Understanding Tax Sales With Scott Peterson
Hosts & Guests
Scott Peterson, U.S. Tax Policy and Government Relations at Avalara
Understanding Tax Sales With Scott Peterson
Meredith Smith [00:00:04] Welcome to SALTovation the SALTovation Show as 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 and welcome to another episode of this television podcast. Today, we are joined by Scott Peterson, who has more than twenty five years of what some would consider getting the inside scoop. I don't want to take it too much of a thunder, but Scott has spent time within a Department of Revenue and Industry Group, for lack of a better term, kind of intended to maintain mystique and a sales tax software company. Scott, thank you for joining us today.
Scott Peterson [00:00:44] Thank you very much. It's my pleasure.
Meredith Smith [00:00:46] We are very lucky to have you. And of course, Judy Vorndran of Tax Ops SALTovation. Hello, everybody. So we all just dove right in. Scott, your background is a little different than some of our prior guests who've spent a lot of time in private practice. What has your career path been and what made you stay away from that kind of private practice?
Scott Peterson [00:01:10] My career path is an accident, and
Scott Peterson [00:01:16] I
Scott Peterson [00:01:17] thought, well, if I had known I went to graduate school to be a city manager and so I learned nothing about tax and college and I went in. But I get on to graduate school in the middle of a just a nasty recession. And of course, the first thing that happens in a recession is the government stops spending money because governments have no taxes. And so I was unemployed for eight months. And that is a horrible thing. By the way, I feel bad for all those people who have lost their jobs in this recession because it's a bad thing. So I'm sitting there unemployed and trying to pick up a few gig jobs where I can. And my faculty advisor calls and says, Scott, the legislature is looking for a new analyst and, you know, you should apply. So I go and I interview for the best cheap suit that I own, which I had in graduate school. And the and frankly, that company that I bought that suit from all those years ago, they just went bankrupt this year because of a stupid recession. So the goal is to have an interview and I'm thinking, OK, that's fine. And lo and behold, they hire me. I showed up for work the first day with two other people. They hired three people. The Causevic staff made it in and introduced all of the existing staff to the new staff, and then he turned and he looked at his existing staff and they were all subject matter experts so that the organization, the legislature's professional staff, was divided by subjects. They look to themselves. You've all been doing what you're doing for a while. You want change. You want to change your specialties. And they all said, no, we're happy. And they turn around to me and say, You're the tax guy. I couldn't spell tax. Had no idea what the hell I was getting myself into.
Judy Vorndran [00:03:15] It's not funny, although I have a Masters attack. So I was intentional about my second go around. But that is and I am in state. Local is definitely not an intention. And I think it's really interesting that that's the case for you because why don't we know about this when these taxes existed since nineteen twenty, do you know especially where did you start, South Dakota. Because that's right. You have a very broad based sales tax and I feel like even practitioners don't understand that of tax compliance. You understand the broad based sales tax and sales in South Dakota. And I don't know, it's just an interesting structure. But is it funny that you want to be the default?
Scott Peterson [00:03:52] Yeah, I'm here by default. That's why I don't talk about this, is because that doesn't look good on the rest of it.
Judy Vorndran [00:04:02] That sense then kind of supports that. And you spent, what, almost 11 years at the Department of Revenue.
Scott Peterson [00:04:12] Yeah. So I spent 10 or 12 years with the legislature and I was their tax guy. And honestly, I, I, it's a part time legislature. So there's three or four months in a year without around and you have time to do things. And so I got pretty good at trying to research and try to understand what other states' taxes looked like. Oh, we didn't have an income tax, so I had no idea what it looked like. Well, to this day, I have never lived in a state other than when I was in the army, which didn't count when they had income tax. So my understanding of personal income taxes is the federal tax. Yeah.
Judy Vorndran [00:04:55] And it's interesting in that area of tax, in my profession, starting out the big four public accounting or big aid or whatever it was, it was income tax, it was a driver and a byproduct would be state income tax. Big deal, but sales tax is just an afterthought. And I remember thinking there's so much money going out the door. Why is this so devalued? I realize it's on your customer, but it's wrong. It's on you. But there's just this weird thinking in business, the CFOs, the controllers in our system of education, where sales tax has just been widely dispersed to the back end, clerical, but very, very important, very monumentally costly not to do a good job with it. So that's what you did by comparison, was to understand those differences, to help the legislature make decisions as to tax policy interest? Because, you know, I used to work for a firm that had a very large office in South Dakota. So I went to South Dakota. Lott actually went to Oregon to argue the case with the Department of Revenue. That's a fly in on a no bathroom airplane. That one airport
Scott Peterson [00:06:01] that no bathroom, airport that no bathroom plain between here and Denver is right
Judy Vorndran [00:06:05] in the winter. It was so scary. But anyway, it is a beautiful little town for fishing , hiking, boating and all the things that it has to offer. Really neat community. But it was very interesting how they tax so many things like massages and our service services, CPAs and attorneys like. Who'd have thought that they would have such a broad based sales tax in South Dakota?
