State and Local Tax Compliance Simplified with Brad Scott
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:
This week on the SALTovation podcast we speak with Brad Scott, Director of Finance at Halstead Bead, Inc., an eCommerce wholesaler supplying jewelry businesses worldwide. Brad discusses the challenges and costs of sales tax compliance for small businesses. He shares his personal experience with the Wayfair decision and the impact it had on his company. He talks about the need for greater simplicity in tax policy to drive compliance and reduce the burden on small businesses. He proposes solutions such as a single audit per year from a designated taxing authority and a single rate model for states. Listen this week as we discuss the need for collaboration between business leaders and policy leaders to find effective solutions.
Talking Tax Reform: https://taxfoundation.org/event/post-wayfair-remote-sales-tax-reforms/
Topics Discussed in this Episode:
- Sales tax compliance is a significant challenge for small businesses, requiring extensive time and resources.
- Simplifying tax policies and reducing the number of audits can drive greater compliance and reduce costs for businesses.
- The single rate model, as implemented in Texas, can significantly streamline sales tax collection and administration.
- Collaboration between business leaders and policy leaders is crucial to finding effective solutions for sales tax compliance.
- “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]
0:00:02 - (Meredith): 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. Hello everyone, and welcome back to the SALTovation Podcast. Thank you for being with us today. We are excited to have Brad Scott here. He is a director of finance for a small business located in Arizona and a business leader in advocating for sanity and sales tax. Who would have thought?
0:00:31 - (Meredith): What's unusual about Brad is that he not only understands the minutiae of state and local tax, but he also sees a path forward to making compliance simpler for small businesses. Thank you, Brad, for being with us here today.
0:00:44 - (Brad Scott): Well, thank you for having me.
0:00:46 - (Meredith): Well, Brad was recently a guest on the Tax foundation for a webinar discussing the issues bearing down on businesses today when it comes to collecting and remitting tax in our post wayfair environment, which is hard to believe that it was over five years ago. We will include a link to the show note in the show notes for that conversation because it is an excellent one and we also love the Tax foundation and want to plug them.
0:01:11 - (Meredith): But today you'll hear a brief mention of those issues. But we really want to kind of focus on those solutions that you've proposed and kind of have come up with. And so Brad, if you would, could you please share with us a brief background on hall said Bead and kind of what led you to get us to where you are today?
0:01:32 - (Brad Scott): Sure. Well, my in laws started the company back in 1973. It was an anthropological interest on my father in law's part that led him to bring African trade beads into his workplace. And he was just going to come in for a show and tell, but it really turned into a sale opportunity. And so he sold all the beads to the ladies he worked with and then brought some more in and sold those too. And he and my mother in law sat down and decided that they were going to try to do what a lot of Americans do, which is take a risk on themselves and start a small business.
0:02:03 - (Brad Scott): And over the course of the next couple of years, they went from selling in his office to selling at craft shows to selling through a mail order catalog business model. And in the 1990s, they determined that the mail order catalog model was probably not going to be the future. And they started a website. And since the mid 90s, we've basically moved all of our business from various entry points, the phone, fax, email, just to online through our website.
0:02:33 - (Brad Scott): And now it's about 100% over the Internet. We sell into all 50 states. We sell into 26 other countries. And before I forget to tell you what we sell, we sell jewelry components to other small businesses that then turn around and sell necklaces, earrings, you name it, as gifts or personal mementos, because we sell parts. We really didn't have a retail outlet. We were always wholesale. And so in 2018, when this decision came down, we didn't believe it was going to happen the way it did.
0:03:03 - (Brad Scott): It was our ignorance as to the past of sales tax and Quill and complete auto and all of the cases that were prior to it. We didn't know anything about those. We just knew that Quill was coming. And of course, I was thinking no taxation without representation in the Boston Tea Party. But that's not what happened. And we very quickly started negotiating with ourselves how we were going to manage sales tax. And obviously, we had to learn our obligations. We had to make our software compatible. We had to update all of our processes. And what we determined over the course of the nine months, really, after the Supreme Court decision was made was that we were not capable and that legislation was necessary, and that obviously, somebody was going to be doing it. And when I started reaching out to find out what was in the works, it quickly became obvious that really nothing was in the works.
