Tuesday & Wednesday, January 2829, 2020 Hya Regency Columbus, - - PDF document

Tuesday & Wednesday, January 28‐29, 2020

Hya Regency Columbus, Columbus, Ohio

Visible Taxes, Hidden Costs … Huge Amount of Hidden Costs on U.S. Businesses Imposed by U.S. Tax System

A Lively & Free-Wheeling Panel Discussion

Conference EMCEE: Eleanor Palmer Bailey, Associate Vice President & Associate General Counsel, Nationwide Insurance Co., Columbus Monica Kilgren, Vice President - Corporate Tax, Ascena Retail Group, Inc., New Albany Maureen Pechacek, Partner, PricewaterhouseCoopers, Minneapolis, MN Douglas L. Lindholm, President & Executive Director, Council on State Taxation, Washington, DC

Tuesday, January 28, 2020 8:40 a.m. to 9:45 a.m.

Biographical Information

Eleanor Palmer Bailey, Associate Vice President, Associate General Counsel, Corporate Tax, Office of General Counsel, Nationwide Insurance One Nationwide Plaza, Mailstop 1-32-102, Columbus, Ohio 43215 Phone: 614-677-6330 palmere5@nationwide.com Eleanor Palmer Bailey is a tax attorney in the Office of General Counsel at Nationwide Insurance. She is responsible for identifying and managing Nationwide’s tax exposure and providing counsel

• n tax matters related to business initiatives. Eleanor has assisted with mergers and acquisitions,

tax controversies, investment structuring, employee health & welfare and fringe benefits, agent and executive compensation and various projects presenting unintended tax consequences. In coordination with the Government Relations Team, Eleanor keeps abreast of federal, state and local tax legislation affecting the enterprise, its insurance agents and policyholders and advises the business units on the appropriate course of action. Prior to joining Nationwide, Eleanor was a Manager in Ernst & Young’s State and Local Tax Group. Eleanor is a graduate of The Ohio State University, where she received a Juris Doctor and a Master of Business Administration. She received a Bachelor of Science in Accounting from Oakwood University, and now serves on its National Alumni Association Board of Directors. Eleanor is admitted to the Ohio Bar and is most active with the Columbus Bar Association’s Business Tax Committee and the John Mercer Langston Bar Association. She has been a speaker on tax matters at the Ohio Tax Conference, the Columbus Bar Association, and the Association of Corporate Counsel. Eleanor is currently the chairperson of the Ohio Chamber of Commerce’s Taxation and Public Expenditures Committee. Monica Kilgren, VP Corporate Tax, Ascena Retail Group, Inc. 8323 Walton Parkway, New Albany, OH 43054 614-775-3280 Fax: 614-775-3935 Monica.kilgren@ascenaretail.com Monica has over 25 years of corporate tax experience. She started her career with KPMG in Dallas, Texas in 1994 working on corporate income tax matters for manufacturing, retail and distribution clients. She joined Deloitte in 1997 where she continued her corporate income tax

• career. Monica later joined Tenet Healthcare in Dallas, Texas managing the corporate income

tax function before relocating to Chicago, Illinois to work for PwC. While at PwC, Monica worked for 2 years with technology clients on corporate tax matters and for 5 years in the mergers and acquisition practice focusing on tax due diligence, tax structuring and post-deal tax integration. In 2008, Monica relocated to PwC ‘s Columbus, Ohio office where she worked with retail and manufacturing clients on corporate tax consulting, tax accounting and post-deal integration. Monica joined Ascena Retail Group, Inc. as a Director of Tax in 2012 and was promoted to AVP Corporate Tax in 2013 and VP Corporate Tax in 2016. Monica’s responsibilities at Ascena include leading the corporate tax accounting, income tax and indirect tax functions. Ascena is a national specialty retailer with brands including AnnTaylor, LOFT, Lou & Grey, Justice, Lane Bryant, and Catherines. Ascena has approximately 2,800 stores throughout the United States, Canada and Puerto Rico plus licensed franchises and sourcing operations in international territories. Monica is a graduate of Texas Tech University with a B.S. in Accounting and a Masters of Science in Accounting with a concentration in Taxation. She is a licensed CPA in Texas and Ohio. Monica is a member of the Tax Executives Institute.

