The Changing Landscape of Indirect Tax: Guidance on emerging challenges in state and local indirect tax in the wake of COVID-19.

• Author: Gulotta, Kirsten

The indirect tax landscape has changed rapidly in response to the COVID-19 pandemic. If the Supreme Court's decision in South Dakota v. Wayfair in 2018 created a new playing field, complete with new marketplace facilitator guidance, the global pandemic has moved the goalposts. In this demanding environment, what is the best way for tax professionals to move forward? More than ever, tax departments are expected to provide greater value to the business. Meeting the challenges of indirect tax post- Wayfair and overcoming uncertainty in the COVID-19 era both require a healthy relationship with technology, with companies learning to take proactive approaches instead of reactive ones and transforming information into insight.

The right technology strategy and processes can help companies navigate the intricacies of tax, allowing not only more efficient compliance with tax obligations but also the ability to identify potential opportunities. Such a transformation calls for a change of mindset--from "What do I need to do?" to "What do I need to know?"

The Future of Work Is Here

A shift in the workplace paradigm in recent years--to a more remote model--has brought on new challenges for companies looking to comply with ever-changing tax rules and seeking ways to generate cash savings on their historic purchases as well as additional savings down the road.

What's more, the ongoing shift of world economies into "the fourth industrial revolution" or "Industry 4.0," with a combination of physical assets and advanced digital technologies such as the internet of things (IoT), artificial intelligence (AI), robots, drones, autonomous vehicles, 3D printing, cloud computing, nanotechnology, and more,1 has created challenges that were perhaps inconceivable twenty years ago.

According to Deloitte's 2021 Return to Workplaces Survey, as of April 2021 sixty-seven percent of workers remain fully remote, with sixty-eight percent of respondents indicating that their company will implement some hybrid model in the future.2 As the data suggests, many companies are redesigning what the new normal will look like, and that new normal will likely be redesigned around better flexibility and a focus on workers' well-being.

Companies today grapple with myriad indirect tax challenges, including sales and use tax, gross receipts tax, excise tax, property tax, the taxation of digital goods, issues emerging around the remote workforce, and the remote seller and marketplace facilitator laws. Modern challenges need modern solutions.

Paving the Road Ahead

Given that rules differ from state to state, companies must evaluate their filing and collection responsibilities on a state-by-state basis. Companies that have a good handle on their nexus footprint and their compliance may benefit from taking a step back, reviewing their current processes, and determining whether technology may help automate their processes through data-wrangling, data analytics, machine learning, and artificial intelligence (AI). Alternatively, depending on the industry or how things are used differently in a remote world, there could be opportunities for refunds of sales and use tax paid on purchases over the past three to four years, or even longer if a taxpayer is under audit.

Workers in the new remote workplace need digital assets to do their jobs, bringing the multiple-point-of-use (MPU) question to the forefront and complicating nexus definitions for multistate enterprises.

For example, a company may buy a softwareas-a-service (SaaS) cloud-based subscription in New York, Illinois, Texas, Ohio, or another state that classifies and taxes such a purchase as software...