0:03:55 - (Brad Scott): And I found myself kind of falling into this role of advocating for sales tax simplification and uniformity almost by happenstance. And that's the background.
0:04:06 - (Judy): Well, we love that you're doing it, Brad. I mean, you are a pioneer and willing to put your neck out, and I know you are very compliant. But we appreciate that advocacy, because it does take the word of small business to really explain to legislators the consequence of laws. And it's tough when there's 50 states and 13,000 locals, and it's just a lot for any business to manage. But a small business, especially a smaller.
0:04:29 - (Brad Scott): To medium business, it is. And I think you just kind of hit on one thing on our part. We didn't know about Quill. We didn't know about complete auto. We didn't know about the pike balancing test. We didn't know about a lot of these historical precedents that were the foundation of tax policy. And our ignorance was our Achilles heel at that point in time. But it was basically a lack of awareness on our part of what was going on outside of the business. And I think there's an equal lack of awareness on the part of policymakers about what actually goes on within a small business and the challenges that we face and how difficult they can be and what kind of resource drain they present.
0:05:09 - (Brad Scott): And that's really been the key focal point of our advocacy, is bringing to bear the actual resource that we have to put into this and then helping legislators to understand what a reasonable expectation is so that we can comply but also serve our customer base.
0:05:26 - (Judy): And I'm on a call, the Colorado governor's task force to simplify Colorado sales tax. And I speak on behalf of taxpayers, and I represent the CPA community. And some of the things I always put out to legislators is because they'll give the comment, well, software handles it. And, yeah, software is a great tool, but it's how it's installed. It's based on your facts, all the things. It is not a plug and play situation.
0:05:50 - (Judy): So there is a wild misconception that software is this solve to fix the problem, and it couldn't be further than the truth.
0:05:59 - (Brad Scott): Well, software solves a lot of problems, but it also creates other problems, and oftentimes those are unintended consequences. And this morning, I kind of had a thought. We sell one single product code. So taxability information code tic. So we are limited to one single item, but we have 4700 SKUs. Now, imagine we had 4700 different SKUs, and they have varied across item codes. There are 440 different item codes for physical goods.
0:06:30 - (Brad Scott): So just multiplying those two things by each other, you're looking at over 2 million different potential permutations. And then you multiply that out by 12,000 different taxing jurisdictions, and you're looking at almost 25 billion different permutations. That's a lot of data to have to pour through, and it has to be done with software under the current circumstances. But the software that we have had, that we have used in the past was either too well, what we did use was inadequate for what we needed.
0:06:58 - (Brad Scott): And when we looked at alternatives, it was just too expensive for us to be able to afford.
0:07:02 - (Meredith): Well, on that token, what reality and kind of dollars and cents did this wayfair kind of decision create for you? And I know you've put numbers kind of behind what cost the company, just as you a single business selling one product, what has that cost you in financial means and just even time?
0:07:29 - (Brad Scott): So there are a couple of different things that you have to consider. There's first, understanding what your obligations are to roughly 12,000 different taxing jurisdictions. So my wife and I devoted 15 months of time to researching what the expectations were, not just in the States, but also at the local level. Obviously, it's an incomplete job. I don't think it could ever be complete. But we devoted an enormous amount of time to that just to be able to really get a good, square understanding of what we needed to do.
0:07:55 - (Brad Scott): 15 months of my wife's and my time, that's a lot of money. But at the same time, we also had to bring in software, and fortunately, we have an in house programmer, so he was able to cut down on some of the programming's cost, because when you outsource it, it's a lot more by the hour than when you insource it. But the software that we were told was free and easy for this solution, as by means of the Supreme Court and the decision, it cost us almost $30,000 to integrate.
0:08:22 - (Brad Scott): So it was never free and it was never easy. The free part was dispelled with that $30,000 bill to turn it on and implement it and integrate it. The easy part was the fact that over the next year and a half, we received 35 notifications from states in the streamlined sales tax group, as well as another state. So 36 different notifications in total that that software company was failing to report or omit on our behalf.
