Location: RM 271
Presentation from Software Providers
SALES AND USE TAX SIMPLIFICATION TASK FORCE
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10:51 AM -- Presentation from Software Providers
Pawel Smolarkiewicz, Lexie Schaefer, and Chuck Maniace, Sovos, introduced themselves.
A copy of their presentation can be found in Attachment B.
Mr. Smolarkiewicz provided background information about Sovos, including its work to provide tax compliance services to companies of various sizes. Mr. Smolarkiewicz explained that Sovos is a certified service provider by the Streamlined organization. Mr. Smolarkiewicz discussed the history of Sovos in Colorado, including the use by the Department of Revenue Liquor Enforcement Division to provide the technology that allows for efficient registration and the tracking of new beverage alcohol products that are imported into the state by licensed distributors. Mr. Smolarkiewicz discussed how technology can help companies cope with the complexity of the sales tax system and the benefits of increased voluntary compliance.
Ms. Schaefer described what makes tax compliance in Colorado so challenging for Sovos' clients. These include:
- needing separate licenses and registrations for each location;
- the differences in product taxability and definitions;
- nexus locations and sales versus use tax;
- the volume and complexity of forms a business needs to file; and
- communication with providers about new regulations without appropriate lead times.
Mr. Maniace continued the presentation with a discussion of the level of complexity that may be supported by technological automation. Mr. Maniace discussed Sovos' proposed solutions, including:
- a simplified/streamlined taxpayer registration and filing process across all taxing jurisdictions;
- active engagement with the business and service provider communities;
- providing clarity concerning product taxability, including providing historical data concerning regulatory guidance;
- providing appropriate lead times on rate and rule change notifications;
- providing consistent rules on how public improvement fee (PIF) rules apply;
- associating a tax reporting code with a locality; and
- having a standard audit file available for automated state and local audits.
The panel from Sovos responded to task force member questions related to how many Sovos clients have less than $5 million in sales and what level of detail is available in the data that would be sent to local municipalities from the Sovos software
The task force was provided a handout from Avalara (Attachment C).
Tony Burton, Pitney Bowes, spoke about the services Pitney Bowes provides through GeoTAX. Mr. Burton discussed how companies use GeoTAX to identify their location and applicable tax jurisdiction assignment for tax purposes. Pitney Bowes was first certified by the Department of Revenue in 2003.
Mr. Burton responded to task force member questions related to the software's location accuracy and how the Department of Revenue tests address accuracy.
Mr. Smolarkiewicz from Sovos responded to task force member questions related to how their software integrates with various accounting software used by municipalities throughout the state and what import files look like.
David Deputy and Mandy Rush, Vertex, provided remarks related to the work Vertex does to provide tax compliance solutions. Mr. Deputy discussed the benefits of a low-rate and broad base tax system. Mr. Deputy discussed the benefits and potential drawbacks of a centralized tax administration system. He also discussed a newer model of co-administration where subsidiary jurisdictions retain full sovereignty but leverage parent jurisdiction capabilities for administration efficiency without losing their right to directly legislate or receive information and payments directly from taxpayers.
Mr. Deputy continued his remarks with a discussion of new business models that are challenging current taxation principles around ownership and nexus. Mr. Deputy discussed new company to government models of cooperation involving tax policy design that are aimed at simplifying processes, increasing compliance, and removing fraud. Mr. Deputy discussed how emerging technology, such as machine learning and blockchain, can increase compliance, remove opportunities for fraud, and reduce administrative costs for both taxpayers and taxing authorities.
Mr. Deputy discussed the potential for the utilization of certified software as a third party for sales and use tax administration and the collection of state and local sales and use taxes. He discussed the impact of remote sellers and the potential administrative savings that could result from having a third party administrator. Mr. Deputy outlined the key components of a simplified sales and use tax system for both state and local governments which revolve around the concept of designed compliance. The first component involves reducing taxpayer burden by designing for intermediary efficiency. The second component involves enhanced inter-jurisdictional coordination by designing for as broad a scope as possible. Mr. Deputy suggested several changes to Colorado's system, including:
- creating a public portal for notices of change, including rate, rule, and boundary changes;
- creating uniform definitions across definitions; and
- creating benefits for local jurisdictions to participate in a centralized administration system.
Mr. Deputy responded to task force member questions regarding Vertex's current use of blockchain, data security within the system, how many customers use Vertex, how Vertex's system works, and how vendors may be able to administer a centralized sales and use tax system in Colorado. Task force members discussed what data is available through sales tax integrated software.
Mr. Smolarkiewicz and Mr. Burton joined Mr. Deputy and Ms. Rush at the table to respond to questions from the task force related to a standards-based approach for selecting providers to administer a centralized system.
Mr. Smolarkiewicz discussed Sovos' current work with governments to administer various systems and the economy of scale that would have to be present in order for software vendors to want to participate in administering a centralized system. Mr. Burton discussed Pitney Bowes' current participation with other government entities.