, what I always argue with our Coloradans is, you know, Texas can handle 1, 714 jurisdiction. I believe it's 256 for California. Not even as many as up. We're like 700 from a county city home rule, right?
[00:17:50] Judy Vorndran: I mean, it's a lot for our opponent. I mean, our state is small. We have like five, 6 million humans living here. Yes, we're a little spread out, but we are not a giant [00:18:00] metropolitan state. So we have a lot of extra compliance that is driven by the local in city. You know, I live here. I have a, I have a place here, but not the front door delivery.
[00:18:11] Judy Vorndran: And that's, that's, it's not helpful to a tax. And the, and the other thing I would just say to you is you're basically. You're being billed by the government, right? They don't exist but for tax. So if you weren't giving it to them, they don't have money. So they're going to be for doing that for them, being their billing
[00:18:32] Brad Scott: engine.
[00:18:32] Brad Scott: We're conscripted tax administrators is what we really are. Um, but going to the local thing, you know, we bump into issues with them and they, they have a force shield. You know, if you think about Star Wars, You got a force shield. Nothing can get through it, right? The cities and local communities and the states have a force field, and it's called the Tax Injunction Act, and it makes it makes solutions for this problem have to be driven by legislation only because there is no [00:19:00] legal recourse for a company like ours against anything that's going on.
[00:19:02] Brad Scott: We tried. We tried to sue the state of Louisiana. We have a very good case there, but we were we were we basically lost out because we were Um, and it's because of the Tax Injunction Act and the Tax Injunction Act initially was set up to prevent local governance from abuse by major multi state corporations.
[00:19:23] Brad Scott: Uh, but because our local tax jurisdictions and the State Departments of Revenue have gained so much power and strength within the economy in the last eight years. 100 years. That's kind of flipped and major companies can still fight them. They do. I don't know what their success rate is, but for a company like Halsted, we effectively have no access to the legal system in any kind of jurisdiction where we have meaningful, a meaningfully fair playing field to be on and you're
[00:19:50] Judy Vorndran: and you're forced to comply.
[00:19:51] Judy Vorndran: That makes sense. Yeah, that's an inconsistent legal standing in my humble opinion. If you're gonna have to be registered to give them money [00:20:00] and you have no standing to sue them, that's craziness. Well, let's
[00:20:03] Brad Scott: talk about Public Law 86272 for a moment. So, that's the 1959 law that effectively limits state's ability to tax a company if they don't have a physical presence in a state.
[00:20:12] Brad Scott: That physical presence is established through inventory, property, or employees. We have no physical presence in any state but Arizona, yet for the last five years we've been paying income tax to California, to Hawaii, and to Washington. Now I'm going to pick on Hawaii because it's just, it's the easiest, most straightforward thing to discuss.
[00:20:31] Brad Scott: There is a Purely an income tax, which is why they're the easiest one to discuss. Um, they are in violation of public law 86 to 72. Now I send them a few hundred dollars a year in income taxes. The only way that I get legal recourse for that is to demand a refund from the state for income taxes. I shouldn't have had to file.
[00:20:52] Brad Scott: And then, when they refuse to pay me, and they will, then I have to sue the State Department of Revenue in Hawaiian [00:21:00] courts. Now, if I go to Hawaii, I've established physical presence, which voids my argument in the first place. And if I try to take it into a federal court system, I lose out on tax injunction acts, which means I don't have standing.
[00:21:11] Brad Scott: So, what is my solution? At this point in time, my solution is pay the bill and be quiet.
[00:21:16] Judy Vorndran: 500 bucks. It's just not worth it. You can't. I mean, I, I also, my clients, like they get upset about a 20, 40, 50, 000 assessment. I'm like, you can't sue for that small amount of tax. And I know it's a lot. It's not enough.
[00:21:28] Judy Vorndran: And so we have seen a lot of taxes being capitulated. I mean, you have to capitulate basically because there's just too expensive to, to fight it. You just got to do it. It's not worth it. It becomes a path of least resistance. Bye. Bye. To not raise that up if we could get a class action, maybe that would be you know The way to do it, but there I mean i'm sure there's knowledge of it.
