Scott Peterson is the VP of U.S. tax policy and government relations at Avalara. He was the first executive director of the Streamlined Sales Tax Governing Board. For seven years, Scott acted as the chief operating officer of an organization devoted to making sales tax simpler and more uniform for the benefit of business. Scott also spent 10 years as director of the South Dakota Sales Tax Division and 12 years providing research and legal writing for the South Dakota Legislature. He’s now Avalara’s go-to resource for all things related to tax policy.
- Government will fill the sting of the workforce pinch. As employers across the public and private sectors navigate the labor shortage, governments will have to make tough decisions around raising wages to fill positions or look into alternative options, including outsourcing roles, removing roles, or automating using technology. As the workforce pinch closes in on tax departments, there are numerous benefits technology can provide. For example, the technology and tax knowledge used by the private sector to manage tax compliance could easily be converted by tax departments to create taxpayer self-service education. Utilizing this resource would allow department employees to focus on higher value responsibilities. Similarly, programs like the Streamlined Sales and Use Tax Agreement could help departments spend less time and money on audits due to the use of technology partners as the source of truth for tax remittance.
- With full coffers, governments should consider future-proofing their operations. The pandemic brought many government functions to a stop, especially paper-based functions like tax collections in states and localities. With higher revenues, states can make much needed investments into technology to future-proof their operations for inevitable disruptions down the road. To effectively future-proof their processes, tax departments should embrace that technology that will ease interoperability and allow for the seamless exchange of data, that creates the ability to work securely in a real-time environment, and that scales from a single operator to large, enterprise businesses. A successful effort will be technology that creates trust and closes the gap between government and businesses.
- Tax cuts will put a renewed emphasis on transaction taxes. The enormous amount of budget surpluses will likely lead to sweeping tax cuts and exemptions. Corporate taxes seem to be the primary target for such cuts, but states will reduce personal income taxes and likely many other taxes. Reducing reliance on income tax increases reliance on transaction taxes (sales tax) and excise taxes (tobacco and alcohol). Businesses should be prepared for an increased focus on sales tax and an associated uptick in enforcement. With a renewed emphasis on sales tax, remote sellers should especially be prepared for impacts. Economic nexus laws have created lucrative revenue streams for governments, so as the focus shifts to sales tax, remote sellers will be the first stop for any increased enforcement.
- Marketplaces will remain at the center of tax policy change and litigation. With an increased focus on sales tax and remote sellers, tax authorities will focus their audits on marketplaces. From marketplace facilitator laws and tax collection requirements to guidelines around managing tax exempt sales on marketplaces, the rules surrounding tax obligations for marketplaces remain murky. The lack of clarity across the board will continue to create confusion and challenges for marketplaces when it comes to who is responsible and liable for tax collection and documentation. Because of the likelihood of increased enforcement and a continued lack of clarity, marketplaces will need to prepare to be audit-proof, while also prepared to face continued litigation around obligations for back taxes and physical nexus disputes.