0:08:46 - (Brad Scott): That has a lot of consequences. And then beyond that, just managing exemption certificates. I mentioned earlier that we're a wholesaler. We've got to manage exemption certificates to ensure that whenever we are audited that we can prove to the various departments of Revenue that our transactions are tax exempt. So what does that mean for us? It means over the last five and a half years, we've put about 11,700 hours into compliance.
0:09:12 - (Brad Scott): It's cost us $429,000 and we've collected about $168,000. So we're spending $2.55 for every dollar that we collect. And that's not sustainable. It just needs to be addressed.
0:09:29 - (Meredith): Yeah. Thank you for sharing those numbers, because I think, as we had talked about earlier, policymakers aren't necessarily thinking about what is actually involved in the process. Have probably never filed a sales tax return. Right here in our home state, mine and Judy's home state of Colorado. I remember the very first time I filed a Colorado return. Me, as a CPA, who had had over ten years of experience at that time, was just like, I don't know how to do this right. There's 1001 is the state code for Denver.
0:10:10 - (Meredith): So I need to put that there for the RTD and the cultural district and the state tax, but it's not going to collect Denver. But what happens if I don't have that five digit code? You can't get there. I know what I'm doing and I don't know what I'm doing. Right. And so I think those numbers are real. And I think it's very valuable that you've kind of done that work to identify those numbers and are out there sharing that.
0:10:43 - (Meredith): And so then on that, and we've already kind of even touched on it here is you've mentioned the need for greater simplicity in tax policy. So how does, in your mind, simplicity drive greater compliance?
0:11:01 - (Brad Scott): Well, I think there's two parts there since the Wayfair decision, and it's been five and a half. It's not quite five and a half years, but it's close enough. We've received a single notification from a state that we may or may not have a compliance obligation. That's Pennsylvania. So for the other 48 states, the District of Columbia, Puerto Rico, and any other territories that we may or may not have a compliance obligation to, we don't know.
0:11:25 - (Brad Scott): Now. I do know, but that's because I've been proactive about it. Now, from a business perspective, I do not have relationships with all 50 different state departments of Revenue. I have one with the state or the Department of Revenue in Arizona, but I have a physical presence here, so that makes sense. The other 49 states, I'm not paying attention to them. And frankly, if you start thinking about the sheer volume of Businesses that are out there, I question how any state Department of Revenue could potentially or even possibly reach out to all of the businesses in every single state outside of their own territory. It's just not a fair ask. And so when you start talking about the sheer volume of Communication that's not occurred, how many businesses are unaware of the Wayfair decision, how many state departments of Revenue have been unable to reach out to those businesses?
0:12:13 - (Brad Scott): When you start talking about streamlining communications just by itself and changing the way that businesses correspond with all of those other state departments of Revenue, you now are going to bring Awareness up, and with awareness, you've got greater compliance. And so through greater compliance, you're going to get greater revenue draws. I mean, logically, I think that's the case. Maybe it's not. But the fact of the matter is, if I have a compliance obligation to the state of Connecticut, I'm going to comply.
0:12:40 - (Brad Scott): But if I don't know that Connecticut's even looking at me, then I don't know that I'm supposed to be complying. And when you start thinking about the volume of communication that's occurring versus the volume of communication that would absolutely have to occur for businesses to be completely aware. Cutting down on that communication is going to be key to driving compliance and improved numbers of businesses that are on the right side of the law.
0:13:04 - (Judy): But I thought streamlined sales tax was going to solve all that. Brad?
0:13:08 - (Brad Scott): Well, streamlined sales tax, it's a 20 something year old project and they've got 24 states that are members. Tennessee is not a full member, though I'm not really sure what that means because I think for all intents and purposes, as a business, they are a full member. But since the Wayfair decisions, there's not another single state that's ever adopted it. And what you fail to, I mean, not what you fail, but I think what doesn't get considered is the fact that the five largest states in the country by population and by business, and I'm talking about California, New York, Illinois, Florida and Texas, none of them is a member of Streamline.