[00:21:48] Judy Vorndran: Once again, there's some apathy to um Deal with it because it's so little here and there but it is a burden on you. Well, and I I
[00:21:55] Brad Scott: think I think To your listening audience on this, you've got [00:22:00] practitioners, you've got businesses, you've got policymakers. All of them need to recognize the role they play in this.
[00:22:06] Brad Scott: And if they think it's okay, if the status quo is acceptable to them, then remain quiet. But if it's not, one of the chief complaints I hear whenever I go to Washington, D. C. To advocate on this is that they're just not hearing about it. Now, I know they're not hearing about it because a lot of business owners are afraid of putting their hand up for fear of being audited.
[00:22:22] Brad Scott: But the reality Till the people that actually make the decisions understand the vastness of this problem, they're not going to address it. And I, you know, this is the me being the pessimist in the moment, which I don't like to be. I see this as a ticking time bomb and it's going to be huge. It's only a matter of time before the states become desperate for revenue.
[00:22:46] Brad Scott: The last several years have been very good to their coffers, but that's not always going to be the case. And when they actually do start going after businesses, the further out from that decision date that we are. The longer businesses have been out of compliance, the greater the assessments they're going to be [00:23:00] handed, the greater the penalties and interest are.
[00:23:02] Brad Scott: And so to your listening audience, um, You know, I appreciate that this is your business and this is what you do helping businesses like ours comply. But your businesses, your clients aren't going to exist in 20 years or 10 years if they're audited out of existence. And you know, what's the objective? Is the objective to help this run efficiently and smoothly?
[00:23:22] Brad Scott: Or is the objective to maximize As much gain in revenue as we can in the short term while forgetting the 10 year plan. And if we forget the 10 year plan, we're sunk. That's
[00:23:31] Judy Vorndran: because they're not constituents. And I'll be honest, I would rather have my business be getting everybody set up and compliant and helping, you know, done and help 3 million taxpayers than having to say, Can't help 3 million because we have all this mitigation to do for the next year because you were not compliant.
[00:23:48] Judy Vorndran: I don't, it's fine. It's what we do, but I don't think it's the best and highest use of our skills. The best thing is to say, let's get you fixed and let's go right. And then you could [00:24:00] sleep at night. So, um, I couldn't agree more. I would love to just do nexus studies exposure and like get a license and set up sales tech software needed, um, let's get them going.
[00:24:11] Judy Vorndran: And they'd be so happy and compliant. And then, you know, it's also for you. I'm sure you're like, I'm not going to just do two. I'm going to do three. Okay. I'm just going to do 50. Right. I mean, you, at some point, like I already got the engine in place. I'll go ahead and do them all. I just not going to turn it off once again, wildly compliant.
[00:24:28] Judy Vorndran: Good fact for government. If we can make that streamlined and if you
[00:24:32] Brad Scott: took like a Massachusetts or uh, Maryland,
[00:24:35] Judy Vorndran: and
[00:24:39] Brad Scott: the submission form is dead simple. I mean, yeah, you take, take Massachusetts and you compare them to Hawaii. Hawaii is fairly straightforward. Not exactly, but it's fairly straightforward.
[00:24:50] Brad Scott: Massachusetts is dead simple. My, you know, my kid could have done it when he was in first grade.
[00:24:57] Judy Vorndran: That's so funny. Yeah. Cause I did all those forums [00:25:00] by hand in 1996. I mean, I'm like, Oh my gosh, first of all, Arizona, like this is when I first did it. I, um, didn't take the vendor fee. Cause I followed the prior practitioner.
[00:25:10] Judy Vorndran: They didn't know there was a vendor fee. I was filling out so many forums by hand. I didn't even see it. And then I missed it. So my, because I didn't assert it on the filing, my client didn't get it. And the, and their person who internally prepared it didn't give it to them either. So, I mean, we missed that because you can't read every line on each form because they're wildly different.
