In recent years, we’ve seen the role of state tax professionals change fairly significantly, in terms of responsibilities, having a “seat at the table,” and relationships with their supervisors and peers. To find out more about what’s happening in this space, we convened a roundtable of state tax professionals including Christine Cudney, director of non-income tax at Ameren; Thomas Donnelly, vice president of state and local tax at Comcast Corporation; and Kurt Lamp, vice president of state tax and tax operations at Amazon. The roundable was moderated by Tax Executive Senior Editor Michael Levin-Epstein.
Michael Levin-Epstein: What are your responsibilities at your company?
Christine Cudney: I manage all non-income tax compliance, consulting, legislation, audits, litigation, research, special projects, and inquiries.
Thomas Donnelly: I’m in charge of state and local tax matters.
Kurt Lamp: I have been with Amazon for seven years and, as VP of state tax and tax operations, I am responsible for most of the state tax functions, including state tax planning, sales tax compliance and state income and sales tax audits, property tax, and unclaimed property. Outside of state tax I have responsibility for tax operations, tax technology, and a group that is unique to Amazon, Tax Engine.
Levin-Epstein: How is your tax function structured? How does the state tax function fit into the tax function generally? And how does the state tax function integrate with other areas of the business?
Cudney: Ameren’s tax department is structured with two groups, income and non-income tax. The groups are integrated to cover state and local tax topics for all tax types. Having been with Ameren since 2000, my experience has been to work within an integrated tax department. As for tax’s business relationships and integration with other segments of the company, our leadership has promoted this operational need, and tax is known and included in discussions and decisions throughout the company.
“As for tax’s business relationships and integration with other segments of the company, our leadership has promoted this operational need, and tax is known and included in discussions and decisions throughout the company.”—Christine Cudney
Donnelly: I’ve been with Comcast since 1994. The Comcast tax department has always been structured by functional tax discipline—meaning we have a federal group, a state group, and a personal property tax group. All three groups service all of the Comcast business units. The state tax function has always been highly integrated into the business as a whole. We cover all transactional taxes and all state and local taxes (with the exception of personal property taxes). So we get involved in customer billing, purchasing, M&A diligence, legislative efforts, credits, and incentives, as well as the compliance and audits for all those taxes and fees. The function has taken on increasing importance, I believe, as we have seen—at least at Comcast—an uptick in state audit and controversy activity, and our increased M&A activity has led to a significant increase in our M&A diligence activity.
Lamp: Amazon tax is structured around the business, geography, tax type, and function. The state tax function has also always been highly integrated into the tax function as a whole at Amazon. When Amazon was an internet startup, the state tax function was really the first tax function at the company to really hit scale. As the Amazon tax department has grown, we actually have taken affirmative steps to shift emphasis to our federal and international tax groups to achieve the right balance today.
Challenges and Organizational Changes
Levin-Epstein: What are the biggest challenges you face as a state tax professional? And what organizational changes would you propose to resolve them?
Cudney: State and local tax interpretation uncertainty continues as state and local governments seek to generate additional revenues. This often leads to appeals and litigation. In addition to the assistance provided by a company’s legal department, employing a tax attorney within the tax department with state and local tax expertise would be a beneficial improvement.
Donnelly: Information flow is a challenge. We need to make sure that we stay connected and plugged into the business so we can provide timely input and know where the business is headed.
Lamp: Finding and retaining high-quality state tax professionals has definitely been challenging as state tax issues and compliance have become more complex in recent years. In many ways you need to crystal-ball where the business is going to be three years out and then start building now. If you build what you need today, by the time it is done it will be inadequate to support the business and you find yourself in a constant triage cycle.
Three Major Issues
Levin-Epstein: If the chief tax officer at your company said, “What are the three major issues that I need to be aware of on the state tax side?,” what would be your answer?
Cudney: Number one, an increase in appeals and litigation; number two, the importance and necessity of integrating tax personnel within all areas of the company, including innovation and technology efforts as we plan for the future; and number three, cross-training knowledge transfer to prepare for employee retirements or departures.
“The function has taken on increasing importance, I believe, as we have seen—at least at Comcast—an uptick in state audit and controversy activity, and our increased M&A activity has led to a signifi cant increase in our M&A diligence activity.”—Thomas Donnelly
Donnelly: I have to agree. The integration into the technological changes in the business is one, and I think I’ve already said we’ve seen an uptick in state audit activity. I think those are the two biggest.
Lamp: I agree and would add the following—the need for certainty in making state tax decisions. False claims and class action lawsuits have put extremely high demands on tax departments to ensure that their state tax decisions are perfect. This is occurring in an environment where the evolution of technology and development of business is outpacing state tax guidance. This creates an almost impossible environment. I would also add the aggressiveness of local taxing jurisdictions and complexities of non-sales tax and fees. There are so many different types of taxes and fees that potentially apply to diverse businesses.
Levin-Epstein: Can you give some examples of where technology is sort of outpacing tax rules?