0:13:46 - (Brad Scott): So think about the number of businesses within those states and think about the number of relationships outside of those states that are going unattended to.
0:13:56 - (Judy): Right.
0:13:56 - (Brad Scott): And so streamline, I think Streamline set out with a good intent, but I think the big critical error for Streamline is that they relied on that software piece that we discussed earlier to be the solution. And it's part of the solution. But actually if it's good luck policy, it shouldn't be part of the solution. It should be a beneficial tool, but not a necessary tool.
0:14:19 - (Judy): Right. Good point. No, and actually those states you mentioned represent 10% of the US economy. So you have a lot of customers in that state, whether you're in that state or not. And you don't want to give those up because that's a good market. Yeah, it's a really fascinating thing. I mean, when I got into this build in 1997 or something, I remember the streamline coming around and I thought, oh, well, here we are, 30 years almost, and it has helped, but we just haven't got enough traction with other governments. And I don't see that, like you said, I don't see it coming.
0:14:54 - (Judy): We've got to figure out better ways to make that manageable for taxpayers.
0:14:58 - (Brad Scott): Well, and I think what's really critical is the way this is discussed is oftentimes about businesses and tax policy. It's not about people, it's not about constituent businesses. And what do I mean by that? If I have an issue here as a small business in Arizona, I go to my local representative or my local senator who operates down in Phoenix at the state Capitol and I explain to them, I got a problem, and I'm on a first name basis with them, and we can discuss the problem and solutions.
0:15:28 - (Brad Scott): They recognize me as their constituent small business. And when they think about policies within the state of Arizona, they're sensitive to our needs. But when you start talking about businesses outside of Arizona, you're no longer talking about constituents. You're talking about revenue sources. And I think the reality is that if legislators within the state of Arizona would recognize that their Constituent small businesses are suffering under policies derived out of the other 49 states and those states reciprocated with that recognition, we might start getting better solutions that were designed around improving the conditions that small businesses and the people behind them have to face.
0:16:05 - (Judy): Right. Well, even when Colorado instituted so, our wafer law became immediately effective on July 1 of 2018 because our doing business statute allowed for this when it got trounced by Quill, we lowered our parameters and said, we'll do this thing called location in common. And when Wayfair came around, we're like, we're allowed by statute because it's already in place to collect on destinations. So we had a pivot. We said, that's effective. November is when we decided we're going to go for it. But we gave clients customers tax till June 1 of the following year, 2019.
0:16:36 - (Judy): But even we didn't know what to do with it as a state. And I remember our department revenue came to the legislator and asked for more full time equivalents to process all these new licenses. So we have asked for this giant volume of intake of new taxpayers, and we can't even handle it as a government. So that's why I think we've seen some of the thresholds go up. We don't need the $20 item sold, 100 of $20 item taxpayer to register in our state.
0:17:06 - (Judy): I think that speaks to thresholds. We have a threshold in Colorado where if you owe $300 a sales tax, you have to file every month. Why? Who needs $300 every month? Yes, it adds up, but that also costs a lot of money to file all those returns. But we have disparity in that. I'm almost an advocate of filing every month. But make it cheaper, right? Because it's easier to reconcile if you just file each month.
0:17:31 - (Judy): So we have this disparity. I remember when I got in this world doing some of these return by paper. I thought I even got into sales tax, filing returns, manually making copies, getting with a check, sticking it in the envelope, going to the post office to make sure I didn't get late notices for late filings. I didn't want to put it in our mail, in our corporate office. I didn't know if they were going to file it timely. Right. So I'm getting every single envelope date stamps as a protection. And then I remember things were going online and ACH, and payments had to be due. And I thought how do you handle that when two states want it, the other states want a check. And we've seen that change over the years, but even that is not.
0:18:06 - (Brad Scott): Yeah, yeah. And I think looking at what are the costs of the business is only part of the equation. It's what's the cost of the Department of Revenue? And really, if you think about it, the tax efficiency, what is the difference between collections to a Department of Revenue and the expenses meant to administer the policies that drive those revenues? And how do you maximize the delta between those two so that you're seeing the maximal gain for the state and for the local departments?
