States of Career Development—Part 1: The Opportunity

Best Practices for Managing and Mitigating Sales Tax Audit Risk

Deloitte’s recent global tax management survey identifies four imperatives that CFOs expect their top tax executives to execute.

Collaborating with the Tax Team

Here’s an important one: “CFOs want their tax team to collaborate with the business and maintain an ongoing dialogue by offering proactive advice and providing perspectives on future regulation.” But the report indicates that this expectation remains unfulfilled inside many companies: “CFOs’ expectations for tax to collaborate with the business are not consistently met, often because tax can seem ‘buried in the technicalities of the data.’”

Fortunately, tax leaders in companies of all sizes have a major opportunity to remedy this situation by proactively influencing changes to tax rules and new tax-related laws streaming forth from state departments of revenue and from their state legislatures.

2019 Standard Sales Tax Rate Changes

In 2019, states issued a combined 560 standard sales tax rate changes. The volume and magnitude of these changes are highly likely to increase as states continue to implement new sales tax rules and reporting requirements following the U.S. Supreme Court’s 2018 South Dakota v. Wayfair ruling.

A robust government relations function marks a fundamental requirement for the world’s largest corporations. Yet, the high risks of harmful tax legislation also are driving mid-sized and small companies to foster ongoing and mutually beneficial interactions with state departments of revenue (DOR). As Deloitte’s analysis makes clear, CFOs want their tax partners to deliver proactive advice to business partners and sharp perspectives on upcoming tax rules changes and related legislation. Corporate tax leaders can fulfill this expectation by investing the work required to establish and nurture mutually beneficial advisory relationships with state tax agencies, while reducing the likelihood of detrimental tax-rule proposals being passed into law.

Improving Relations between Tax & State DORs 

Several other factors are driving the need for improved relations between tax functions and state DORs, including:

  • Rising deficits and related fiscal risks: Approximately two-thirds of states face fiscal stress due to rising legacy costs from previous commitments for employee retirement, according to an analysis by the Peter G. Peterson Foundation. Budget deficits and rising fiscal risks drive the need for cost cutting as well as more revenue, which is typically generated through sales tax increases.

  • Ballot initiatives: In 2018, 167 statewide ballot measures were certified to be voted on by citizens, according to Ballotpedia, a nonpartisan, nonprofit organization that tracks U.S. politics and elections. It is important to know that not all ballot initiatives go before voters. In many states, legislators influence – via public comments or on procedural grounds – whether an initiative makes it to the ballot. And legislators tend to seek guidance from their revenue departments on ballot initiatives that concern taxation issues.
  • Social media risks: Harsh social media comments and campaigns regarding corporate tax practices can reach state audit divisions. How audit divisions respond to criticisms of companies posted on social media is influenced by how those auditors perceive a company. Tax functions that over time build up a reputation for credibility and trustworthiness with state DORs stand a better chance of effectively managing negative social media comments when those reputation risks strike.

In my next post on this topic, I offer up considerations for tax leaders on how to develop relationships with state DORs.


Explore the Series

States of Career Development—Part 2: Key Considerations
States of Career Development—Part 3: Actions

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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