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Changing With the Times

Posted on Dec. 16, 2019
Brian Hamer
Brian Hamer
Bruce Fort
Bruce Fort
Richard Cram
Richard Cram
Helen Hecht
Helen Hecht

Tax Notes State recognizes the Multistate Tax Commission’s Richard Cram, director of the MTC’s National Nexus Program, Bruce Fort, senior counsel, Brian Hamer, counsel, and Helen Hecht, general counsel, as its Group of the Year. I interviewed the group to learn more about their structure, efforts, and what drives them to find uniformity in the application of tax laws.

The U.S. Supreme Court’s 2018 decision in South Dakota v. Wayfair Inc. ended the period when in-state physical presence determined if a state had taxing authority over a business and began the period when a business’s economic and virtual contacts with a state can create sufficient nexus for tax purposes, provided states do not impose undue burdens. As states began tackling this post-Wayfair world and its implementation issues, including issues involving the limitations imposed by Public Law 86-272 on a state’s reach for income tax purposes, the Multistate Tax Commission’s Uniformity Committee recognized the need for guidance. The MTC’s Uniformity Committee established a Wayfair Implementation and Marketplace Facilitator Work Group (Wayfair work group) along with a separate work group addressing P.L. 86-272 issues. In honor of their tireless efforts in identifying key issues and developing a solid workable framework to address those issues, Tax Notes State recognizes the MTC’s Richard Cram, director of the commission’s National Nexus Program; Bruce Fort, senior counsel; Brian Hamer, counsel; and Helen Hecht, general counsel, as its Group of the Year. I interviewed the group to learn more about their structure, efforts, and what drives them to strive for uniformity in the application of tax laws.

Jéanne Rauch-Zender: The Wayfair work group has been praised for its swift reactions to issues raised. For example, Richard, you rolled out that multistate amnesty for “Fulfillment by Amazon” sellers literally months before Wayfair was decided. How is the group able to respond so quickly?

Richard Cram: The amnesty was really the result of being privy to complaints from a group of Amazon marketplace sellers following a presentation I did. Hearing the sellers tell me they would love to register, but believed they would only get dinged for a bunch of back taxes if they did, and recognizing this meant a loss of revenue for the states going forward, the idea that we might persuade many of these sellers to register with some protections was a huge target, and easy to jump on.

Brian Hamer: Similarly, I think there’s also a lot of interaction, including in-person interaction, between the MTC staff and the states. Among other things, we have three meetings every year. These, and other interactions, provide an opportunity to hear what is on the minds of the state representatives, and we try to be responsive and react as quickly as we can.

Bruce Fort: We also have several state people who donate hundreds of hours of their time to the uniformity effort while balancing all of their other work. For us, uniformity is really our primary charge under the multistate tax compact, so we should be focusing on uniformity.

Richard: States have been waiting 50 years for Wayfair. It was a monumental event and has spawned huge change and triggered a lot of follow-up issues. Post-Wayfair, if you’re a state tax official, you’re euphoric about the change and looking to determine what you need to do to take advantage of that decision, and at the same time, getting proper laws in place that would do that.

Jéanne: How did the MTC work with industry in the months immediately after Wayfair was decided in order to have marketplace facilitator legislative options available in time for the 2019 state sessions?

Richard: The U.S. Supreme Court’s decision itself set the stage for how to get rid of the physical presence nexus rule. The key now is reducing the burden on the remote seller. As for simplification of the state sales tax laws, the states are concerned that as they implement economic nexus, they’re doing so under the umbrella of the Wayfair decision. This has spawned the need for a lot of coordination to make sure, first of all, states were not attempting to enforce economic nexus retroactively. Also, that they recognize the need for a small-seller exception and are trying to simplify local taxes, all of which created a need for coordination and sharing ideas.

Brian: With respect to the P.L. 86-272 project, we also made a special effort to reach out to representatives of the business community to get their input. First, because there’s obviously a lot of knowledge out there, which we thought would be helpful to understand. Second, it’s better to receive input earlier in the process rather than at the 11th hour. So there is definitely a campaign to encourage taxpayer representatives to engage.