[00:25:29] Judy Vorndran: So it was insanely stressful to do the Arizona return and then recognize I wasn't even getting the love back to my poor client. For not doing that, you know, because they're prepared and I followed what they did and realized later after that time, like, oh my gosh, I could be getting this money back and just putting it on the form and taking it.
[00:25:47] Judy Vorndran: Right. Yeah. Oh, I can't even tell you people don't understand.
[00:25:51] Brad Scott: The vendor fee. So we're wholesale. Uh, we have a little bit of retail, which is why we have some collected sales tax, but we, we spend a huge amount of time managing exemption [00:26:00] certificates, which is one of our solutions is a, a, a single uniform exemption certificate.
[00:26:04] Brad Scott: That's, you know, usable across the entire country. That puts the onus of responsibility on the shoulders of the provider, not the recipient. Because right now, if I have one, if I failed, I mean, if I have an exemption certificate, that's not valid and I'm not collecting sales tax, they're still going to expect me to pay it.
[00:26:19] Brad Scott: Um, that should be on the provider's shoulders, not mine. But, um, going even further into what you were just discussing, that, that vendor fee, my vendor fee in Maryland is typically 12 or 13 cents. Because we don't collect sales tax, I spent a lot of time to collect very little, uh, and, and, you know, the Wayfair decision was about retail sales.
[00:26:43] Brad Scott: Wayfair at the time of the decision, I think they were 6. 3 billion. We were 6. 1 million. So they were 1, 100 times larger than us. And I don't know. I don't know how much wholesale or, you know, B2B business they have, I know they have a lot more, uh, B2C business than we have. We're not a [00:27:00] B2C operation. Um, there's a little bit that slips through, and that's because of the structure of our customers as opposed to our end users.
[00:27:07] Brad Scott: Because when I sell you 10 beads or a hundred feet of chain, it's not like you're gonna wear those. You're actually going to make something else and then sell it on. They just may not have registered with their home state, but the wayfarer decision was about retail sales in the States. Some have made their thresholds based on retail sales.
[00:27:24] Brad Scott: Others have not.
[00:27:25] Judy Vorndran: Yeah. Well, you have to look at every single one, every single measurement. When does it matter? I mean, we unraveled that whole thing to tell taxpayers because it matters. Like you don't just say I have to register in July one, 2020, 2018. No, no, no. If we can get it to 2021. Way better answer for the customer in terms of remediation or filing, and then you take the liability from there.
[00:27:46] Judy Vorndran: You don't just get unlimited. Look back. Yeah, no, 100 percent that is kind of an infuriating lack of conformity amongst our states and their adoption
[00:27:54] Brad Scott: process. Yeah, well, and and it makes you it begs the question, especially from my vantage [00:28:00] point. Why are they using gross receipts as the threshold for sales tax economic nexus?
[00:28:08] Brad Scott: And it's because, as I've seen over and over and over again, the states are using it to, um, pry open Pandora's box into other regulatory exportation models. So income tax, gross receipts, tax, you know, the things I've already talked about. Um, I don't think that was the point of the decision. In fact, at first I hated the decision.
[00:28:31] Brad Scott: Um, I've studied it. I understand it now and I happen to agree with it. Uh, and I, I don't, I don't buy the, the dormant clause as strongly as I once did. I think. Justice Clarence Thomas was exactly commerce clause
[00:28:47] Judy Vorndran: that matters now.
[00:28:48] Brad Scott: Yeah. I think door, I think Clarence Thomas was correct in that regard. The dormant clause was not a get out of jail free card for online sellers back in 1992 at the quill decision.
[00:28:58] Brad Scott: Congress was invited to weigh in. [00:29:00] They demurred for 26 years. Well, then justice Kennedy said, well, I think we should hear this again. And this decision five or five and a half years ago was. Congress needs to weigh in on this. They have jurisdiction over the regulation of interstate commerce. They still have demurred, but I do see promise there.
[00:29:16] Brad Scott: I do see, I do see a solution coming out.