Biographical Information

Maureen Pechacek, Tax Partner, PricewaterhouseCoopers LLP Suite 3400, 45 South Seventh Street, Minneapolis MN 55402 612 326 2046 maureen.pechacek@pwc.com Maureen is the State and Local Tax leader of the Minneapolis office. Prior to transferring to Minneapolis, she was based in San Diego and in the National Tax Practice focused on serving large multinational clients throughout the United States. She previously served as a member of the PwC U.S. Tax Core Leadership team where she focused on Strategy Execution for the U.S. Tax Practice. Maureen has more than 30 years of state and local tax experience. She provides a broad range

• f multistate services such as refund reviews, tax planning, restructuring and implementation,

audit and controversy assistance, FAS 109 provision analysis, and compliance services. Her primary area of focus is multistate income taxes but she also has broad skills in the franchise and net worth tax, credits and incentives, sales and use tax, and unemployment tax areas. Her clients span several industries, including, financial services, manufacturing, utilities, government contractors, retail and service companies. Maureen joined PwC as a partner in 2002. Prior to joining the firm, Maureen spent 16 years with Arthur Andersen. She was responsible for starting and leading the National STAR practice. The STAR practice focused on refund reviews, state tax planning, restructuring and implementation

• services. Prior to joining Arthur Andersen, Maureen worked for several years in the state tax area

for 3M Corporation. Maureen is a nationally recognized lecturer on state and local taxation for numerous tax associations, including the Council on State Taxation (COST), Tax Executive Institute, Institute of Professionals in State Taxation (IPT), Paul J. Hartman Memorial Tax Forum, Edison Electric Institute, National Restaurant Association, New York University, Georgetown University and numerous state CPA societies. Maureen is honored to have received the following awards/recognition: The 2010 New York University Award for Outstanding Achievement in State and Location Taxation, the 2013 Paul Frankel Excellence in State Taxation Award by the Council of State Taxation, Induction into the University of Minnesota MBT Hall of Fame in 2013 and was an honoree in the 2014 Women in Business Awards from the Minneapolis/St. Paul Business Journal. Maureen is currently on the Advisory Board of the Paul J. Hartman Institute and the New York University State and Local program. In addition, she is a past member of the Council on State Taxation Executive Committee and currently is an adjunct professor on the M.B.T. program at the University of Minnesota. She holds a Bachelor's degree in accounting from the University of Wisconsin and a Master’s in Business Taxation from the University of Minnesota.

Biographical Information

Douglas L. Lindholm, President & Executive Director, Council on State Taxation 122 C Street NW, Suite 330, Washington, D.C. 20001 dlindholm@statetax.org 202.484.5212 Fax 202.484.5229 Douglas L. Lindholm, Esq. is President and Executive Director of the Council On State Taxation (COST). COST, with a membership of nearly 600 multistate corporations, is dedicated to preserving and promoting equitable and nondiscriminatory state taxation of multi-jurisdictional

• entities. Prior to taking the helm at COST, Mr. Lindholm served as Counsel, State Tax Policy for

the General Electric Company in Washington, DC. Mr. Lindholm also served for three years as Legislative Director for COST, successfully directing COST’s legislative advocacy function, including development and management of member coalitions active on issues in numerous states. Prior to his service with COST, Mr. Lindholm worked in the Washington National Tax Services Office of Price Waterhouse LLP. He has written numerous articles on federal, state and local tax issues in a wide variety of publications; testifies frequently before state legislatures and Congress

• n state tax issues; and is a frequent speaker at national tax conferences and seminars.
• Mr. Lindholm serves on the NYU State and Local Taxation Advisory Board; the Advisory Board
• f the Paul J. Hartman State and Local Tax Forum; the Editorial Advisory Board of Tax

Management, Inc. He is a former member of the National Tax Association’s Board of Directors and the Advisory Board of the Georgetown University Law Center State and Local Tax Institute. He is a member of the US Supreme Court and District of Columbia Bars. In 2006, Mr. Lindholm was named to the Tax Business 50 list of most influential tax professionals on the globe, and is the recipient of the 2009 New York University Award for Outstanding Achievement in State and Local Taxation. He is a graduate of American University’s Washington College of Law in Washington, DC, and Lynchburg College (BA in Accounting) in Lynchburg, Virginia.

