How Prepared Are You?

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As we gaveled to a close TEI’s 69th Midyear Conference, I wanted to express my gratitude and appreciation to the 500-plus in-house professionals who joined us in Washington, D.C., to our outstanding speaker and moderator cadre who guided us through our program agenda, and to our sponsors for their continuing support of TEI’s educational mission.

Together, we explored the broad range of issues that confront us as we manage our day-to-day portfolios as well as continue to navigate the questions and quandaries of the Tax Cuts and Jobs Act (TCJA). That journey will no doubt continue to present challenges for us and the departments we serve, most immediately in terms of TCJA interpretation, implementation, and compliance.

Yet beyond the near-term challenges of “what number goes on line x of form y,” “how to file,” and “what to report” type of questions, what looms ahead in the long term may be just as challenging. How ready are we to defend the inevitable disputes that will arise several years down the road about the positions and interpretative decisions we have taken today? Put another way, how well have we documented and memorialized our decision making about our TCJA-related return positions? How effective are we being to manage, store, retrieve, and analyze the volume of data that support those decisions? TCJA-related tax disputes are inevitable, from all the taxing authorities having jurisdiction over your business operations. The complexity of the TCJA and its correlative impacts at the state and international levels will undoubtedly make those disputes even more challenging, as taxing authorities could well be emboldened by that very complexity to stretch reasonable interpretative limits. Indeed, while one former senior U.S. tax policy official offered his belief that “reasonable positions, consistently applied” should or could be an acceptable standard, especially in the absence of dispositive guidance, or when multiple plausible albeit competing interpretations exist, I have yet to see that reflected in the 1,500-plus pages of TCJA regulations.

Preparing for those inevitable tax controversies should be on everyone’s work agenda—today. What steps should we be taking to create or revise existing work streams to prepare, preserve, and store the volume of documents and data that support our TCJA-related positions? Questions along these lines which have always informed us as in-house professionals loom even larger in this context. What do I keep, where, in what format, and for how long? What role will technology tools play in my ability to retrieve and analyze the volumes of data that will be necessary to support my BEAT, FDII, GILTI, and foreign tax credit calculations? Is this the time to embrace (or accelerate) technology tools as part of our department’s operations? Does the growing coordination among taxing authorities around the world, coupled with the data they collect (and share), make the business case more compelling for technology-related investments?

Moreover, how do the realities of changing departmental roles and alignments factor into these challenges? Let’s take an easy one; it is highly likely that professionals who took TCJA decisions may not be around by the time those decisions are subject to review and challenge. More fundamentally, the changing dynamic of insourcing vs. outsourcing has again taken center stage, with recent realignments at General Electric and Duke Energy, to name two. While debating the merits of temporary, short-term cost cutting vs. permanent loss of institutional knowledge and team cohesion is for another column, these realities are upon us, and we must take them into account as we discharge our current responsibilities. These practical challenges present some of the “live” material that TEI will use to help inform its advocacy agenda and its continuing professional education program, thus ensuring that our efforts continue to be aligned with the needs of our members.

In addition, we also continue to grapple with the ongoing implications of Wayfair. Two broad trends stand out. First, most states at this point have enacted economic nexus remote seller legislation that requires out-of-state retailers to collect and remit tax on sales made to customers in the state if the retailer exceeds a threshold dollar volume of sales and/or number of transactions with in-state residents. These statutes are largely modeled after the South Dakota law upheld in Wayfair, although there is some variation. Second, states have enacted marketplace facilitator legislation that requires online marketplaces (e.g., Amazon) to collect and remit tax on sales made over their platforms by third-party retailers to customers within the state. The real goal of this legislation is to capture sales made by smaller retailers that do not meet the economic nexus legislation thresholds. The other benefit of this legislation is to simplify the collection and remittance process by placing responsibility on the marketplaces. These statutes generally address division of responsibility between the marketplaces and third-party retailers and provide the marketplaces with class action and other protections. In addition, there are a few jurisdictions (e.g., South Carolina and Jefferson Parish, Louisiana) that have also sought to use pre-Wayfair statutes to impose liability on online marketplaces for sales made by third parties to in-state customers. These attempts to use consignment or dealer statutes enacted before online marketplaces existed are being challenged in court. TEI has filed an amicus brief in support of the Wal-Mart.com litigation pending in Jefferson Parish, Louisiana.

A final note to recognize and thank members of the Institute’s leadership, Tax Reform Task Force, and staff who met in early May with members of the professional staffs of the House Ways & Means and Senate Finance Committees to discuss selected technical and clerical corrections to the TCJA, as well as other legislative priorities. These meetings represent an important first step toward reinvigorating an important liaison channel that we hope will broaden going forward. We will be able to share the in-house perspective about “on-the-ground” implications of existing congressional enactments (i.e., the TCJA) and hopefully, over time, help inform legislators and their staffs about the potential consequences of future legislative action. TEI’s members are uniquely qualified to provide these insights and, in so doing, enhance TEI’s reputation as a go-to resource for the tax legislative community.

 

Regards,

 

 

 

 

James Silvestri

TEI International President

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