[00:29:19] Judy Vorndran: What has to circle up like for people like you speaking and, you know, I mean, tax foundation is speaking to, I mean, they, you know, they were more for federal and they've really gotten multi state in the last. 15 or so years. So they're really focusing on that because it's driving a lot of money for the economy.
[00:29:34] Judy Vorndran: And it's also driving a lot of compliance for taxpayers. And they're bringing that up. It's percolating up. I mean, they've spoken to our coalition. They speak wherever they are there to advocate for that information. Obviously, they brought you on their show. I mean, I feel like they're really voice for sanity in some of this.
[00:29:49] Judy Vorndran: And so the more we keep putting that out there, I think the more there's opportunity to see change technology and data. They've got to know more. What's really at stake [00:30:00] here if someone just looked at it,
[00:30:02] Brad Scott: I asked that question. There was a GAO report last year that that kind of dove into a lot of these issues and recommended a lot of the solutions that we're frankly recommending.
[00:30:11] Brad Scott: But there is a dearth of real data and information out there for government resources, and they'll ask me for it. And, you know, I would love to provide it for them, but I'm a small business selling to my clients. I'm not the research. Organization that they want, and nor should I be. That's not our job.
[00:30:27] Judy Vorndran: Your shoulders.
[00:30:30] Brad Scott: Yeah. Yeah. But you know, and it's a very difficult response to give. I don't know. I don't know what the data is going to say, but I think you're going to like it. They don't want to hear that. They want real tangible numbers,
[00:30:42] Judy Vorndran: which I tell these local, uh, finance directors and mayors of cities, you have no idea how much money you're giving away by not making this easy.
[00:30:51] Judy Vorndran: Cause everyone's not going to register a Mount Crest to give them 40 bucks a year. Sorry. What Brad, as
[00:30:57] Meredith Smith: we wrap up, what is your ask for our [00:31:00] listening audience? What, what could be made better? Or what can we do to make things better? How can we advocate for kind of your, your list of suggestions?
[00:31:12] Judy Vorndran: So
[00:31:13] Brad Scott: the first thing that they could do is they could reach out to U.
[00:31:18] Brad Scott: S. congressional offices, specifically in Senate Finance Committee and House Judiciary Committee, because they are the two committees that have jurisdiction over this particular subject matter. And let them know that this is a burden. That is beyond acceptable for small businesses. The costs of compliance are too great.
[00:31:37] Brad Scott: The costs of failure are incredibly high. The liability for failure to comply is terribly high. So that's, that's my number one thing. Reach out to specific committees in Congress, Senate Finance. And house judiciary. Beyond that, reach out to your own state legislators. Reach out to your own city officials.
[00:31:58] Brad Scott: I talked to my mayor two years [00:32:00] ago about this. He came up to me. I was, I was going to give a presentation on this. And, um, he said, this has been a great boon for the city of Prescott. We've gotten, I think he said 23 million because of, of wayfare taxes. And I said, listen, mayor, you don't understand the costs associated with this.
[00:32:15] Brad Scott: And we went through basically the conversation that we're having right now. And he said, Oh my gosh, Brad, I had no idea. I'm going to go talk to the league of cities and towns. And he started helping us behind the scenes, but I need that conversation coming from 51%. Of jurisdictions, not five. It has to come from everywhere because until they start hearing and mass, that this is a challenge for their local constituent, small businesses, constituent
[00:32:42] Judy Vorndran: ways, even though you're saying I don't care about islands that still are affecting Arizonans, this law is affecting all states constituent.
[00:32:51] Judy Vorndran: It's just ins and outs of
[00:32:53] Brad Scott: it all really. So, so that's the number one, ask the number two, ask is not everybody is capable of coming [00:33:00] forward. Um, it's just. It's just reality. Either they're time constrained or they're not compliant or, um, or they just, they're afraid of putting a bullseye on their back to being audited.
[00:33:12] Brad Scott: And there are groups out there that are working towards this. And if you can find it in your heart to reach out to them and say, thank you, I'll give you some, some case information. If you can keep it anonymous or perhaps offer a small donation. So you mentioned the tax foundation. There's also the national taxpayer union.
