Biographical Information Aimee M. DeLuca, Vice President, Taxes, The - - PDF document
Tuesday & Wednesday, January 2829, 2020 Hya Regency Columbus, Columbus, Ohio Workshop J Navigating the Post-Wayfair Environment 18 Months Later Enacted Legislation in States, Economic Nexus, Marketplace Facilitator Process &
Tuesday & Wednesday, January 28‐29, 2020
Hya Regency Columbus, Columbus, Ohio
Tuesday, January 28, 2020 3:00 p.m. to 4:00 p.m.
Biographical Information
Aimee M. DeLuca, Vice President, Taxes, The Scotts Miracle-Gro Company 14111 Scottslawn Rd., Marysville, Ohio 43041 Phone: (937) 578-5621 Email: aimee.deluca@scotts.com Aimee is a diverse tax professional with more than twenty years of experience in corporate taxation. She originally joined The Scotts Miracle-Gro Company (NYSE:SMG) in 1997 after six years in public accounting with EY. Aimee also held tax leadership positions with AT&T Wireless Services, Inc. (Seattle, WA) and Hillenbrand Industries (Batesville, IN) from 2000 through 2004. Returning to the Columbus area, she rejoined SMG in 2004 and currently leads their corporate tax function with key responsibilities in the areas of global income tax and domestic transaction tax planning and compliance, strategic planning and M&A, tax accounting and financial reporting, tax audit management, and negotiation of tax credits and incentives. Aimee is also an officer and board member of several SMG foreign and domestic affiliates. Aimee is a Past President and Chapter Representative of the Tax Executives Institute’s Cincinnati-Columbus Chapter and is an active tax committee member of the Ohio Manufacturers’ Association and the Ohio Chamber of Commerce. Aimee is a graduate
Award in conjunction with earning her MBA from The Ohio State University Fisher College
Ron currently reside downtown in German Village. William G. (“Bill”) Nolan, Managing Director, Indirect Taxes, National Tax Department, Ernst & Young LLP, 50 South Main St., Suite 1200, Akron, OH 44308 330-255-5204 Fax: 866-301-0244 william.nolan@ey.com Bill is part of EY’s State Desk network and assists clients and EY engagement teams with state tax matters in several states including Kentucky, Iowa, Montana, Nebraska, North Dakota, Ohio and Wisconsin. Bill also serves a variety of clients in Northeast Ohio ranging from multinational corporations to closely-held private companies. He provides multistate assistance in various areas including nexus reviews, apportionment reviews and taxability studies (sales/use tax). He has also represented clients in numerous audits and appeals in many states. Bill frequently speaks on state and local tax matters at national and local conferences, including the Georgetown State and Local Tax Institute, Council of State Taxation Advanced Income Tax School, Cleveland Tax Institute and the Ohio Tax Conference. He has had articles published in the Journal of Multistate Taxation and the ABA Tax Lawyer. Bill received his BBA (Accounting) at Cleveland State University in 1993 and is a Certified Public Accountant. Bill received his JD from Case Western Reserve University School of Law and was admitted to the Ohio Bar in 1996. Bill is a member of the tax committees of the Ohio State Bar Association, Kentucky Society for CPAs, and the Wisconsin Society for CPAs. He is also a trustee for the Greater Akron Musical Association.
