1. What is the most significant change to your region/jurisdiction’s tax legislation or regulations in the past 12 months?
The US indirect tax landscape across states and localities in the US has seen significant changes over the past several years. In recent years, the focus has been on nexus and getting companies to collect and remit sales and use taxes in a digital world. Now that most jurisdictions have established economic nexus and marketplace laws, the focus in the past year seems to have shifted towards expanding the tax base/fees related to transaction taxes. Some states and localities have added additional fees (e.g., retail delivery fees, bag taxes, litter fees, etc.) and looked to expand the taxation of digital goods and services, which can present specific challenges for businesses.
2. What has been the most significant impact of that change?
With states and localities expanding tax bases, the indirect tax rules can be unclear in the constantly evolving technology landscape, creating uncertainty about how certain sales/purchases should be categorised and taxed. With more companies introducing different service models with one bundled price, many states have taken positions under audits with respect to interpreting the rules, leaving some businesses in a position to support taxability positions and potentially incur additional tax liabilities under audit where they have not had issues historically. Consequently, some businesses are left with the alternative of charging their customers tax, which the taxing authorities or taxpayers may later dispute because of the lack of clarity in the rules. This unclarity may also create specific system challenges for tax calculations and the required presentation on invoices, like bundling of transactions and retail delivery fees, which some states have recently begun adopting.
3. How do you anticipate that change impacting your work and the market moving forwards?
Historically, tax legislation and regulations have lagged behind technology, resulting in a need for deep technical interpretation. As companies embark on new product offerings and service models, especially in the technology space, there are potential risks that businesses may need to navigate as the true object of what is being sold is sometimes open to interpretation when it comes to specific jurisdictional rules. As a result, businesses may wish to seek more formal ruling requests with jurisdictions and also bolster their documented technical positions. With new taxes and fees, there may also be an increase in compliance obligations and returns that companies must file monthly.
4. How has this changed the way you offer tax advice?
In addition to the technical interpretation of legislation and leveraging Deloitte’s indirect jurisdictional tax specialists to provide insight into state/local specific policies, legislative intent, etc., we are increasingly assisting our clients with addressing the complexities of the rules within their systems to accommodate jurisdictional requirements across multiple taxing authorities.
5. What potential other legislative/regulatory changes are on the horizon that you think will have a big impact on your region/jurisdiction?
There is a global trend of jurisdictions considering or having already implemented changes to tax laws that would mandate real-time access to data and require reporting returns electronically. While real-time reporting requirements are aimed at ultimately reducing burdensome reporting processes, companies may need to invest in system changes in order to prepare.
6. What are the potential outcomes that might occur if those changes are implemented?
Given the number of taxing authorities that require filing in the US, a move toward real-time reporting, should that get traction, would present specific system/data challenges for some companies operating in the US.
7. Do you think that change will have a positive effect on both your practice and the wider regional/jurisdictional market?
Should jurisdictions move more towards real-time reporting, it could present specific challenges for businesses, as a significant pain point in indirect tax reporting is data gathering and management. Many businesses have multiple financial/tax systems, large volumes of data, and challenges in discerning the quality of the data. A drive towards a ‘single source of truth’ may be beneficial to companies; however, the road to get there may be challenging for many.
8. Are there any regulatory/legislative changes you believe should be implemented in your region/jurisdiction?
In the US, states and many localities administer their own taxes and have their own interpretation of rules, including taxability, sourcing, rates, filing requirements, etc. Although there have been attempts at standardisation in the past, there continue to be very different tax regimes, rules, sourcing, and filing requirements amongst the taxing jurisdictions that can make US indirect tax compliance complex and potentially burdensome for some taxpayers. However, there may be places where more administrative standardisation could be achieved.
9. How do you believe those changes would help improve the tax landscape in your market?
While having different requirements across states and localities presents potentially significant challenges in system configuration, data governance, and invoice presentation, moving toward administrative standardisation across jurisdictions could potentially streamline things like tax calculation and compliance, helping to reduce the administrative burden. Some businesses spend several weeks out of the month compiling/reconciling/reviewing state-by-state data to get it on to forms, only to start that process over each month. I believe that is one of the reasons we have been seeing a trend towards co-sourcing compliance in the marketplace, leveraging technology on a broader scale to streamline the compliance process.
10. How are issues surrounding the taxation of the digital economy affecting your work?
With economic nexus laws in place, many digital companies must now register and remit taxes across the US, and now all 45 states that impose sales tax, plus Washington D.C., have enacted marketplace collection laws that shift the burden of collection from the individual seller to the marketplace facilitator. In addition to the challenges of categorising what is being sold in the digital economy (e.g., tangible personal property, taxable/non-taxable service, digital goods, software, software as a service, etc.), there are also challenges of how to source transactions. Certain digital assets/software sourcing may vary (e.g., multiple points of use based on users, server location, benefit of service, bill-to-address, etc.). Even when the ‘what to tax’ and ‘where to tax’ are determined, there are challenges to implementing them in ERP/tax systems, such as obtaining the adequate level of detail to properly file, and maintaining the proper documentation to support audits.
11. How would you describe the tax authorities’ approach in your region/jurisdiction?
Indirect taxes account for a large percentage of state and local tax revenues. Over the past few years, states have enacted additional fees and expanded the transaction tax base in the digital economy. We have also seen an increase in state and local audits of taxpayers and a stricter interpretation of tax rules. Similarly, we have also seen increased scrutiny of requests for refund claims related to the overpayment of taxes.
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