Visible Taxes, Hidden Costs 29th Annual Ohio Business Tax Conference

Columbus, OH January 28‐29, 2020

Monica Kilgren

Vice President, Corporate Tax Ascena Retail Group

Douglas Lindholm

President & Executive Director Council On State Taxation (COST)

Maureen Pechacek

Partner PricewaterhouseCoopers

Agenda

Exploring the hidden and unexpected costs of complying with subnational taxes:

• Extra costs incurred by taxpayers to overcome the lack of uniformity in

state taxes

• Hidden costs of Federal/State tax “debt” offset programs
• Hidden costs of audit compliance
• Hidden costs incurred through third‐party tax litigation
• Hidden sales tax collection costs on special transactions;

implementation costs for daily remittance proposals

• HR, IT and other indirect costs of running a large company tax

department

• Costs to manage excessive and duplicative late‐filing and late‐payment

penalties

• Hidden compliance costs of traveling employees

Costs Incurred by Taxpayers to Overcome Lack of Uniformity in State Taxes

• Variations in state rules and sometimes unclear guidance causes significant

slow‐downs in analyzing and implementing new business initiatives.

• Significant time spent to perform specialized state calculations. The

depreciation calculation alone is a very time‐consuming exercise.

• Determinations of local taxing jurisdictions. In certain states, this can be a very

time‐consuming process to validate and can lead to significant penalties/interest. Greater emphasis after Wayfair.

• Likely increase in federal amended returns after U.S. international tax reform

will lead to significant increases in time spent amending state returns.

• Limitations on ability to file Ohio municipal income tax returns using the Ohio

Business Gateway. Concerns about credits & incentives.

• Post‐deal integration: Significant complexities integrating systems, increases in

notices and audit activities post‐transaction, limitations and/or significant hours in locating and analyzing historic data to respond to audits due to historic staff turnover. Also very complex and costly tax calculations on sell‐ side.

Treasury Offset Program (TOP) ‐ Background

• State Reciprocal Program (SRP) – 12 states
• (DC, KS, KY, LA, MD, MN, NJ, NY, OR, VA, WV, and WI)
• Example:
• State certifies “debt” to TOP
• TOP identifies federal vendor payments to be made to

same EIN as TOP debtor

• TOP diverts federal vendor payment to offset debt
• Offset does not identify the type of tax debt or time

period

• Large time and expense commitment to unwind offset

4

Treasury Offset Program (TOP) ‐‐ Concerns

• Administered by U.S. Treasury’s Bureau of the Fiscal Service (BFS)
• Safeguards are weak
• BFS annual certification document required to be signed by participating

states

• 60‐day notice prior to sending debt to TOP
• States must make “reasonable” efforts to notify and collect prior to offset
• No recourse available to taxpayers if safeguards not applied
• Offset notice contains very little detail about debt – just debtor
• G2G program
• monthly notification of any debts submitted to TOP
• listed by employer identification number (EIN)
• COST Administrative Scorecard evaluates safeguards

5

The Hidden Costs of Audits

• Management of tax audits and reserves can be time consuming and difficult.
• Many companies create risk of knowledge loss or inaccurate estimates by

decentralizing this process and utilizing spreadsheets to maintain audits and reserves.

• Too many times audit assessments are driven by dollar amounts and not policy

positions

• Post‐TCJA and post‐Wayfair developments will increase these costs and risks.

States often have little appreciation for compliance costs surrounding complex and still‐evolving issues (e.g., taxation of foreign income and nexus.)

• Complexities in dealing with marketplace facilitators who collect sales taxes

from ultimate customers to ensure access to records for audit purposes.

• Transfer Pricing: Increased audit activities around intercompany transactions

require significant hours to pull data in response to state IDRs. Complexities in analyzing activity in intercompany accounts and ensuring settlement of accounts (e.g., cash sweeps, shared services entities).

6

False Claims Acts / Qui Tam Actions

• Qui tam or “whistleblower” statutes essentially create a private cause of action

that can result in treble damages and award of attorneys’ fees.

• Applying “whistleblower” statutes in the state tax arena, where significant “grey”

areas exist, undermines the role of the tax administrator in impartially applying state tax laws.

• State revenue departments are specifically equipped to deal with the nuances

and complexities of state tax laws.

• The private cause of action is typically entirely removed from the normal tax

compliance and appeal process.

• Taking the department out of the process creates uncertainty, often conflicting

interpretations of complex tax issues, and onerous penalties for non‐fraudulent behavior

• FCAs for taxes create perverse incentives to increase the costs of litigation to

force settlement.

Hidden Sales Tax Collection Costs on Special Transactions

• Special sales tax transactions, while fewer in number, incur the

greatest costs to retailers.

• These include returns, allowances, bad debts, drop shipments, etc.
• Example: sales tax refunds on bad debts:
• Only 5‐7 states allow offsets for bad debts.
• Retailers must work with credit card companies to determine

refunds.