Biographical Information
Christopher A. Futscher, Senior Manager, Indirect Tax, Ernst & Young, LLP (“EY”) 221 E. 4th St. Ste. 2900, Cincinnati, OH 45202-4095 513.612.1481 Mobile: 513.503.4521 chris.futscher@ey.com Chris joined Ernst & Young, LLP (“EY”) in the spring of 2011 as an experienced SALT
Mutual Life Insurance Company. While there, Chris focused his practice to state and local taxation and Federal Transaction Advisory Services. Currently, Chris leads EY’s Sales and Use Tax and Excise Tax practices in the EY’s Ohio, Kentucky, and Pennsylvania market. His clients include several Fortune 100 companies, Global manufacturers, and rising midmarket clients in within the region. He has secured multiple eight figure refunds for clients and successfully resolved countless tax audits at the administrative level. Chris is a frequent speaker at regional tax conferences. He has served on the board of trustees for the Cincinnati Shakespeare Company since 2012. Education and Affiliations
Steven B. Russell, Tax Program Administrator, Business Tax Division Ohio Department of Taxation, 4485 Northland Ridge Blvd., Columbus, OH 43229 614.466.9635 Fax: 206.339.9305 steven.russell@tax.state.oh.us Steven (Steve) Russell began his career at the Ohio Department of Taxation over 25 years ago. For the last 22 years, he has specialized in sales and use tax auditing and/or administration which includes experience with manufacturers, construction contractors, and retailers. Prior to becoming administrator of the Business Tax Division in August 2019, Steve was assistant administrator in the Business Tax Division for four years and spent six years as assistant administrator of the Audit Division where he was responsible for forming Audit Division practices and providing technical guidance. As assistant administrator and now administrator of the Business Tax Division, he helps oversee Ohio’s business taxes and provides technical guidance in the sales and use tax area. Steve was also previously a part of the Audit Division’s Review and Support Group where he helped administer the direct pay authority program. He has presented several times at the Ohio tax conference, Cherry Valley tax course, and to numerous other groups and
Steve received his B.S. in accounting from Otterbein College, Westerville, Ohio.
28 January 2020
Ohio Business Tax Conference Workshop J
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Today’s presenters
Aimee DeLuca Vice-President Taxes The Scotts Miracle-Gro Company aimee.deluca@scotts.com Steve Russell Tax Program Administrator Business Tax Division Ohio Department of Taxation steven.Russell@tax.state.oh.us Chris Futscher Senior Manager – Indirect Taxes Ernst & Young LLP - Cincinnati chris.futscher@ey.com Bill Nolan Managing Director - Indirect Taxes Ernst & Young LLP – National Tax william.nolan@ey.com
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Today’s agenda
► Wayfair – the new landscape ► State responses to Wayfair – remote sellers ► State responses to Wayfair – marketplace facilitators/providers ► Key actions ► Post-Wayfair considerations outside sales and use taxes
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Polling question #1
A.
Very little time – it doesn’t impact us
B.
A significant amount of time – the decision has had a significant impact on our operations
C.
Not sure
D.
Does not apply
How much time have you or your tax department spent dealing with the impact of the Wayfair decision?
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South Dakota v. Wayfair: the fallout
► The Wayfair decision eliminated the need for a remote seller to have physical
presence in order for the state to compel registration/collection
► Physical presence still creates nexus ► Other state efforts to “work around” Quill remain in place (e.g., click-through, affiliate, and
notice/reporting provisions)
► The new standard (economic nexus) allows states to require remote sellers to
register and collect based on economic presence, measured by sales and/or transaction volume
► Most states require registration and collection if sales made into the state exceed $100,000
per year or occur in 200 or more transactions
► Nearly all states have adopted some form of economic nexus and approximately 40
states have extended the requirement to marketplace providers/facilitators
► States are also looking to adopt factor-presence nexus standards for income and
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State responses: enforcement of sales tax economic nexus provisions
AK HI July ME July RI VT JulyNH MA NY PA NJ DE WV NC Nov SC Nov GA FL IL OH IN MI WI KY TN AL MS Sept. AR LA TX** OK MO KS IA MN ND SD NE NM AZ CO UT WY MT WA OR ID NV CA VA MD*
DE DC
RI
Nov.
NJ
Oct.
CT
Dec.
Provision considered Pre-July 2018 July/September 2018 October 2018 November/ December 2018 January 2019 June 2019 No sales and use tax
Source: Ernst & Young LLP analysis of state laws as of September 2019.