Donnelly: One plain vanilla example would be, and it’s one that has been out there for a while and still is not fully resolved, is the taxation of voice communications over alternative, nonregulated, like VoIP [voice over internet protocol], technologies. Another one would be, in our industry, the migration of what everyone knows and feels like is television, but it’s now being delivered as an over-the-top mechanism, and the rules don’t always equally apply. The rules typically get troublesome when the rules are pointed at a type of technology-delivery platform as opposed to what the end product actually being delivered is. That’s the common theme; when you have VoIP, for example, you have voice communications. But the rules don’t always tax voice communications. The rules often tax some sort of regulated telephone delivery system. Video, cable television, for example, has the exact same problem. The very same content is being delivered via the internet (a.k.a “over-the-top” or OTT), which is often not taxable. Those are two examples. When the rules are pointed at a type of technology delivery system—and I’m sure in other industries there’s examples of this—but not the end product that the consumer is getting.
Cudney: New technology is and will continue to challenge word/term and tax base definitions in the law. When does something move from a product to a service; what is intangible versus tangible. The definition of manufacturing and production as brick and mortar operations are no longer the sole source of producing a product. Bundling of products and services. Expansion of nexus definitions. There’s a lot of work to be done in this area for taxation purposes.
Lamp: I agree that telecommunications is the best example. Not to reframe the question but, as the others have pointed out, it is actually hard to find an area where the law is keeping pace.
Significant Tax Cases
Levin-Epstein: What’s been the most important state tax case to come along in the past couple of years that might have applicability beyond one state?
Cudney: I would reference IBM Corporation v. Missouri Director of Revenue, a 2016 Missouri Supreme Court case, which focuses on definitions that were previously confirmed in other cases, thereby creating a challenging interpretation situation for which clarification language is being sought legislatively. As products and service technology changes, the definitions of what is manufacturing and production may also require clarifications or updates. The impact of this case may be far-reaching for many industries.
Donnelly: I would point to a recent case that we had, actually. Comcast litigated the unitary status of QVC and prevailed in California. California was trying to advance the contribution and dependency test as something wholly independent of three unities test and much more expansive than three unities test, and the trial court, and now the Court of Appeals, shot that down, effectively saying that California’s theory that contribution and dependency reached farther and broader than three unities was an inappropriate view of the law.
Lamp: The Tenth Circuit’s DMA Colorado case is fascinating to me for what it says about the scope of the holding in Quill. The concurrence by Neil Gorsuch hints strongly at what could be the future of Quill.
Levin-Epstein: What’s the issue that you spend most of your time doing on a day-to-day basis?
Cudney: It varies. Over the years, it has shifted from primarily directing compliance, consulting, and audits to more complex roles related to appeals, litigation, innovation research and planning, enhanced networking, and legislative activities. Automation has brought significant efficiency opportunities to the compliance function for tax departments, which allows tax personnel to take on more roles.
Donnelly: I’d say my days are broken up into three major areas. The first is staying connected to what is going on in the business. Most recently it’s been learning about the new revenue recognition rules. The second is administrative—making sure the team’s needs are being met. And third is dealing with litigation, planning, financial reporting, and compliance. Lately we have had a big focus on technology issues. For example, billing and quality-controlling our billing system is a large chunk of time and resources here. Provision, income tax accounting, is another large area—and then we have litigation and controversies which are significant in terms of hours and manpower.
“The Tenth Circuit’s DMA Colorado case is fascinating to me for what it says about the scope of the holding in Quill. The concurrence by Neil Gorsuch hints strongly at what could be the future of Quill.”
Lamp: I spend the majority of my time trying to understand where Amazon’s business is going and what that means in an increasingly volatile and hostile tax environment. Once the business assessment is made, you need to assemble the tax teams and technology required to support the business. I also do a fair amount of tax policy work.
Levin-Epstein: What part of your job do you enjoy the most?
Donnelly: Ooh, the silence is really deafening. I’d say the interaction that I have with my team here—we have a number of people who have been with Comcast tax for five, ten, and even twenty years. They are terrific people and terrific professionals.
Cudney: You know, that’s a hard question. I think I enjoy all aspects of my job and the great personnel on my team. I would say, quite frankly, the opportunity to be creative and the opportunity to really work outside the box in regard to any type of state and local tax situation. In addition, the opportunity to develop and cross-train personnel in preparation for the future. Doing things “the way they have always been done” is no longer acceptable and often creates unnecessary risk. Leading a team into the future open-minded and always thinking outside the box is crucial.
Lamp: The tax team. At a peer level we have a great group of senior leaders who actively challenge but also look out for and support each other. A close second is the up-tempo environment and the chance to engage directly with the business team to develop scalable tax solutions that allow the business to grow. The best days are when I see a new expansion announcement or new product launch in the press and I know my team was a critical part of the process. I have also been fortunate to work at two companies (Microsoft was my previous employer) that changed people’s lives.
Levin-Epstein: Do you have any advice for professionals starting out in state tax?
Cudney: Be prepared and be OK with uncertainty. If you are seeking a profession where all answers are accessible and followed, state and local tax may not be for you. Every day can bring new challenges and inquiries outside of your control and what you had planned for the day. It is also important that you thrive on learning new things, continuous networking, and challenging interpretations as needed.
Donnelly: Patience. And get yourself, at least in the early years, into an environment where you can get exposure to a multiplicity of issues. Learn the details and understand not only what you are doing but why—how does it fit into the big picture? And even if you think you know the big picture, ask your supervisors those same questions. You might be surprised at their perspective of the big picture.
Lamp: I would recommend not being too specialized. Get as much experience as possible and learn and absorb as much about the different areas of federal and international tax as possible.