• Retailers typically must request the refund from states and then

provide the refunds to the banks/credit card companies. This requires time consuming reconciliations and negotiations between the parties.

Daily Sales Tax Remittance by Card Processors

• Concept to establish so‐called “real‐time” sales tax collection; would require

vendors and payment processors to remit sales tax from purchases on a daily‐ basis.

• CT S.B. 877 (2019); S.B. 1057/S.B. 1047 (2017); H.B. 5636 (2016).
• AZ S.B. 1091 (2018) passed by both houses but vetoed by Governor.
• MA H.B. 2 (2018), Dropped from final budget sent to Governor, similar to

2017 proposal that ultimately failed after Department of Revenue feasibility analysis.

• Staggering costs to implement:
• 2017 State Tax Research Institute study projects cost to comply $1.22 billion

in up‐front implementation costs and $28 million in annual recurring costs.

• No real benefit to state.
• All asserted benefits can be achieved through estimated prepayment:
• One‐time revenue through acceleration
• “Float” – requires state to invest and not spend one‐time revenue
• Delinquent Taxpayers
• Cash Economy

9

Costs and Challenges in the Evolving Tax Department

• Many companies are facing challenges in managing the corporate tax

function, including how they rationalize their people, processes, technology, and global talent all while driving tax‐efficient value across the organization.

• People ‐ Headcount, recruiting costs, global mobility, retention,

and training. Changing needs in tax staff skills.

• Processes ‐ Efficiency, quality, and risk management in light of

frequently changing business strategies and the global environment.

• Technology ‐ Ongoing costs of technology, implementation, and

related maintenance. New system implementations and upgrades are complex and require significant time investment to address all the varying state rules and nuances.

• Global Talent ‐ Difficulty in finding highly skilled tax

professionals, especially in emerging and growth markets.

10

Hidden Costs of Managing Penalties

• Compliance with electronic filing and payment rules and

timely processing.

• Meeting filing deadlines for state returns that coincide with

the revised federal filing dates (original and extended).

• Managing RAR reporting requirements, particularly after

federal tax reform.

• Understanding the risk of return positions.
• Dealing with large understatement and other high dollar

penalties.

• Late payment penalties for sales/use taxes are large, so

teams spend a lot of time ensuring electronic payments are accurately processed before deadlines and documented for audit purposes

11

Tracking Employee Travel and Complying with State Income Tax Filing and Withholding Rules

• Most companies do not track hourly time and travel for

their employees.

• Expense reporting systems are not connected to payroll

systems.

• For employees paid through bonuses or commissions, it’s

impossible to identify earnings specific to certain states.

• Employee withholding may be audited several years later,

when it’s impossible to retroactively withhold to the “correct” jurisdiction.

• States tend to selectively enforce their laws against certain

types of companies.

HI and AZ: 60 days IL: 30 days (enacted in 2019) No general state income tax

New York is one of the most

• nerous because employer and

employee requirements don’t match.

When is a nonresident employer subject to withholding?

(Important note: These don’t necessarily align with an employee’s filing requirements.)

Please note that this map only covers withholding. Many states have different standards for imposing tax on nonresidents (that is, the employee may owe tax even where the employer is not required to withhold). The map does not include reciprocal

• agreements. Also note that 21 states provide exemptions for nonresidents performing

services during a declared disaster.

Conclusion: Helping to Minimize Taxpayers’ Hidden Costs

• For Taxpayers:
• Get involved in the policy process at the federal, state and local level
• Advise policymakers of the hidden costs in the tax system, not just

tax costs, and offer solutions

• Seek opportunities to share best practices for compliance and tax

technology

• Benchmark and compare state to state practices.
• For State Policymakers:
• Recognize that large taxpayers are operating within a national

economy, not just a specific state.

• Seek opportunities to improve administrative uniformity on tax

issues across states.

• Do not allow decentralized local tax administration.
• Seek out taxpayer advice for ways to minimize costs inherent in the

tax system.

• Instill a customer‐focused approach to tax administration.

14

QUESTIONS?

Douglas L. Lindholm

President & Executive Director Council On State Taxation (COST) dlindholm@cost.org

Monica Kilgren

Vice President, Corporate Tax Ascena Retail Group Monica.Kilgren@AscenaRetail.co m

Maureen Pechacek

Partner PricewaterhouseCoopers LLP maureen.pechacek@pwc.com