Scott Peterson [00:06:29] Yeah, so, I mean, it's a very odd history because I used to have an income tax prior to World War Two. They had OK, so when they when they adopted their sales tax in nineteen thirty two, it came with a personal and a corporate income tax and they had that until about nineteen forty four, nineteen forty six somewhere when they repealed the personal income tax and repeal the corporate income tax except for the tax on banks. That's the only
Judy Vorndran [00:06:57] thing. Is that why
Scott Peterson [00:07:01] honestly there isn't much history that you can look up to find the reasons behind it? You know, they just said
Judy Vorndran [00:07:09] forty of all times because that's when income tax really took off across our nation at the state level after World War Two. That's very interesting. I did not realize that bit of history now.
Scott Peterson [00:07:19] I mean, even in those days, it was an almost wholly agricultural state. Sure. Right there there wasn't much industry at all in tourism. Mount Rushmore had just been completed. But we hadn't we didn't have the interstate highway system. And so if you are going to be a tourist of the lighting forward, if you had to have some, you know, some wherewithal,
Judy Vorndran [00:07:42] you're going to get you're going to Yellowstone, you're going to start a person. You are. So that's why you will go to South Dakota.
Scott Peterson [00:07:47] Yeah, absolutely. It's different now. But in those days.
Judy Vorndran [00:07:52] Well, yeah, because they're getting the big bike these days. It was a client of mine. I did some work for them. I didn't realize what a big deal that brand is for that biker conference, which is called. I can't think of the name Sturgis Rally. Just just a name. It's a big deal maker there.
Scott Peterson [00:08:13] Yeah. So after 12 years, the legislature, you know, they get a new governor and he fires the entire senior leadership of the Department of everybody. And so there were vacancies all over. And I had always thought, you know, when I was working with the legislature, there's two jobs that I wanted. If I couldn't do what I was doing, the two other things I wanted to do were to be the director of sales tax or to be the executive director of Custer State Park. Because you've got to live in the park, you've got a house inside the park. Yeah, and I love Custer State Park and I thought, well, there's no way in hell they. What do I know about the park? I know nothing about running in the park. I knew a lot about taxes, but I never expected to get that job because the guy that had the job did a great job.
Judy Vorndran [00:09:02] Our guy was in charge of the taxes. Yeah.
Scott Peterson [00:09:05] Until the governor came in and fired him. Wow. So they call me, ask me to do that. So I took it. And one of the very first things that I was involved with was the Sturgis motorcycle rally, because they have a big office at the Department of Revenue, takes about ten people from around the state and moves them discharges for those days, it was just ten days. Now it's three weeks. And they set up an office and they issue licenses and they collect taxes, which would have been nineteen ninety ninety five. They didn't take checks. All the taxes, it's like it's like marijuana in Colorado. All the taxes are paid by cash. Wow. And so we had armed guards.
Judy Vorndran [00:09:50] I was going to say, did you just have, like, armored trucks just sitting on these mounds of cash?
Scott Peterson [00:09:55] Just sitting. There was a guy. Who sold leather jackets and if he was really successful and they made this guy pay the date, the first big payment day, he showed up with one hundred and forty thousand dollars in cash. Wow. And this a big this guy sold a lot,
Judy Vorndran [00:10:19] 11 percent or whatever. That's back into that. That's serious money. And I said, well, wait a minute, that's a lie. That's like a million dollars.
Scott Peterson [00:10:31] So I'm going to show up at a black guy with a black garbage bag full of cash. And I'm going to go. And I said, How long has this guy been selling? Oh, I've always been here for twenty five years. I said twenty five years. You don't trust this guy. I said next year we're going to take checks for my first big executive decision running the sales tax division to switch from cash only to taking checks for the street as much as our. And I'm sitting here thinking, you guys got to be kidding me. You've got this guy for 25 years and you don't trust him.
Judy Vorndran [00:11:07] Yeah. What's a policy? It's an inefficient bureaucratic policy. Right. Can't the role for you because we got a general. Right.
Scott Peterson [00:11:15] Where do you draw the line that this is an issue with running a tax agency if you come to love the law. Because the law is the thing that you can say this is I didn't create this law, sir. Yes, I'm sorry, this street you the way it does, but I didn't create this law. Correct. I have no choice but to enforce this law. So what if it becomes a crutch? In many ways,
Judy Vorndran [00:11:41] yes, it is. Yes. And it gives you inflexibility. And that is one feeling of government, in my humble opinion, as you need to give people the latitude to deal with situations. Yet you don't want them to be rogue as a governmental agency. Right. So it's like, can you trust them to enforce the laws properly without giving them a role in standard to live by? But if you look at a human to human interaction, what a benefit it would be if we could look at a little bit more that way to trust this vendor who clearly is trustworthy, that he does need more cash. It's ridiculous.
Scott Peterson [00:12:12] No, I agree with all those. So I was there for 10 years. And for that whole period, I'm thinking, OK, how can you hire me? Folks, that you're never going to have to worry about, you know, you you trust, so you've hired a lot of people. Judgment is a. Painful thing to discern and an interview question, how do you know this person's judgment is going to be what you're looking for? Because you are in state local tax, it's hard to find someone who knows state and local tax. Yes. So you assume we have a rule. I mean, we want someone who understands business in an ideal world, looking to understand business that they have been a retailer at some point of time. I worked for a retailer. Yeah, but. And who could write?