April 2019
** Will not be enforced until October 2019 Proposal failed to pass or was vetoed
July 2019 October 2019 February 2019
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Factor presence thresholds for sales and use tax purposes (as of October 11, 2019)
Thresholds States
US dollar # of transactions $10,000 N/A Oklahoma, Pennsylvania (March 2018 – June 2019) $100,000 N/A Colorado (June 1, 2019), Idaho, Iowa (July 2019), New Mexico, North Dakota (Jan. 1. 2019), Pennsylvania (July 1, 2019), South Carolina, Washington (retroactive Oct. 1, 2018) $200,000 (2019); $150,000 (2020); $100,000 (2021) N/A Arizona (Oct. 1, 2019) $250,000 N/A Alabama, Mississippi $500,000 N/A California, Ohio, Tennessee (Oct. 1, 2019), Texas $500,000 100 Massachusetts, New York (June 24, 2019) $250,000 200 Connecticut, Georgia (2019) $100,000 200 Arkansas, California, Colorado, District of Columbia, Georgia (2020), Hawaii, Illinois, Indiana, Iowa (Jan.‐June 2019), Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota (Oct. 1, 2019), Nebraska, Nevada, New Jersey, North Carolina, North Dakota (Oct. 1 –Dec. 31, 2018), Rhode Island, South Dakota, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, Wyoming $100,000 + 10 transactions 100 Minnesota (before Oct. 1, 2019) $300,000 100 New York (before June 24, 2019) States in teal require meeting both dollar and # of transactions thresholds Unless otherwise noted the state requires meeting either the dollar or # of transactions threshold States in red have changed the threshold that was originally adopted
Source: Ernst & Young LLP analysis of state laws
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What are we seeing from the states post-Wayfair?
Controversy Tax policy Other issues
► Increasing audit activity on
economic nexus
► Nexus questionnaires and
audit/assessment notices are being received by many companies
► Acceptance into Voluntary
Disclosure Agreement (VDA) programs may be an option going forward, but terms may not be as favorable
► Focus on marketplace sellers
and facilitators as a way to pull in more small sellers
► Adjustment of sales
thresholds/elimination of transaction count as a basis
► A few states trying to apply
retroactively based on consignment/seller of record approach
► Will nexus at state level
constitute nexus at local level in home-rule jurisdictions?
► Will local tax compliance
requirement constitute an “undue burden” on interstate commerce?
► Industries asking for opt out
(e.g., telecom)
► Managing collection and liability
matters
► Ability to manage and share
proper data for compliance and reporting
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The next area of focus: state approaches to marketplace facilitators/providers
► The generally followed approach
►
Transactional thresholds that apply for remote sellers will apply for marketplace facilitators/providers
►
Thresholds calculated using combination of: 1) third-party sales made through marketplace, plus 2) direct sales made by the marketplace facilitators/providers
► The road less traveled
►
Applying the old methods in states that have not adopted new regime or redefined “vendor” to include marketplace facilitators/providers
►
Marketplace provider must have nexus (physical presence)
► Think it is not working?
►
One year in – Pennsylvania has collected an additional $174.5m in sales tax revenue associated with marketplace sales
► Which tells us ...
►
Just like with remote sellers, all of the states will adopt marketplace provisions over the next year
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Enforcement of sales tax economic nexus provisions for marketplace providers
*Local level; court ruling **Department has suggested that marketplace facilitators should enter into voluntarily compliance agreement to collect
Pre-July 2018 July/September 2018 October 2018 November/December 2018 July 2019 September/October 2019 January 2020 No provision No sales and use tax January 2019 March 2019 April 2019 June 2019
Washington’s provisions are mandatory starting July 2019; under prior law elect to collect or notify
AK ME RI VT NH MA NY PA** NJ DE WV NC SC Nov. GA FL IL OH September IN MI WI KY TN AL MS AR LA* TX OK July MO KS** IA MN ND SD NE NM AZ CO UT WY MT WA OR ID NV CA VA MD DE DC April RI NJ Nov. CT Dec. Source: Ernst & Young LLP analysis of state laws as of September 2019. HI
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Polling question #2
A.
Yes, we were already collecting in all states
B.
Yes, we were able to scale up
C.
We are still in the process of updating our systems
D.
No, our legacy system was not adequate
E.
Not sure
F.
Does not apply
Is your current sales tax compliance system able to handle the new state collection and reporting requirements post-Wayfair?
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How do the states determine who is a marketplace facilitator/provider?