Helen Hecht: I have to give a shout-out to our members and others too. Following our Boston meeting, which happened right after Wayfair, a number of people wanted to discuss what each other’s states were doing on this issue. Also, we were fortunate that people from the Streamlined Sales Tax Governing Board, Council On State Taxation, and marketplace representatives came together and began engaging on the topic of marketplace facilitator collection. That idea had been floating around for a while, and it seemed like the right time to make that happen. We were in the right place at the right time, and when you have folks that have practiced at this kind of problem solving for years, it helps to take advantage of those opportunities.

Bruce: We had previously developed the outlines of a definition of a marketplace provider in conjunction with our earlier project on imposing notice and reporting requirements on those providers using the Colorado approach. However, because of the litigation around that approach, states were less interested in adopting it. I distinctly recall thinking, when certiorari was granted in Wayfair, “well we actually have something that might be helpful here.”

Jéanne: Is this where you expected to be as a group? Is this where you want to be as far as the process and the response that you’re getting from the tax community?

Richard: Yes, I think this is where our Chair, Tommy Hoyt, assistant director of tax policy for the Texas Comptroller, and I expected to be. We usually have over 100 people call in to our work group sessions — a lot of participation from both the business community and the state tax agencies. It’s easy, as a state tax administrator, to feel isolated from what’s going on in the real world, but the great representation we’re getting from the business community helps state tax administrators get a feel for what’s happening on the ground, as we are trying to implement these marketplace facilitator collection laws. Several questions have been raised that weren’t considered at the time the laws were created, so now we’re looking at how we address these unanticipated issues that have emerged. We’re getting great feedback from the business community on what the issues are and what states can do to address those issues to ensure the system works well: the states collect the revenue they want, and the sellers can live with the requirements these new laws are putting in place.

Brian: With respect to the P.L. 86-272 project, I’ve been inspired by the commitment of the states. As we’ve proceeded over the weeks, and now months, of the project, many people from the states have devoted a substantial amount of time to the project, including the chairs, first Holly Coon, then the business tax manager with the Alabama Department of Revenue, and now Laurie McElhatton, tax counsel with the California Franchise Tax Board. Further, we had roughly 15 members of the work group actively participate in every meeting, which requires advanced preparation on their part. These people are pulled in many directions, and their willingness to devote time to this project inspires me and I think will result in a substantial product in the end.

Helen: In our uniformity work, generally, we also do a lot of projects that can be of more interest to a much smaller number of states. For instance, the number one thing the commission has advocated for is combined filing. We’ve had this combined filing model for a long time; we’re just now updating it. Over the years this has been the single direction states are taking — moving toward combined filing — but we still have a handful of states that do not require combined filing. And so we’re trying to tackle this new revision of our model to conform it to the Finnigan approach, with our focus being on the states that, for whatever reason, have not moved in the combined filing direction. One of the concerns from these separate-filing states and taxpayers filing in those states is what do you do with net operating losses when you move to combined filing? Are you going to lose the benefit of your NOLs, or can you share those losses as a group? There was concern over whether we could make reasonable and fair rules around NOLs that would satisfy taxpayers without opening loopholes. We’ve been so fortunate that the states that already have combined filing are willing to participate in this process, like Michael Fatale, deputy general counsel at the Massachusetts Department of Revenue, who is always so involved. Michael and others may not necessarily get anything directly out of the process, but they are willing to be involved because they want to help other states understand the issues and share their experiences and knowledge. I’m sure Bruce would agree that we could not have done much of the work on this project without those states providing insight to the issues.

Bruce: I agree. I think the Finnigan work group, chaired by Phil Skinner, of the Idaho Attorney General’s Office, has been engaged in an educational exercise, not just for the states that are considering going to combined filing, but for those that already have it. We’ve tackled some issues that I think a lot of states have not considered. And there are a number of separate-filing states out there that have the ability to impose combined filing under some circumstances. I think it’s been very helpful for those states to have a better understanding of what combined filing entails.