Judy Vorndran [00:13:07] But and we can't right now
Scott Peterson [00:13:13] have anybody else but
Judy Vorndran [00:13:16] people like to write in general, I agree. People don't look right. Yeah, and it's funny, I noticed as I had to build my own group at my former firm, and then now I really look for people who choose a profession like, for example, CPA masters, a tax lab or a lawyer, CPA lawyer, not just a lawyer. No offense to lawyers, I'm a lawyer, but with a business undergrad because you have to have that mindset. A lot of lawyers are probably speaking English and they don't have numbers. I mean, my husband's a real lawyer, is a litigator and he does not understand financial statements. And I give it he has a degree of philosophy that he's smart and he's thoughtful and he's a good litigator, but he doesn't understand books and records, you know, and if you don't have the financial acumen, it's really hard to understand it because you have to understand the policy and then you have to put the numbers on the forms because that's bureaucratic. But if you don't understand what's going on with the business, you can't really apply the law to the facts and then put it on the form. So it's really interesting when you look at that, those attributes in hiring somebody. That's very interesting, I think the same way. That's interesting because you had to hire those people and they're not just coming out of the shelves. They're not. Oh, there's just a lot of people out of a CPA who's going to do sales tax.
Scott Peterson [00:14:29] No, it's hard to find a CPA, a bachelor's degree that includes any state tax.
Judy Vorndran [00:14:41] Oh, yeah, it's ridiculous. Our system does not educate us on what is something that impacts you every single day. Every day we pay sales tax. If we go to the grocery store, we buy gas. Right. I mean, we pay property taxes on our homes. I mean, why is it such a thing that's not thought about? It's a very interesting issue. And of course, you work on policies across the country. Right. So that's like, why are we doing it this way versus them doing it that way?
Scott Peterson [00:15:06] Oh, yeah. Income tax is very, very liberal from state to state, but sales taxes vary a lot.
Judy Vorndran [00:15:13] Yes, yes. Well, there's the nuances to that. Like one word can make the biggest difference in a taxability or an interpretation or a position. Even the same words can. Mean different things. Yeah, it's we're we're currently supporting one of our clients and an audit who has been previously audited. We litigated the results of that audit and now, like, literally check on the finding of what the business is. Yes. And now the department is now saying no, because it was like you're not subject to sales tax. This is a tax on you. And now they're saying, oh, no, it's subject to sales tax. And we're like, we literally, literally litigated this in your jurisdiction that the ruling came out. Fifteen months ago, like, what do you mean, and you get to start over, like have a refresh, the business hasn't changed. It's very disheartening, actually, because taking it to court was expensive for the client. And what I thought was the value of all that was to get insurance. Right, to get a finding. And now that's being thrown aside. And I don't know how to deal with that administratively. Still, I don't know that it's going to be material to the clients. That may not be an issue to take forward, but it's frustrating as a practitioner when you're trying to help people.
Scott Peterson [00:16:33] Well, you use a very important word in our business material. Yeah, there's an awful lot of really bad tax decisions because it just isn't material, correct?
Judy Vorndran [00:16:45] Yeah, no, it's always extortive. I feel like if it's fifty thousand or less of an assessment, you're going to pay it because you can't litigate it for that. It's got to be millions of dollars or half a million and a continuing practice in order to say let's go to court because you're three years out before you're going to get a decision. So it's just not worth it. You're going to live in uncertainty for too long a period of time, and you can't work a business like that. So, yeah,
Scott Peterson [00:17:10] especially if you're public, you can't have this potential liability
Judy Vorndran [00:17:16] accrual that's like that gets picked at every corner in your financial statements. It's like, what is this accrual? It's like, I want that to go away when it's funny. In lieu of Wayfair, how we got South Dakota to take that case forward. I mean, that was monumental. And it was very gracious of Overstock, new AG and Overstock, new AG and Wayfair to be willing to pay the money to resolve an issue that really, quite honestly, didn't benefit them at all and an immaterial state in the spectrum of life. And they all took this case all the way up to the Supreme Court, which is a blessing to the land, I think is at least it created some universal truths at a Supreme Court level. And is there something strategic within South Dakota that that was the state that was chosen to carry that forward?
Scott Peterson [00:18:04] Strategic. Historical, yes. So in the late 1980s, when the multistate tax commission created the Bill of Development Project, and I think those states created an actual group, gave it a name, and the point of the group was to try to find a way to overturn the decision. And that's how we got the decision. There was all that was there was nothing accidental about Quill. I mean, it was orchestrated. Right. And that took a lot longer than the states thought it should have taken because they couldn't find the right set of facts. And they couldn't find somebody willing to go to court.
Judy Vorndran [00:18:52] Right, right, that's what I'm saying with you, with those taxpayers, I thank them for doing it. You have to pay a lawyer to take those cases up to court. That was not cheap to go for.
