Transactional Tax Issues Take Center Stage.

Let's face it. Transaction taxes are more important than ever before. In this column, we explore this issue and its impact on technology with Michael Bernard, vice president of tax content strategy and operations and chief tax officer at Vertex, and Sal Visca, chief technology officer at Vertex. Michael Levin-Epstein, senior editor of Tax Executive, moderated the discussion.

Michael Levin-Epstein: Looking at transactional tax, what are corporate tax departments most concerned about in the regulatory area in 2022?

Michael Bernard: I think there's a number of things that they're interested in. First of all, let me start at least in the United States. Normally, what we do at Vertex is we actually track the changes in sales tax rates over a ten-year period. In 2021, we saw a historic high in terms of the number of cities that implemented a sales tax. We saw a historic high in the number of sub-city districts--these would be counties or fire districts or police districts--that actually instituted a sales tax. Then, we also saw a record number of both cities and districts that implemented increases to their sales tax. So, obviously, a lot of that was based on the costs of pandemic relief that was being provided by those jurisdictions. And I think you're going to see this continue as 2022 evolves, because the issues that we're dealing with [with] COVID aren't over yet--we're dealing with variants--and the states and the locals have actually cut their services. They've laid off employees, and now the only way to really meet their budgets is to institute higher transaction taxes. That's the first thing. Outside of the United States, there was a lot of relief provided in Europe and a lot of relief provided in Asia and South America. Many of those economies have not recovered as quickly as they have in the United States. So, the loss of exemptions, or an expansion of the tax base, or even an increase in rates, I think you're going to see these things definitely proliferate globally. The other thing I would add is that back in the United States, you're going to see more of an extension of additional taxes that could replace, say, income taxes, at least at the corporate level. I say that because generally transaction taxes are more resilient to economic cycles, and what that means is they'll go down faster but they also recover faster than an income tax would. So, you're probably going to see an increase of, say, the gross receipts tax. Those are some of the things that I think our customers will be concerned about.

Levin-Epstein: What are you seeing in terms of...

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