Deloitte - Americas Regional Indirect Tax Interview (ii)

Interview with Kirsten Gulotta, US Transaction Tax Leader, Deloitte Tax LLP

1. What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?

The most significant changes are evolving state and local standards regarding the classification and taxability of digital goods and gross receipts taxes. Specifically, there have been numerous jurisdictions that have proposed and implemented Digital Ad Taxes, and a number of challenges have been raised. Furthermore, there has been a recent trend of jurisdictions focusing on gross receipts taxes to raise state and city revenues. These new gross receipts taxes are in addition to the already well-established gross receipts-based taxes.

2. What has been the most significant impact of that change?

The aforementioned changes have brought uncertainty around tax obligations and potential exposures for taxpayers. For example, there are definitional issues regarding what would constitute a digital advertising service. There are also sourcing issues, where in some instances, apportionment could be based on a number of users (device-based) and in other instances based on how much revenue is derived within a particular state, creating potential duplicate taxation. In addition, there is inconsistency in how the location of devices can be determined. Options include but are not limited to internet protocol, geological data, device registration, cookies, or industry standard metrics.

3. How do you anticipate that change impacting your work and the market moving forwards?

It will likely lead to additional co-sourcing and outsourcing of indirect tax compliance and additional consulting around sourcing, nexus, classification, and taxability. Navigating proposed and recently implemented taxes such as Digital Ad Taxes and Gross Receipts Taxes is challenging, especially when keeping up with the challenges raised and the real-time impact on an organization’s compliance responsibilities.

4. How has this changed the way you offer tax advice?

Indirect tax obligations at the state and local levels are approached from a consultative mindset of understanding the tax impact of operations and leveraging technology to seek to become compliant in an efficient and accurate manner. The role of the tax department is rapidly evolving, with a significant focus on reducing costs and a push towards automation. This changes the demand for talent and new skill sets, including technology. It is becoming increasingly common to provide indirect tax advice in the context of broader financial transformation conversations.

5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?

The evolving nexus standards, including marketplace facilitator standards, as well as additional guidance regarding the classification and taxability of tangible personal property and services on a state-by-state basis, will likely continue to create a big impact. Over the past few years, several jurisdictions have implemented economic nexus provisions mandating businesses without a physical presence to collect and remit sales tax on transactions in a state if a specified transaction number or dollar amount of sales in a state are reached. More recently, all states that impose a sales tax have adopted marketplace facilitator laws that shift the burden of tax collection to the marketplace facilitator. As new business models evolve, these economic nexuses and marketplace facilitator standards will likely continue to have an impact.

6. What are the potential outcomes that might occur if those changes are implemented?

Potential outcomes include additional compliance obligations for taxpayers and opportunities to leverage technology to understand nexus, sourcing, classification, and the taxability of large volumes of transactions nationwide. This is especially true as it relates to local impositions, where many local jurisdictions are beginning to implement their own economic nexus and marketplace facilitator guidance. In addition, various states have adopted exclusions or special “carve-outs” from the definition of a “marketplace facilitator” for certain types of businesses, making the process more complex to manage.

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