0:18:32 - (Brad Scott): And I think there are a lot of ways that this could be done. It's just a matter of getting the states to buy into know we've talked about a little bit of solutions here and there. And the reality is I've been working with the American Catalog Mailers association now for several years, and I work with the National Taxpayer Union as well. And what you have there, the American Catalog Mailers association is an association of businesses that know businesses figure out how to do things efficiently, and we look at what the constraints are that we're facing and how do we maximize efficiencies to drive down those constraints and benefit our customer base.
0:19:08 - (Brad Scott): So sometimes those solutions on the face of it seem pretty simple, and then you bump into the law. And that's why I've also been really happy to work with the National Taxpayers Union because that's where I see both things coming into effect. I see as a business person, I know what's going to work. And if it's something that I'm not familiar with, I can talk to another business and see what their best practice is and then consolidate those ideas. But then you also have to worry about the constitutionality of it. And that's where working with the National Taxpayer Union foundation comes in, because they understand the tax ramifications, but also the legal ramifications. And when you marry those two together, business leaders and policy leaders, you start to come up with a really good list of solutions, which is what we've done over the last several years.
0:19:50 - (Brad Scott): And every solution that we have pulled forward has something that's been done already. They all have precedent, which means we're not trying to recreate the wheel. We're not trying to do anything new or unusual. We're just trying to bring policies, best practice policies from other areas of the law, into sales tax compliance so that states, local jurisdictions, and businesses can all benefit and benefit financially, but also benefit with the time and use of their resources.
0:20:19 - (Brad Scott): So what do I mean by that? My number one favorite, and I'm going to talk about Texas right now. Texas, a couple of years ago, determined that they've got a lot of different taxing jurisdictions.
0:20:32 - (Judy): I think it's roughly 1614. It's 1700. I counted it. Yes, even better, more, since I counted it last. But I counted 1007. That's a lot.
0:20:45 - (Brad Scott): And what they allow us to do as a business is I can elect, it's my choice as a business to collect at 1714 different jurisdictional rates, or I can collect at a single weighted average rate for the entire state. As a small business, that's a no brainer. My software will let me say, if my customer is in Texas, it's going to cost me. I need to charge 8%.
0:21:09 - (Judy): Okay.
0:21:10 - (Brad Scott): I run into trouble when with my customer is in Texas. I have to charge one of 1700 different rates. I can't do that in my software. That's why I need the specialized software. So Texas has gone out of their way to make this simple. And on the administrative side of it, I only have to register with Texas and ship a report to a single location, remit to a single location, and then they manage the administration and the apportionment of it afterwards.
0:21:36 - (Brad Scott): That's a far more efficient solution than what I have to do for, say, California or Colorado or Louisiana or Alaska. And so that's the number one policy recommendation that we make from both ACMA and NTU. And the reason for that is, if they did nothing else, nothing else, the bang for the buck on that solution would be huge. It would dramatically reduce the cost on.
0:21:59 - (Judy): Every side not to manage the rates. You have to buy comprehensive software to manage the rates well.
0:22:08 - (Meredith): And especially in Texas, where the state rate currently, as we record today, is 6.25%, they have a component that any of the locals can't add up to more than 2%. Right. But there could be five. The Gila River District, the fire district, one, the school district. There can be so many of those small components that make up that 2% that, yes, your max rate might only be 8.25%, but that's composed of six different places and six different allocations. Among the return that it has to.
0:22:45 - (Brad Scott): Go well, and the beauty of what Texas has done is they have not told any of the local jurisdictions that they don't have autonomy and control over their own local tax policies. So this doesn't step on them. It's not preemptive. It's an option to maximize efficiency.
0:23:07 - (A): We do have some clients where we might not make that recommendation because they are so autonomous such that they might be more than a remote seller one day. Right. So then that consolidated rate wouldn't apply, but they do already have a software in place, so they can charge all those six different rates. And so that is something to think about. And even as part of that single rate model is, let's define what that means. If you were to put a remote employee in that state, that is not creating a business location that would break that boundary.