Scott Peterson [00:19:03] That's right. And like I said, it goes to the materiality of things, you
Judy Vorndran [00:19:08] knew, and that was not material. I'm sorry. Like, you've got a million people in South Dakota at the most. Right. And how much tax is that? Not much from your worldwide presence. No way did that matter to them. So that was not the lawyers made out on that one.
Scott Peterson [00:19:26] So in 1990, when they got to a spot where they thought they had a company, Cuil, that would go to court with them, then there was a battle to see who would do it in North Dakota. And South Dakota had a very unpleasant exchange in that period of time because South Dakota really wanted that case. North Dakota had an income tax. Why did North Dakota need to care about the sales tax? They had an income tax, income tax. They were in their minds, they were more at risk. Yeah, from the justices. Right.
Judy Vorndran [00:19:58] From the president's perspective. And to set a standard. Interesting, because I thought it was interesting that both those two states had such a large bearing on our sales tax world. And having worked for a firm that was based in North Dakota with large offices in South Dakota, where they really kind of began, I really became ingrained in those states because when I was at the big four, I cared about the perimeter states, Texas, Illinois, California, because there's a bigger market there. But then working at a firm that has a lot of clients in those states, I really realized how much business is actually happening there. There's a lot of great businesses in those states, actually. Great and
Scott Peterson [00:20:35] really good
Judy Vorndran [00:20:36] answer. And oil and gas is really big there. So, I mean, it just changes your perspective when you live in a state and you realize what that what is being created there and suggests very important things
Scott Peterson [00:20:50] start is very important to us. Yeah. So the way I decided, I honestly didn't have many days and I wish they had said more about what the standards should be. Meaning, it goes to this point about how different the words can be when we've got gross receipts, we've got gross sales, we've got gross income, I've got twenty five or twenty five states that use the word gross. Yet somehow, someway in their sales tax imposition statute, they all used to say
Judy Vorndran [00:21:25] now that that was a very interesting issue when we sort of created a Wayfair deliverable because we've got to get in front of this because how are we going to tell people what the answer is and how do we measure it? Right. It depends on how the revenue is earned and who wants to. And then interesting how Kansas threw that whole thing to the wayside and said we're just going to have a standard you just have to collect like you kidding me? How is this happening? So that's been really interesting to see the enforcement. But then what ultimately happens to my mind to taxpayers is you're kind of damned if you do or damned if you don't. So you might as well do it because why would you? Why are you going to litigate the case if you don't collect the tax like you're not going to be the one?
Scott Peterson [00:22:06] Yeah, I honestly, I don't know how we're ever going to get Kansas into court. Who's going to pay for that? Who's going to pay for that?
Judy Vorndran [00:22:14] Yeah, and I think that must be the risk they're choosing to take. They're like, whatever. And Colorado, the same thing we implemented with our statute because we believe that our old law, our next enumerated statute, is doing business, was good enough to continue forward. So policy wise, they didn't have to go to the legislature. Did it have to change the rules? They believe they can apply to Wayfair because all they have done is narrow the application administratively due to the Quill case. What they did is they just took a policy position and said, we'll scale it back because Aquil Quilt now the quilt is there as well as for what is done for it. So we have an issue with TABOR in Colorado where you cannot make a law change to raise taxes without a vote of the public. Well, we don't have to do that vote. They had decided it was fine. So there you go. Is your interpretation because a lot of us practitioners like this are unconstitutional. We can't do this. And they went through all the history, the like. Somebody can sue us then. So that's how we have with our Colorado materiality. Yeah. Yeah. And then who's going to sue? Do you know anything? I mean, I remember seeing the lawyer for Overstock or New AG, I think it was I was at an American Bar Association Institute for Taxation conference and he spoke at our lunch meeting before the way their decision about stare decisis and let things be what they are. And he was really arguing that. And I thought, yeah, you're thinking old school. That's not going to win because the world has changed so much where retailers are not citing specific things. You don't go in the store to buy anything anymore with Amazon and the Internet. Everybody's just ordering. Right. And we've really changed our culture of how we buy our goods. We like to shop online and compare and contrast. And I don't think the starry decisis argument obviously doesn't fly. But he's making this argument that that's how we should win and not have to collect the taxes. And obviously, we know that just went out by the wayside. No, I remember thinking while listening to him as he spoke about their position and then the state of Alabama spoke as well, and he said that he's a lawyer to the guy who works for Alabama. So there. Yes, Jeff
Scott Peterson [00:24:18] John works for one of the big four.
Judy Vorndran [00:24:20] Oh, yeah. So he got in while that half of your life to rights administrators got hired by the big four. That's what happened in my career. We're trying to figure out how to deal with this remediation with all these clients that were not compliant, to be honest, 20 something years ago. What do we hire? We hired a bunch of people, administered the state government rules, and we created vulture closure programs like that. Something that came out in my career was like Callejo. He'll help you fix it in Alabama, like you got to go to heaven, walked out the pocket of money and say, here you go, take my money and give it to me. So kind of funny to see that history. Yeah. Yeah. Well, so then you're at South Dakota and then kind of streamline comes along and you are executive director of Streamlined Sales Governing Board. Yes. So then what. What led you there and then really what, what to streamline means to everyone and anyone.