[00:33:29] Brad Scott: The Goldwater Institute helped us in Arizona. The Pelican Institute helped us in Louisiana. There are organizations, the Manhattan Institute issued a, um, a supportive amicus brief in our lawsuit in Louisiana. The National Federation of Independent Businesses needs to hear more about this. There's a lot of small businesses that could reach out to them and get this Made to be a bigger issue.
[00:33:50] Brad Scott: The American Catalog Mailers Association has been a huge driver in this, but they're a relatively small group. So reach out to these groups and find out if there is something that you can do to help [00:34:00] them with their efforts moving forward. Um, I didn't know anything about this, uh, four or five years ago.
[00:34:07] Brad Scott: And because I started getting vocal, I started having people who are actually working towards solutions like yourselves reach out to me and say, how can we work with you? Well, right. I don't get paid for this. I do this on my own time. No, I don't get paid a penny. But but the reality is there are a lot of people who are working on this and not everybody can do it out of the goodness of their heart because for them it is a profession and helping them out either with.
[00:34:33] Brad Scott: Your own testimony, uh, with your letters to your congressional members or, you know, something along those lines or, or really the most crass of ways economically. Those are things that I think would be, would be helpful. Unfortunately, I think this is going to be a 20 year solution. It took almost 20 years for the Streamlined Sales Tax Governing Board to be successful with their efforts.
[00:34:55] Brad Scott: And I think we're probably facing a similar timeline for our efforts. I have [00:35:00] gradually come to the realization that I might do this until I retire, but it's something I'm passionate about and so that's okay, but not everybody has that flexibility or that that time frame available to them and there are things that you can do immediately.
[00:35:13] Brad Scott: Kind of that
[00:35:13] Judy Vorndran: fight to keep you going because you think it's the right thing to do. I mean, that's why I've been on this task force because I've helped like three to four thousand taxpayers and it is a difficult conversation when they owe a lot of money.
[00:35:24] Brad Scott: It's an interesting thing. I mean, people thank me for bringing them the potatoes.
[00:35:32] Brad Scott: You know, if I'm at Thanksgiving dinner, pass me the potatoes. Thank you. Pass me the, the turkey. Thank you. When all of a sudden strangers start reaching out, thanking you for suing their home state, or, you know, I had a call a couple of weeks ago from a company that is just now coming to terms with what compliance means.
[00:35:49] Brad Scott: And they thanked me for the years of advocacy I put on, on this. That's really all I need for motivation is that knowing that I'm, I'm helping somebody else. Maybe, maybe not. I don't know. I mean, I, I [00:36:00] would like to think that we're going to have and
[00:36:01] Judy Vorndran: we really appreciate you for that because I mean, I think you may, I've been watching what's been going on with you guys.
[00:36:08] Judy Vorndran: Um, and so to have an conversation with you in person, you know, this is kind of our passion project, educating people about the state and local area. We are spreading the gospel of state and local tax, and this is part of it. And so make meaningful change. Then we have met our calling.
[00:36:24] Brad Scott: And if you're like, The 99.
[00:36:26] Brad Scott: 99 percent of the American public that gets bored or frustrated with tax policy conversations, then support those lunatics like ourselves.
[00:36:35] Judy Vorndran: I think people just, it's a lot of data points. And I think what people just, I don't, we all gotta have things that matter, right? Life has to have meaning aside from our business.
[00:36:49] Judy Vorndran: And if we can make the world a little bit better place before we leave it. I think that's really important. So I think you're doing that for the world. So thank you so much, Brad. Yes. Thank you, Brad,
[00:36:58] Meredith Smith: so much for being here. [00:37:00] It was great conversation. And, you know, like Judy had alluded, we would love to continue the conversation both on and off air.
[00:37:09] Meredith Smith: So thank you again. And this is another episode of Saltivation. Until next time.
[00:37:15] Brad Scott: This podcast is for educational purposes only and is not intended nor should it be relied upon as legal tax accounting or investment advice. Consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.
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