Jéanne: What have been the biggest hurdles for each of you?

Helen: We’ve been doing this for 50 years — before fax machines, computers, email, and certainly before conference calls. We did a lot of this work in person. People traveled and sat in meetings, and it’s surprising how much they accomplished. We have many more tools today, which is great and very helpful in terms of technology, but it presents some challenges. It would be great to be face to face with people, as you’re so much more likely to get real insights from them when you’re talking to them in person, and they’re much more likely to feel like they can share. If you’re on a call with 100 people, it’s sometimes very hard to speak up, so we’re always looking at how to make this process more comfortable for people so that they will speak up and participate.

Brian: One way we’ve addressed that challenge in the P.L. 86-272 work group is to have straw votes on many issues because that requires members of the work group not just to vote but often to explain their thinking, particularly during those periods when there is a subset of members who may be doing most of the speaking. I think that’s been a pretty effective tool to promote participation by all members.

Richard: The ongoing hurdle — and it’s always been there — is the tension between states wanting to come up with a tax system that maximizes business compliance while the business community says, “That’s fine, but we’ve got 50 states and you’re all doing things differently, so make it easier for us.” Our efforts are to get the states together and talk about the changes that make sense. But ultimately it comes down to each state legislature putting something more uniform or simple in place without lawmakers feeling as though they are being told what to do. That’s the tension with simplifying the tax system.

Bruce: Often, we’re not writing on a blank slate. Unlike Wayfair implementation, where we were able to write on a blank slate, in the context of combined filing, for example, various states currently have a combined filing system, and so our uniformity efforts may have a more limited impact, and I think we’re aware of that.

Jéanne: What parting thoughts would you like the tax community to know and understand about the work groups?

Richard: What’s really helped the work group I’ve been involved with is a lot of the state tax agencies active in the group have been pioneers in this post-Wayfair era. For example, Washington and Minnesota were the first states to enact marketplace facilitator collection laws. Alabama has been a pioneer, getting an economic nexus regulation in place even before the Wayfair decision. Texas has been in the middle of this, a large state going through the implementation of its own marketplace facilitator collection law. It’s been helpful to have states that have been on the front line of this issue; it makes the effort a lot more worthwhile.

Brian: The work group process itself is valuable, whether or not states formally adopt the work group’s revised statement on P.L. 86-272. I think the work group’s deliberations will help states decide how to apply the law and will also provide guidance to taxpayers and their representatives on how states are likely to treat modern business activity under that law.

Bruce: I am grateful and frankly amazed that this is our day job, but we have so many people that contribute their time and effort at the state level, with a full work load of their own. The chairs of the work groups, like Phil, have been so helpful. Their patience is remarkable, and it’s really been a pleasure to work with them. Sometimes we think we’ve got the model all set to go and someone says “hey, you know what, I don’t think you’re handling this right,” and we just dive back in. So, I really appreciate patience with that process.

Helen: [Current Managing Director at EY] Joe Huddleston hired me, and then, within a year or so he left. At his last meeting, there was some concern among folks as to how effective we were being with our uniformity work. He said to the Uniformity Committee, at the time, “I don’t want you to be concerned about the work that you’re doing or the fact that it may not seem like it’s paying off right away because over the long term, I’m confident that it has, and it will.” In the four or so years since, I’ve thought about that and I agree with Joe. Even if the members and the staff don’t always feel like progress is being made very quickly — once you’ve been here for a while and look at it over time you do see the difference we make. The work does move states in a consistent direction, and I’m happier to be part of this process every day that goes by.

***

Richard, Bruce, Brian, and Helen continue to charge forward knowing their work is not done. With uniformity at their center, they drive on toward the goal of addressing changes that have occurred during the past two decades in the economy by developing recommendations for maximizing compliance while minimizing the burden on remote sellers, marketplace facilitators, and marketplace sellers.

States will continue to consider legislative amendments to their marketplace collection laws in their 2020 legislative sessions, and this group’s tireless efforts will likely influence their deliberations.

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