Scott Peterson [00:25:21] So in those years that I worked for the legislature every day I was helping somebody try to change something. I mean, it's you don't need to introduce a law to keep the status quo. So I was I wrote and I wrote three to three thousand different pieces of legislation. In the years that I work there, every one of them was about change. So I spent all those years changing, helping people change, planning on change, giving people advice on how to change something. I wanted to do this. They'd come to me and say, I want to do our taxes are going to be different. So I give them advice on how to change. So I get to the Department of Revenue, which is a non change organization. And so when I'm doing my I'm doing my best to be follow the law and streamline comes along, it's all about change. So I for me, this was like going home. We're going to talk about how to do things differently than we do them now. So for me, it was a return to normal, which was change and an end, but with really good marketing because we were going to change for the sake of change. We were going to we were we were making changes to make life better. Yeah. So to me, this streamline was a wonderful experience. I got to meet all these people, but we actually got to talk about looking at everything that everybody did and said, OK, who does it the best? And if no one did it the best, we create the best and then we would say to governors and legislators, this is good for you and the people in your state, so you should do this. So for me. You know, me started in the leadership. Because it was you know, there was something to do and I wanted I wanted the change to be successful, so I was constantly trying to get into roles that allowed me to have a voice in the direction of the organization. And then after a number of years of doing that, we got to a spot in there where I was doing two two jobs and neither of them very well when it got to a spot where they. Felt they needed to hire staff. They approached me and said, would you be willing to do this on a full time basis? And, you know, by then I'd spent 10 years with revenue. And that's, you know, that's a long time. And, you know, those folks needed new leadership and. So to me, it was a natural evolution going from being a tax policy researcher to a tax policy administrator to a. And I'm not sure what the streamlined role is that executive directors role was. It wasn't tax policy. It was more it wasn't tax administration, although regulations, certified service providers were a bit regulatory, but it was more of a like a thirty thousand foot view of both tax administration from the retailer side and from a state.
Judy Vorndran [00:28:51] So it's kind of marketing and selling and getting by and right. To go to Guaman and to adopt. Right. And yet we're at twenty four states and not all forty six or forty five plus D.C. What do you think is the reason we haven't got more states on board? I mean I guess I can think like Colorado because you've got home rolls but you've got California, New York, Texas, they're not streamlined. I mean they just are the aggregate.
Scott Peterson [00:29:17] So usually because marketing was a big part of my job, I didn't imagine I was giving presentations all the time. Travel spoke to legislative committees in Texas, California and Idaho and Florida, Missouri, and tried to get those New York, trying to get those nasty states to state legislators to understand the things that were part of Streamline to actually help the businesses inside their state, correct? Yes, because obviously your marketing has to be you have to understand your buyer. Then you have to tell your buyer something that the buyer wants to buy. And for legislators this is good for the businesses inside of your state. Yes. The challenge and this is one of the things we talked about throughout the whole S.A.T. time. Were we doing too much, were we doing too little? And so there and the way we started it, because the state tax administrators had no idea what made their sales tax complicated, they had no idea and. The only people who did it were the business, the state businesses. So we surveyed all of them and said taxation did a great job of providing support. They got all their members to give the top 10 things that make them crazy about state sales tax. And that's where all the things that are industry online sales tax agreements today come from that survey of businesses back in two thousand. Well, the challenge was how do you exclude anything, if you can say businesses, tell us what the biggest problem is, we'll fix it. Well, that's a you know, that's a recipe for a big list. And the challenge was, how do you say no? And Have you said yes, too often because there were things that we did that we thought made perfectly rational sense at the time, and one of them is why Colorado, Texas and in California aren't members. And that's because the state local tax breaks have to be identical and tested. Texas doesn't tax utilities, Texas cities, tax utilities. So then our favorite word came back in. It's a material change to the Texas tax policy for either Texas to start taxing utilities. Imagine how much tax that would generate for the cities to stop taxing utilities. Right. And since that was a deal that was part of the package, the Texas legislator said there's no way in hell we could ever do this because we can't have that big of a tax increase or that big of a tax reduction. Just we don't have the money to make up the money for the locals. And we, God forbid, can't spend the money that would come from taxing utilities. So in California it was like that to a lesser degree. Either the issue was narrower and obviously Colorado's tax base difference between the state and the cities is immense. And frankly, in between criticism and
Judy Vorndran [00:32:38] you know, that's funny you say that. I mean, it really actually is very interesting to me because obviously I understand that Colorado. But I didn't realize that was the issue in Texas because you do have a state collect a tax. But you're right, the disparity between the one seven hundred one thousand seven hundred thirteen jurisdictions, the local level, even though state collected, they're not collecting on the same base. And you obviously have something similar in California because of the locality even though the state collected. There is some disparity and we have that in Colorado now where we're trying to do this sales and use tax system, where there's a common place of registration and remittance for the home rolls and the state. But there is no parity among what is taxes and what now. We did get buy-in for the cities to come on board. If they want, they can choose to do this. And so we've actually got a fair amount of momentum. But I think it's going to really help that, to be honest, because you're not going to get your money, because you've got a lot of states in city centers that are shutting their doors, not given the money they need. So we're going to see a change and it's probably going to help the state and local from our perspective in Colorado. But once again, it came down to bonds. There's a lot of money tied up in bonds, city projects. And if you change the base, there's no bond. So we can't we can't change the pace, which is the complexity of complex rules, because all the darn locals in America
Scott Peterson [00:33:59] city bonding, because it's always been a challenge even not to go to where the tax base has always been the same whenever the legislature wanted to exempt something. Yeah, the first thing they would say is Sioux Falls just issued a bond for the next 15 years, depending upon X amount of X amount of sales tax, just reduced it by Y. How are you going to make up the difference?