0:23:55 - (Meredith): So I think some definitions, I love the single rate, but also let's define what that means and give a little bit more leniency onto those businesses that could apply. Right. So if I choose to move to.
0:24:07 - (Judy): Texas.
0:24:10 - (Meredith): That doesn't violate the ability to collect.
0:24:14 - (Judy): Yeah. Remote employees are crazy, though. I mean, that remote employee creates nexus in a state is an outrageous proposition, period, in my opinion, because just the convenience of working remotely in this world, like our laws, are not well defined. Nobody goes into the office as much as they used to anymore. So that, to me, is another advancement that we should be thinking about collectively to allow for mobility and not creating an additional tax footprint. I tell my clients, if you have a remote employee just for the convenience of them, because you love them, they're fantastic, and they decide to get married and move to another state, that's 3000 a year in tax compliance costs, tax returns, other things, and sales tax compliance. I mean, it ain't achieved to have a remote employee. And I think a lot of people are agnostic, especially in the tech space, where you don't necessarily need anything more than a laptop and a WiFi connection to let them live anywhere, which is wonderful for the employee experience, but not so great from a tax compliance experience.
0:25:09 - (Judy): So I would marry the two things, like one rate, and you don't get nexus for these ancillary de minimis things in state.
0:25:17 - (Brad Scott): It's the whole physical presence standard. Again, we've actually had employees try to, well, not try. We have had people apply for jobs at Halstead and ask to work remotely, and this goes back 15 years. And at every turn, I'm familiar enough with what the consequences are of that decision that we've turned it down every single time.
0:25:38 - (Judy): That's a bummer for you as a business.
0:25:41 - (Brad Scott): Yeah.
0:25:42 - (Judy): Restricting your, hopefully you have enough humans in Arizona to fulfill your, you know, to be open for business and allow for the right hiring. Why should you be limited by that? So I think we have to marry that single rate to the business operations as well. So there needs to be both to protect business because what we find, as we were mentioning, we have clients that they want to be agnostic about hiring.
0:26:07 - (Judy): And guess what other duties result of it? It's that that drives the Nexus, not just the sale into a state via common carrier.
0:26:14 - (Brad Scott): Yeah, well, these are conversations about businesses that are much larger than Halstead, too. We've got 24 employees right now.
0:26:23 - (Judy): Well, you'd be surprised what happens if Joe wants to move to New Mexico.
0:26:28 - (Meredith): Do you let Joe go, who's been a long standing employee and is a really great, so it's, it's still know you might not be hiring internationally. You do still have people that want to continue to live their lives and are very loyal to your company and want to still maintain and be a part of it. Right. So it affects all kind of sizes, revenues, employee counts that matter. Right. We don't just get to value one type of business over the other.
0:27:02 - (Brad Scott): Yeah, well, and what I found when I start talking to legislators about this is that as much as it seems like a single issue to us and realistically could be put into a single vehicle, legislatively, you've got different enemies in different places. And so consolidating them basically guarantees that you're going to have enough enemies from every corner on every issue that the bill isn't going to pass. So they really do have to be managed individually.
0:27:28 - (Brad Scott): And a lot of that just comes down to which states are more concerned about sales tax versus which ones are more concerned about remote work versus which ones are concerned about digital taxation, and on and on and on and trying to blend them all together. Our earliest efforts were aimed at kind of consolidating all of these things. And what we found time and again is that the conversation very rarely got past one solution because somebody would say, well, that's not going to work for us. And so we have tailored our entire discussion, especially with sales tax, to be just about sales tax and economic nexus and not even talking about physical presence, because again, it just muddies the conversation so dramatically that you end up with a lot of people saying, no, we can't do this.
0:28:13 - (Meredith): Well. And one of your solutions that I'd like to talk about, and all of these will get post, we'll share, but I don't know that we have enough time to talk about all of them because they're very interesting kind of conversation starters. But one of your suggestions is one audit per year from a single designated taxing authority. What does that look like? What do you mean by that?
