As complex as federal tax can get, at least you're only dealing with one agency: the IRS. But when you get into state and local sales tax, you're coordinating hundreds of jurisdictions that are constantly changing. Even the most well-meaning vendor may find itself overwhelmed. And Internet sales have only complicated the issue further. What to do?
AWEB sat down for an interview with Carolynn Iafrate Kranz of Industry Sales Tax Solutions, LLC (ISTS) and Kranz & Associates PLLC, a specialty law firm focused on state and local tax consulting. She gave us the big picture.
Kranz said she sees lots of activity on the SALT front concerning software and cloud transactions—and it's not necessarily in the state legislatures. "Technology is outpacing the law," she said, but states are tending to address these changes with policy decisions rather than new laws. "And these policy decisions are not necessarily supported by the law."
In the past year, both New Jersey and Nebraska have issued guidance related to cloud transactions, indicating that generally cloud transactions are not subject to sales tax. However, in Michigan, taxpayers have challenged the department's policies which have attempted to tax various cloud transactions.
Keeping up with the policies in multiple jurisdictions in extremely complex: Many vendors have nexus in more than just one state today, and Kranz pointed out that even having nexus in only one jurisdiction is no guarantee that a company can easily comply with sales and use taxes. She pointed out that New York, for example, has multiple rates, varying from one municipality or county to another.
In addition, Kranz states that, "Many states have taken a policy position on cloud transactions that may not be supported by law. Sellers are placed in a difficult position." If the seller does not collect, said Kranz, the seller risks an assessment from a state taxing authority. On the other hand, if the seller does collect, she continued, the seller could run the risk of a class-action lawsuit—plaintiffs who believe a certain vendor collected too much sales tax.
"For example, you're selling a product where the state's sales tax policy is questionable. Vendors are going to weigh their risks of following policy or following what they believe to be the proper application of law. Some are risking a state assessment as they don't want to end up having to defend themselves against a class action lawsuit, with all the publicity that entails."
A New Way to Offer Help
In this new, complicated tax world, Kranz has found a new way to get her advice across. She and Avalara, which assists companies with cloud-based solutions to help manage sales taxes, have formed what they're calling a "multidimensional partnership." According to a press release from Avalara, the company will receive access to Kranz's sales tax content for technology and digital products, and Kranz will serve on Avalara's board of advisors and represent the company at industry events.
Said Kranz, in the statement: "This partnership provides an ideal vehicle to deliver my extensive sales tax data for anything high tech in a user-friendly form, while extending our collective reach."
And that's going to be essential in the coming months and years while the states and courts sort out their sales tax policies and rules. Kranz's alliance with Avalara will give her even more opportunity to reach out—something she's been doing for a while.
"Over the years, I've given many speeches to business owners and financial managers. They seemed shocked that I could run a practice focused solely on sales and use tax. But when I begin answering what they believe is a simple questions, the response if often 'Wow, this really is complex.'"