‘It’s inevitable,’ experts say: U.S. states will eventually adopt European-style sales tax compliance requirements

Experts speaking at the recent Avalara CRUSH Global virtual event had some crystal-clear views of what tax compliance issues are likely to impact companies in the coming years.

“Everything we’ve discussed today — it’s inevitable,” said Avalara Senior Vice President for Global Compliance Liz Armbruester.

According to Armbruester, if one government is successful implementing a new kind of tax, others will quickly follow suit. That will make it even more difficult for companies to meet their tax compliance obligations — especially if the companies hang on to outdated paper processes.

“How we address this complexity will be with technology,” Armbruester said.

It will have to be technology that can handle a disjointed and bifurcated tax compliance environment, experts agreed.

Armbruester’s comments came after a main-stage panel discussion on tax compliance changes that companies are likely to see in coming years, part of Avalara CRUSH Global, which brought experts together to talk about tax and technology trends.

E-invoicing and real-time compliance have come to Europe, and governments there seem to like them, said EY Americas VAT Compliance Leader Gino Dossche.

Real-time invoicing allows value-added tax (VAT) in Europe to be more or less self-administered, Dossche explained, “so it’s a very nice tax for the governments. It’s very hands-off. The burden is on the taxpayers.”

But it’s created a new level of complexity for businesses that sell into the European market, Dossche added. “The biggest challenge among all of us for e-invoicing is the technology, the technical requirements that differ by country. How do you communicate with your vendors, customers, the authorities?”

Companies looking to sell into the European market need to look for tax compliance providers that can provide service globally, not just country by country, he explained.

The success of real-time compliance in Europe means it’s only a matter of time until U.S. governments start adopting similar requirements for tax reporting and compliance, said Tax Foundation Executive Vice President Daniel Bunn.

States aren’t ready to do that now, he explained. Many tax collection agencies are operating outdated systems that must be replaced before they adopt this kind of process.

“There’s a lot of investment that needs to be made,” Bunn said.

In part, he continued, that’s a result of all the changes to state sales tax laws that came in the wake of the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. That ruling opened the door for a whole new category of taxes on online sales, and states and other jurisdictions have been focused on adopting laws that allow for the new taxes.

Now that the dust has settled, Bunn added, they’re likely to start thinking about how to incorporate real-time compliance into their tax requirements.

That doesn’t mean we’re likely to see something like a federal VAT in the United States, he said. “It would be a huge political challenge.”

“There’s lots of disjointedness, bifurcation” between the various states and local taxing entities, and there’s no incentive for any of them to work together, Bunn continued.

“That really means the compliance technology that you’re implementing as a business needs to be able to pay attention to all these variations and how they’re being changed in a post-Wayfair world,” he said.

Stifel Chief Economist Lindsey Piegza agreed, and said it will likely be several years before any American states attempt to impose any real-time compliance measures.

But, “once the state shift begins to take hold and states see how efficient it is,” she added, “this is going to spread like wildfire.”

According to Piegza, as they look ahead growing businesses shouldn’t expect tax compliance to get easier.

“Doing business country to country, each with their own tax regulations, reporting requirements, place of supply determination rules, it’s going to be an increasingly complex environment for tax compliance,” she said.

Avalara CRUSH Global concluded on May 18, but videos of the main-stage panels — plus all the content from CRUSH City — is available for free through June at AvalaraCRUSH.com. In addition, keep coming back here to the Avalara Tax Desk for more coverage of the issues and insights from the CRUSH Global event.