► No uniformity among state and model
definitions of marketplace provider/facilitator
► General requirement that entity provides
forum and processes/manages/arranges payment
► Standard business operations that do not
function as traditional marketplaces may be pulled into definition in one or more states
► Businesses may not be able to control
whether they have a collection obligation as a facilitator
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Marketplace facilitator/provider – examples
► Virginia – In order to be deemed a “marketplace facilitator” with “sufficient activity within the Commonwealth to
require registration,” the entity must satisfy three-factor test focused on: operating the marketplace forum; processing payments or providing customer service; and having nexus within the state.
► Washington – A marketplace facilitator is a business that performs three activities listed in the regulations,
involving: contracting with sellers to facilitate the sale of a marketplace seller’s product through a marketplace for consideration; communicating the offer or acceptance between the buyer and seller; and providing payment processing, fulfillment, or listing services.
► New Jersey – In order to have a collection requirement, a “marketplace facilitator” must provide one or more
services from list related to maintaining marketplace forum or managing fulfillment services and one or more services from list related to handling or processing payment on behalf of the marketplace sellers (no nexus/sales threshold specified); facilitator and seller may agree to shift collection obligation to seller.
► Minnesota – Marketplace facilitator is someone who provides the forum and directly or indirectly manages
payments to the marketplace seller; no collection obligation if: 1) the seller makes taxable retail sales less than the current sales thresholds; 2) the seller elects to register and collect Minnesota sales tax directly and does not enter into an agreement with the marketplace provider for the marketplace to collect and remit tax; or 3) the facilitator does not maintain a place of business in the state.
► National Conference of State Legislatures (NCSL) language – Suggests both a “broad” definition (based on
Washington State language) and a “narrow” definition (based on listing and collecting activities).
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Traditional marketplace facilitators
Companies that provide a forum for multiple sellers – may also sell directly through their forums Scenario
Dual or multiple channels and obligations – state-by-state determination of roles and responsibilities
The marketplace sales tax trap – recognizing typical business scenarios and how to deal with them
Non-traditional marketplace facilitators
Companies in which the core business is not selling or providing a forum, but they offer such capabilities or their business or delivery model fits within state definitions of “marketplace facilitator”
Marketplace “operators”
Companies that host, manage and operate the platforms in scenarios 1 and 2 and sometimes have a contractual
and use tax compliance
Marketplace seller
Companies that are pure marketplace sellers or that have multiple sales streams 1 Scenario 2 Scenario 3 Scenario 4
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Polling question #3
A.
We operate a marketplace and are in compliance with the new state requirements
B.
We have not identified any part of our operations that implicates the new rules
C.
We make sales through a marketplace and assume that the facilitator/provider is handling compliance
D.
Not sure
E.
Does not apply
How have you been dealing with the marketplace facilitator issue?
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Key actions
Review compliance policy, processes and systems to assess gaps Review existing systems for determination and reporting Monitor ongoing legislative developments
► Filing footprint ► Taxability decisions ► Exemption certificate
management
► Use tax accrual ► Accounting Standards
Codification (ASC) 450, Contingencies
► Assess need for
implementing a new system
► Assess whether outsourcing
is a better and more immediate option
► Consider centralizing sales
and use tax compliance
► Assess options available
through streamlined sales tax (SST)
► Retroactive application
unlikely in any state
► Industry specific opt-out
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Systems, process and compliance considerations
►
Registration – Increased footprint based on sales; inbound companies may need to obtain Federal Employer Identification Number (FEIN)
►
Tax determination – Tools that allow sellers to set up sales and use tax calculations by state and local taxing jurisdictions of the seller’s specification
►
Taxability matrix – Determines the taxability of products and services based on the product category selected by the seller
►
Tax rate application – Tool determines the appropriate combined tax rate (e.g., state, city, county, and district) based on the 5-digit zip code (plus 4) of the shipping address for destination-based states
►
Exemption certificates – Tool to apply customer-based tax exemptions and instructions to download certificates from the source files
►
Filing – Tools that support the filing and remittance of taxes to the appropriate taxing jurisdictions
►
Document retention – Repository to retain required records to determine the amount of tax for which a taxpayer may be liable for, as required by taxing jurisdictions; such records may include copies of all of the taxpayer’s federal income tax and state tax returns and reports, as well as the taxpayer’s books, records and invoices
►
Responsible party – Which party (seller or facilitator) will provide the taxability and rate determination
►
Automation – Automatically calculate, collect and remit taxes directly or on behalf of sellers, including handling the refund of taxes
►
Structural considerations – Operational models that lead to more efficient sales and use tax management
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General observations
►
There is no “one size fits all” approach to dealing with new remote seller and marketplace facilitator laws
►
The first step is to review your business operations with an eye toward:
►
Supply chain
►
Existing relationships
►
Current state compliance systems and processes
►
Recognize that there may be multiple business channels within the same organization, each with different compliance requirements
►
Be flexible, learn to spot potential risks, work with state revenue agencies
►
Be prepared to restructure business operations if that is the best course of action
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Polling question #4
A.
