3 ESG Strategies for Tax Teams in Retail – and Beyond

Vertex Tax Software to handle the evolving world of state tax legislation.

Addressing environmental, social and governance (ESG) requirements is nothing new for tax departments. Roughly 400 sales tax jurisdictions in the U.S. impose ESG-related fees and taxes. Most of these rules relate to the environmental impact of products and activities such as plastic bags, tire disposal, consumer goods packaging and electronic waste disposal. Many retailers and other businesses have implemented transaction tax systems to support these additional fees which are now a part of the normal sales process- just like sales and use tax. 

But how else can tax support ESG policies and demonstrate commitment to this increasingly important set of corporate mandates? Here are three smart moves:

  1. Help the business improve its ESG agility. Tax executives should monitor developments in ESG rules-making and proactively prepare for new compliance requirements. Will you need to add staffing resources to handle a new requirement? What about IT resources? Keeping business leaders well informed about the developing ESG landscape also helps the company avoid unpleasant surprises.
  2. Recognize that tax is in the ESG spotlight. Tax (often in the form of tax transparency) represents an increasingly important focus for social and governance policy. As anyone who’s been following tax policy discussions in the media knows, companies that adopt aggressive tax positions are getting a lot of attention – and it’s seldom positive. Keep an eye on institutional investors’ public positions on ESG, as well as legislative and regulatory proposals calling for more comprehensive mandatory tax disclosures.
  3. Optimize your tax technology. The right platform can help you reduce tax determination errors and ESG-related reputational risks. Underpaying sales taxes and ESG fees can be perceived as undermining the social programs that taxes pay for. In addition, claiming large tax refunds, even though they’re the result of overpayment, can also be perceived negatively.

If your company has implemented new finance, accounting or tax-related systems, make sure they’re integrated with your tax engine so that they’ll be ready for new ESG-related taxes and fees when they come online. 

For example, many retailers expanded their e-commerce capabilities and other sales channels to better serve customers during the COVID-19 outbreak, potentially increasing tax management complexity. Retail tax teams should work with their operations counterparts to ensure that these new systems and applications are accurately integrated with the tax engine and configured for ESG.

Blog Author

Michael J. Bernard, Chief Tax Officer – Transaction Tax at Vertex Inc. Vertex's Chief Tax Office (CTO) provides insight regarding the impact of tax regulations, policy, enforcement, and emerging technology trends on global tax department operations.

Michael J. Bernard

Vice President of Tax Content and Chief Tax Officer

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Michael Bernard is the Chief Tax Officer of Transaction Tax. In his role, he provides insight and thought leadership around tax department operations, U.S. indirect tax, tax risk management, and tax policy, as well as emerging tax trends. He is an executive-level tax attorney with a diverse portfolio of experience in corporate tax, administration, and finance, including a substantive knowledge of U.S. and international tax laws.

Prior to joining Vertex, Michael was in various tax leadership roles at Microsoft Corporation for 28 years, the most recent being Senior Director – Tax Counsel. Michael led teams in the following functional areas: direct and indirect tax controversy, sales and use, business license, property, tax IT, SOX, and telecommunications. He also co-led a corporate taxpayer advocacy group with the Washington Department of Revenue and was a Director on the Board of the Washington Research Council. Michael has also testified before administrative and lawmakers at both the federal and state level.

Michael earned both a J.D. and a Bachelor of Science in Business Administration from Creighton University. He is a part-time lecturer of Law in the LLM program at the University of Washington School of Law. Michael also served on the board of directors, executive committee, and chaired committees for The Tax Executives Institute (TEI) for nearly 25 years.

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