Judy Vorndran [00:34:24] Yeah, we give all this authority, these local jurisdictions, we have a client that helps rural water districts. Do you know there are over thirty thousand rural water taxes in America? Like I didn't know there was much water in America. Like, I know there's water, but I didn't realize that there are many places where people get their water. So there's just so many smaller jurisdictional issues in America that serve our taxpayers or our humans to give them goods and services or things to live in recycling water. But I mean, I don't think people realize, like, how that's evolved. It's not a national strategy. Right.
Scott Peterson [00:34:59] So there's some days I wonder if it's even a state strategy. Right.
Judy Vorndran [00:35:04] It's just very siloed. I feel like we've become very siloed in America, which is unfortunate, not in my backyard or we have that with the oil and gas drilling and drinking, rigging and fracking. And we have huge issues with that in Colorado specifically, like I'm not going to do the OR pot is a perfect example, like which cities adopted pot in Colorado versus which did not. And then when they saw the money, they started adopting it. That's our state. Don't get to know enough about that.
Scott Peterson [00:35:41] It's not what makes Colorado normal is it's just different and different is what's normal. I mean, we're the three of us. We couldn't be more different. If it were normal, it is normal that we're have
Judy Vorndran [00:36:00] to be different. And then I'll use that to transition. So you kind of have a government, quasi government, and now you're a software company. So now you are currently vice president of US tax policy and government relations in the Apple era. So, you know, Apple has had an incredible amount of growth. They've gone public, their marketing machine and nine out of 10 times. And we talk to someone, they're like, oh, yeah, we know of that company. Nine out of 10 people can't say it correctly, but now you're there. Where did that come about? And what are you doing there
Scott Peterson [00:36:44] because of all the things that we did in Streamline. That the business community was proud of the certified service provider was the least of the. You know, the big companies that were promoting safety and in promoting all of this uniformity and simplicity that came from SAAC, didn't care at all about certified circus riders. They did. They have their own thing.
Judy Vorndran [00:37:07] They had to do it. Absolutely.
Scott Peterson [00:37:10] I'm not going to turn I've got seventy five different billing systems in my company. There's no way I can give this to one company. You know, the whole concept of a certified service provider, just kind of didn't languish persay, but it just never took off. Right. But the one thing that I knew from, you know, and hoped and I think and learned as I was the executive director of DST, was that if you're willing to put enough money into tax content. And exemption certificate management and automation. That you could build a sales tax system that was perfect. And we were never going to get the perfect honesty otherwise that we're just we're never going to get all the states we were never going because to get to all the states, everybody would have to be perfect. And so I'm sitting there in the last last year, I had that job thinking of this thing, we're not we're never going to get to the what I thought we should get to in the beginning, which was a zero burden sales tax system, the SS to SSD, original name was zero, our sales tax system. Wow. And for a very short period of time, an embarrassing and embarrassing long period of time, but really a very short period of time. We honestly thought we could get to zero.
Judy Vorndran [00:38:44] But what you got to have you've got to have altruistic motives, in my opinion, or you're not motivated.