Potential risk/ASC 450 issues
B.
Use tax accrual
C.
Exemption certificate management
D.
Multistate registration requirements
E.
Other
F.
Does not apply
What is your primary concern with respect to the new laws for remote sellers and marketplaces post-Wayfair?
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Bright-line, economic/Geoffrey nexus corporate income tax
AK HI ME VT NH MA NY CT PA NJ DE WV NC SC GA FL IL OH IN MI WI KY TN AL MS AR LA TX OK MO KS IA MN ND SD NE NM AZ CO UT WY MT WA OR ID NV CA VA MD For purposes of this map, whether physical presence is not required is based on statutes, regulations, administrative pronouncements, and decisions (i.e., rulings from state supreme courts, state appeals court, state circuit and district level courts, tax appeal board opinions and administrative level decisions).
As of June 21, 2019
Physical presence not required Physical presence required No guidance No state corporate income tax NYC RI
DC
Source: Ernst & Young LLP analysis of state laws
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Examples of states’ varying “doing business” standards for non-sales taxes (as of October 21, 2019)
Jurisdiction Payroll Property Sales
Multistate Tax Commission
(2002 recommendations):
Alabama, California (indexed
for inflation), Colorado, Ohio
(CAT), Tennessee, Washington (pre‐2020)
(indexed for inflation),
$50,000
(or 25% of total if less)
$50,000
(or 25% of total if less)
$500,000
(or 25% of total if less)
Oregon (CAT)
$50,000 $50,000 $750,000 (of commercial
activity)
Michigan
$350,000
Connecticut, Pennsylvania (via guidance), Texas (via administrative rule)
$500,000
New York
$1,000,000
(NYC, credit care companies
Washington (2020), City of Philadelphia ****** Hawaii
$100,000 (Wayfair) ***** $100,000 or 200 transactions (Wayfair)
Source: Ernst & Young LLP analysis of state laws
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Economic or factor presence nexus outside sales and use taxes
► Post-Quill (1992) the debate was over whether the physical presence standard extended
►
Many states asserted nexus based on economic presence (e.g., Geoffrey, MBNA)
►
A few states applied a physical presence standard
► Wayfair takes physical presence off the table ► Economic nexus priciples look to whether a person purposefully directs activity to a state in
► Does factor presence nexus = economic nexus?
►
Crutchfield decisión on CAT nexus standard focused on remote seller’s “continuous and pervasive virutal presence” in Ohio
►
States increasingly applying receipts-sourcing rules that are applied to measure an income tax liability to assert nexus (example – dock sales)
► Application of PL 86-272 protections
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Disclaimer
►
This presentation is provided solely for the purposes of enhancing knowledge on tax matters; it does not take into account any specific taxpayer’s facts and circumstances. It is not intended, and should not be relied upon, as tax, accounting, or legal advice. Ernst & Young LLP expressly disclaims any liability in connection with the use of this presentation or its contents by any third party.
►
Neither EY nor any member firm thereof shall bear any responsibility whatsoever for the content, accuracy, or security of any third-party websites that are linked (by way of hyperlink or otherwise) in this presentation.
►
The views expressed by the presenters are not necessarily those of Ernst & Young LLP or other associated company or organization.