0:28:40 - (Brad Scott): So we were audited several years ago by the Department of Economic Security in Arizona, and they manage our unemployment benefits at the state level. And the auto went fine, we got a clean bale of sale, but it was time consuming. And the reality is, until you actually get the final result, it's stressful. Now, that's a single agency within the state of Arizona. I could face it from multiple agencies within Arizona about various subject matters, but sales taxes, there's a lot more data to pour over for sales tax than there is for unemployment remittances.
0:29:13 - (Brad Scott): So imagine we do about 24,000 transactions a year. And if you're coming to me to audit me for, let's say, our transactions into California, I've got to separate all that information just for California. Now, let's say I get an audit request from California and from Illinois and from Kentucky and from Wisconsin and a handful of them. I'm going to be spending all of my time managing audits by states that have the authority right now to audit me every single year.
0:29:43 - (Brad Scott): Now, I don't mind doing an audit each year. I mean, I don't really want to, but the fact of the matter is, it's part of business. I don't mind doing one a year. I really don't want to do 50. And so if we allowed for a single auditing agency, just think about the IRS, for example. And that's not who I would use for this particular instance. But the IRS can come in and they can look at us for income taxes at the federal level. It's a single audit.
0:30:06 - (Brad Scott): Am I ready to be audited by all 50 states, or can the IRS adequately do the job well enough so that these 50 states can say, okay, the IRS has done this, we'll accept their results and we're going to work off of those. If we allowed a single taxing, designated taxing authority or office or something like that to manage audits for all 50 states, if one state initiated it, then they could look at all 50 states.
0:30:31 - (Brad Scott): It's still going to be a reasonable amount of work for me, but it's not 50 times that amount of work. I give them all of the information and they do the audit, and then they come back and they say, okay, you're clean in 48 states, but these two you owe money to. And those states, then I can work out with them. Whereas if I have to do this with 50 states, I'm not going to get anything else done. And as a small business owner, I don't just do sales tax. I also do all of our accounting and our finance and our benefits administration and our payroll, our contract negotiation. I take care of our shipping contracts and I do our merchant services. I mean, there's a whole slew of things that I do, And I need help on some of those things.
0:31:05 - (Brad Scott): But I cannot manage 50 audits even one time, let alone year after year after year.
0:31:15 - (Judy): At the big four, we work with very large multinational, Fortune 500 whatever clients. They had dedicated staff in the sales tax department. They'd have like, a supervisor, a preparer, and an audit supervisor who would handle all the audits. I mean, big business of America has borne the brunt of sales tax and tax compliance at a multistate level. And they have dedicated resources which they could kind of justify because they might be a billion or 100 million, but even that kind of sucks. Right? But now we brought all that down.
0:31:42 - (Judy): Small business can't handle it. No way. So you're 100% right that that needs to change. And people have just sucked it up and paid for it. But that cannot happen at small business level because you don't know how to prepare for it. It's like I need someone to sit on the bench to handle my audit. I didn't get audited. Okay, good. Right. I mean, how do you use your resources wisely? Yeah, 100%.
0:32:06 - (Brad Scott): Yeah. Well, I didn't even know what a state and local tax department was five years ago. Right. And of course, we speak in acronyms, so the first time I heard SAlt department, I was totally caught off guard. I didn't know what they were talking about.
0:32:18 - (Judy): Like Morton.
0:32:20 - (Brad Scott): Yeah, exactly. But when I found out what one was, and the fact that companies have entire departments with localized expertise around the country that can manage this, I realized how underwhelming our resource pool was. And I think if you're going to apply these obligations downward onto smaller and smaller enterprises, then the obligations need to be dramatically simplified, streamlined and made uniform. So that instead of a business with a person like me, who's managing several different areas, having to understand 12,000 different sets of rules, then there is a simple, consistent set of rules that we have to understand.
0:32:56 - (Brad Scott): And again, going back to the question earlier, there are a lot of businesses that are out of compliance because they don't know there are others that are out of compliance. Because they don't even have a clue as to how to manage this. And if you made it simpler, you're going to get greater compliance.
0:33:08 - (Judy): That's 100%. Couldn't agree more.
0:33:11 - (Meredith): This podcast is for educational purposes only and is not intended, nor should it be relied upon as legal, tax, accounting, or investment advice. Should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.
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