Scott Peterson [00:38:50] And thank you. You're absolutely right. Well, I think the sort of I sort of program part of that thing is as close to what the states could get to, practically to zero. And they get there by eliminating the risk of audit and providing the content and paying for it. Yeah, there were a number of times in that period when states would say. If the CCB program works and we pay for it and we have effectively eliminated the burden, we're going to go to the Supreme Court and we're going to get the decision overturned because we truly have eliminated it. So but in that last year that I was with Essence, I thought to myself, they're just never going to get to that spot. And so when I recall, I thought. You guys are. Much more likely to get the perfect than the states will ever get to, and that way exceeded my expectations because it's truly amazing how if you put enough effort into a I mean, we've got tax content for the United States, for everything that's sold the United States, everything gets taxed and everything is taxed differently in the United States right now. And once you get that, you deal what you've dealt with the sales tax and then you broaden your tax content to the other things that people sell that are our sales tax or that are simply sales tax. But of all the taxes. So you've got to deal with alcohol and you have to deal with the beverages. You have to deal with prepared food. You have to deal with higher fees and battery fees and, you know, and recycling fees, all those different things that a normal retailer has to deal with that most people don't even ever think of as a sales tax. Right. But if you're going to be in the tax compliance business from a retailer's perspective, it's all part of the thing. Yeah, but I. I remember having a long conversation with the tax director from an immense time. Big box company, and they said, I've got sales tax down, but I don't have automated the egg tax and I had no idea, but there's like 18 states that have tax on eggs. And it's easier if you're a retailer buying it wholesale and selling it retail eggs, you've got this tax that you've got to pay for those dates and there's no motivation for that. So you've got to have somebody on your staff who understands eggs and understands the forms and they're always paper forms. And you have to be licensed with the Department of Agriculture in those states. So that's OK. Well, that's the strangest thing I've ever heard of. But when Eviler recalled, I thought to myself, these people understand what it takes to eliminate the word. And it's that they have so far so greatly exceeded my expectations. There is practically nothing that we do. See a. Government imposing on a business that we're not ready to try to tackle
Judy Vorndran [00:42:22] right now, you've really shifted the game. I mean, I've been working with you for about 10 years. And what other than the other vendors, they couldn't connect to cookbook's or NetSuite or I mean, they just couldn't see people who are five, 10 million dollar business, maybe even 30. They're not going to spend a half a billion dollars, quarter million dollars to integrate a system to collect sales tax. They're just going to do the rates manually. Right. And that's prohibitive. And so, Avilla, changed that game and they upped it, I think, for the other vendors. And everybody's coming up with that. But Avalere was first to market and they really upset the apple cart because the money was in the larger conglomerates, that Fortune five hundred, that's where the focus was. But then there are a ton of small businesses in America and a foreign doing business in America. They need to collect tax and I can help with that. And so that's when I started saying, OK, tell my clients they have a problem. I don't give them a solution. I'm not going to give them all the rates and file the returns. I don't have the capacity or the bandwidth or it's the cost structure doesn't make sense for them. I'm not going to make money on it. And it's not the best use of our time. But automation will help alleviate that. And that's how I started partnering with Cavaleiro so that I could help integrate that product so my clients could get results,
Scott Peterson [00:43:37] you know, because it seems logical. But when you have a company that was founded by software people. And not tax people. They didn't think about all they understood about taxes was in most cases, it's a yes or no. Yeah, yeah. So that's why it's easy to put a computer in most cases. So it's easy to automate the rest of the knowledge if you have all the stuff behind it. Yeah. What's complicated is that the founders knew this from the very beginning because they had been in the software business. The complicated part is selling it. Because you have to be sold with something else. Yeah, there's a billing system somewhere. There's an accounting system, there's an electronic cash register. That is how whatever you're selling from a sales tax perspective or frankly, any kind of a transaction tax perspective has to be attached to the transaction. Right. And there's somebody else's software.
Judy Vorndran [00:44:40] Yes. And that connector focus was really first of all, I had no idea there were over thirty five hundred sort of billing, invoicing, financial. I mean, I've learned more because in my day at the big four I was like SAP, Oracle, PeopleSoft, Edwards, those were the brands that I knew. I didn't know that I didn't even know Natsui because I know that it was created but then by Oracle I believe. But regardless I mean cookbook's not clients have used looks. I mean not that it's not a good product honestly, but it's not going to be a fortune. Five hundred or so Dell systems. So there are plenty of people that can use click looks very effectively and still get their invoices out to anywhere they want and they need to pay tax on it. So, yeah, that was very interesting. But also, I think the bigger problem with marketing as I experience it with your team over the years is the uneducated buyer. Right? They just they're not people don't even a controller who is in charge of finance does not understand tax. And in my world of public accounting the audit group and the tax group and the test group didn't understand sales tax write. It said income tax. The accounting group asked you about provision issues, but they never said taxes. They didn't want to. So we have a real problem in our society educationally. For people like you, falling into it, the last thing you could have possibly thought to do, which obviously, obviously assumes will prove very interesting to you, but people don't want to do it. So then you don't have the education. And you guys have done a really great job of the white papers and the seminars to teach people about the issues they need to be thinking about, which I think is a failure of our accounting degree program, quite honestly, and maybe even our CPA societies to educate them at a law school. I have a masters, a tax. I didn't take one single state and local one. If you're going to hijack one of my master's attacks one year based on this.
Scott Peterson [00:46:33] And so we have the same issue today. And the idea of when I want to be a part of revoting, I'm looking for somebody that's got a good background, a good education. But I think in tax, yes, because I take it for granted they didn't in college.
Judy Vorndran [00:46:48] Yeah, you have to. Yeah. But there has to be a desire and an interest in knowledge and curiosity. I think those are the attributes I look for and kind of a passion for the puzzle and not a frustration with the puzzle because the puzzle is frustrating. Sometimes you can't always get to the answer you want because laws are old, not read. You're ready for new technology or just how the process works. So those are the things I think I challenge with my clients, but also trying to make it fun for them, which I think I've learned is a really great job. I mean, the tiki huts and you know, they just make people feel good.
Scott Peterson [00:47:22] I think there's no reason why you can't have fun.
