Practitioner’s Perspective on Washington Law Bob Heller © 2011 Clark Nuber. All rights reserved Page 1
Digital Products Study Committee • Practitioner view of the process was generally positive – Most understand the revenue challenges with changing technology – Resistance to DOR efforts to conform existing law to new transactions – not a good fit • Make up of committee was very inclusive – Members included legislators, government, scholars & taxpayers – Allowed input from interested parties • Broad directive allowed a very comprehensive discussion – No issues off the table Page 2
Specific v. General Application • Good in principle • How well it works in practice remains to be seen – May be easier to expand exemptions than taxability but budget challenges make enacting exemptions difficult – Some issues can be addressed by rule • Increased risk of uncertainty of tax application – Digital automated services prove problematic – Gray areas where the definitions potentially overlap Page 3
Implementation • Department has done a good job of engaging taxpayers through a robust stakeholder process – – – Early published guidance Town hall style meetings Accelerated online rulings process Ongoing rule development Openness to policy discussion on specific taxpayer facts • Openness to request legislative changes as issues come up Page 4
Taxpayer Adoption • Many larger in-state taxpayers were aware of changes and got ahead of the curve • Midsize to larger technology companies were more plugged into the process • Out-of-state companies are still just becoming aware of the changes • Ongoing confusion as to digital automated services – Example: challenges around when a service primarily involves human effort Page 5
Enforcement Experience • Still too early to tell • Some incidents of smaller taxpayers surprised to learn on audit that they buy or sell taxable digital automated services • Anecdotal evidence that out-of-state audit unit is actively engaged in targeted tax discovery aimed at digital products noncompliance • In the absence of an adopted rule, auditors having to rely heavily on internal policy guidance Page 6
Summary • Strong stakeholder input in policy development is vital • No matter how much work is done at the front end, there will be unintended consequences • The legislation is a starting point – much additional work needs to be done • Creating certainty of tax application should be an overriding goal • Implementation requires – Robust early communication to taxpayers – Significant taxpayer involvement Page 7
Questions Page 8
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