Judy Vorndran [00:47:27] Yeah, you have to. Right. I mean, at the end of the day, we are still doing tax. You know, my husband makes fun of me all the time. He's like a boomerang. But yeah. But you have a comment about the tax on eggs. Like, that's kind of interesting. I mean, I remember doing work for a client that sells us parts for porta potties or the taxable thing. I'm just telling you,
Scott Peterson [00:47:54] it's great if you want to have fun and tax talk porta potties. Right? I mean,
Judy Vorndran [00:47:59] if there's a business of that and, you know, it's funny, as I think about how we have porta potties and concerts and runs and go to venues. I mean, shoot, we did the thing on the beach with you guys in Huntington Beach and we have thought about it because there's not enough in that little bathroom to accommodate all the end users. So forty parties is a big business and you've got to know and
Scott Peterson [00:48:20] it's cheap and serviceable. You've got to have a bundle transaction. That's where you start to lose most people.
Judy Vorndran [00:48:32] And then you've got the component of the disposal. And are there certain taxes associated with that cycling?
Scott Peterson [00:48:40] Oh or so. And so that gets to one of the challenges in this business is everybody assumes there's. Going to make sense. There has to be a logical explanation, and for most folks who just never had any exposure to what we do, it's the lack of logic that I think drives them crazy. Right? That was my experience with working for the legislature for all those years. I come in and explain why we did something the way we did it. And they still don't make any sense. I said it doesn't have to make sense.
Judy Vorndran [00:49:16] It doesn't make sense. But I've got to do it.
Scott Peterson [00:49:18] I gotta do it now.
Judy Vorndran [00:49:20] I have one really last important question. Do you like the color orange?
Scott Peterson [00:49:27] I do.
Judy Vorndran [00:49:29] And have you learned to like the color or.
Scott Peterson [00:49:31] I know I've always liked color words. I think I've got a complexion where orange works relatively well, but some people don't.
Judy Vorndran [00:49:40] And orange looks terrible on me, I will say. Very fair. It makes me look orange, not McCulloh.
Scott Peterson [00:49:49] That's fine. I, there's a lot of people and I have a letter that wears orange because it's part of the process. Yes. Scott. He knows he keeps track of this, but he's worn orange every day for thousands of days.
Judy Vorndran [00:50:09] This includes stuff like orange jackets, like, oh, you're definitely going to pay attention to, like, the hot couture orange stuff because he does a great job in orange tennis shoes. I'm like, OK, that's fine. I like that. It's really fun. I don't like the color, though. I will tell you.
Scott Peterson [00:50:25] Well, you know, it's but it's it's you don't have to wear orange from head to toe. You can have one felt orange ties. But we had one of our 11:00 hours the other day with a lady that works for Chip Orange. Male journalists figured out who they were. They look great, you know
Judy Vorndran [00:50:48] well, and we have a client who is an apple or a customer who sells orange hair dye. So it's true. Oh, we can go there, too.
Scott Peterson [00:50:58] So I'm not going there. I'm not drawing the line right there. Now, I haven't bought a pair of orange pants. I got lots of orange shirts. I've got
Judy Vorndran [00:51:10] I've got
Scott Peterson [00:51:11] I've got orange pocket scarves. You know, I've got quite a bit of orange. I've got an orange watchdog dye my hair.
Meredith Smith [00:51:21] Well, on that note, Scott, thank you so much for your time today and, you know, giving us practitioners the inside scoop. And Judy, as always, this has been another episode of this Population podcast. I'm Meredith Smith. Until next time.
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Questions asked and answered in this Episode:
- What has your career been like in private practice and what made you stay away?
- Is there something strategic within South Dakota state that was chosen to carry the supreme case forward?
- What led you to be the executive director of Streamline Sales Tax Governing Board and what does streamline mean for everyone?
- How did working at Avalara come about and what are you doing there?
What You Will Discover:
- [1:09] He describes his career in tax as an accident caused by unemployment during a recession and having to take what was on the table.
- [8:12] The attributes to look for when hiring people who fully understand sales tax.
- [16:09] How not to be in the uncertainty of potential liability especially for public companies.
- [18:04] The amount of business that is happening in South Dakota which is why it has much bearing when it comes to the sales tax world.
- [20:52] Judy explains why there’s a Wayfair in Colorado state.
- [25:20] Scott describes how Streamline was a change environment for him- they applied change to make life better for everyone.
- [29:16] Why some states are not members of Streamline- the challenge of state and local tax having to be identical.
- [36:43] How big companies promoting SST uniformity did not care about certified service providers- how Avalara tackles the issue of government-imposed tax.
- [43:37] How automation or software is connected with transactions and taxes in general.
- “If you don’t have the financial acumens, it’s really hard to understand sales tax because you have to understand the policy and then you have to put the numbers on the forms.”– Judy [13:56]
- “We were making changes to make life better.”– Scott Peterson [26:40]
- “It’s easy to automate a yes with a no if you have all the staff behind it, what’s complicated is selling it because you have to be sold with something else.”– Scott Peterson [44:00]