IU Tax Policy Colloquium: Satterthwaite, “Optional Taxation: Survey Evidence from Ontario Microentrepreneurs”

Left to right: Maicu Díaz de Terán, Tim Riffle, Emily Satterthwaite, Brian Broughman, Leandra Lederman, David Gamage, #taxprofbaby, Pamela Foohey, Austen Parrish

By: Leandra Lederman

On March 22, the Indiana University Maurer School of Law’s Tax Policy Colloquium welcomed Prof. Emily Satterthwaite from the University of Toronto Faculty of Law, who presented “Optional Taxation: Survey Evidence from Ontario Microentrepreneurs.” This interesting new paper is not yet publicly available.

The paper explores Canada’s “small supplier” exemption from value-added tax (VAT) registration. Canada’s exemption allows suppliers with less than CAD $30,000 of sales (turnover) in a year to avoid registering for and complying with the VAT unless they opt in. (This amount is not indexed for inflation, and Emily’s paper explains that this threshold is fairly low.) Although it may seem odd for someone to opt into a tax system, as Emily’s paper explains, some small suppliers have incentives to do so: if they buy supplies subject to VAT, they can offset that against VAT owed, and obtain a refund if VAT paid exceeds VAT due. In addition, some small suppliers may be encouraged by their VAT-registered customers to become part of a formal supply chain, because the VAT those customers pay on inputs is creditable. The downside of registering is the cost of doing so, which includes the requirement to file an annual return regardless of whether VAT is owed. Continue reading “IU Tax Policy Colloquium: Satterthwaite, “Optional Taxation: Survey Evidence from Ontario Microentrepreneurs”” →

Congratulations to Surly Blogger Sam Brunson!

As announced on Taxprof Blog today, Surly blogger Sam Brunson has been named the Georgia Reithal Professor of Law at Loyola University of Chicago School of Law. Sam’s work focuses on how tax law affects various groups of taxpayers, with a particular focus on investors and families. He also write on tax administration. Sam also has a book, entitled God and the IRS: Accommodating Religious Practice in United States Tax Law, forthcoming at Cambridge University Press.

Congratulations, Sam!

Are Forty Percent of Tax Compliance Employees About to Get the Boot?

By Stephanie Hoffer, @prof.hoffer

New technology has the potential to completely change the face of tax law and accounting: that was the take-away from a recent installment of a tax and tech series organized by Professor Jeffrey Owens and Julia de Jong of Vienna University’s Digital Economy Taxation Network. The roundtable on Governance Implications of Disruptive Technology assembled experts from Microsoft, PWC, think tanks, and the academy.

The session began with a staggering prediction that large companies will sack up to 40% of their tax compliance employees in coming years. Why? Experts anticipate that technological progress in data collection and algorithmic reporting will allow audit functions to be built directly into data collection and management. This integration will allow governments to coordinate seamlessly with taxpayers by assuming the role of tax preparers whose reliance on algorithms largely eliminates the need for auditors. Similarly, data technology will eventually obsolete VAT returns, an administrative headache for most of the globe and a major source of work for the accounting industry. Eelco van der Enden, a partner with PWC Netherlands, went so far as to predict the breakup of Big Four accounting within ten years as technology grabs the tax prep reins and renders auditing obsolete.

Disruptive technologies that leverage data also have the potential to revolutionize how we address the tax gap. As van der Enden noted, “[d]ays are gone when you could create a bunch of bullshit” in a tax return to force regulators into a negotiation. The ready availability of data from sources as disparate as taxpayer reporting, social media accounts, and even satellite pictures of the planet are poised to revolutionize business and tax transparency. In addition, advances like quantum computing, when combined with what has been called a tsunami of data, will allow tax systems to handle an exponentially increasing amount of complexity. Transfer pricing, for instance, will be a whole new ballgame with the advent of close-to-omniscient tech. When (not if, but when) complexity no longer results in a loss of efficiency on the human side, tax administrations could see large gains from re-regulation in some cases.

As Harald Leitenmuller of Microsoft concluded about tax experts going forward, “[t]he future of your profession is to be a good data scientist who can leverage the knowledge hidden in the existing data.” Congress and IRS, take note.

(Written with thanks to Fulbright Austria for supporting my work.)

IU Tax Policy Colloquium: Ring, “Silos and First Movers In the Sharing Economy Debates”

By: Leandra Lederman

On March 1, the Indiana University Maurer School of Law welcomed Surly’s own Prof. Diane Ring from Boston College Law School as the fourth speaker of the year in our Tax Policy Colloquium. Diane presented a new paper, which I believe is not yet publicly available, titled “Silos and First Movers In the Sharing Economy Debates.” This interesting paper focuses on the classification of workers in the “sharing” or “gig” economy as employees or independent contractors, arguing that “[t]wo interacting forces create the most serious risk for inadequate policy formulation: (1) silos among legal experts, and (2) first-mover effects.” (Page 1 of the draft.) The silo argument is that lawyers operate in subject areas that are isolated from each other, such that tax experts, for example, fail to perceive the effects of tax-related worker-classification rule changes on non-tax (such as employment) law, and vice versa. The first-mover argument is that the first actors on the worker-classification issue can wield outsized influence, shaping the debate in legal contexts other than the one directly affected.

The paper and presentation provide interesting insights into how giants of the service-worker sharing economy—not just Uber and Lyft, but also TaskRabbit—influence the development of the law on worker status. And subject-matter silos are a common complaint among legal academics. That issue has arisen in administrative law, for example, where there may be different rules developed in the context of different agencies. Courts and policymakers may struggle with tax exceptionalism (in the parlance of Kristin Hickman). But I wonder both if the legal silos in the gig economy are as strong as the paper suggests, and whether the effects the paper observes are first-mover effects or something else. Continue reading “IU Tax Policy Colloquium: Ring, “Silos and First Movers In the Sharing Economy Debates”” →

Stephanie McMahon, “Tax as Part of a Broken Budget: Good Taxes are Good Cause Enough”

By: Leandra Lederman

Left to right: David Gamage, Leandra Lederman, Stephanie McMahon, Matt Metz (JD/MPA student)

On February 28, Prof. Stephanie McMahon from the University of Cincinnati College of Law gave a faculty workshop at the Indiana University Maurer School of Law. She presented her paper titled “Tax as Part of a Broken Budget: Good Taxes are Good Cause Enough.” The thesis of the paper is that Treasury regulations are needed to effectuate the statutory tax laws consistent with Congress’s budgeting expectations, and that given the importance of the revenue raised by taxes to the functioning of the U.S. federal government, tax regulations should be excused from the Administrative Procedure Act’s pre-promulgation notice-and-comment process under the APA’s “good cause” exception. The paper thus tackles two arguments that Prof. Kristin Hickman has advanced in her work: post-promulgation notice and comment is insufficient for tax regulations, and there is no reason for “tax exceptionalism” in administrative procedures. Stephanie’s paper also contains a detailed explanation of the tax legislative process.

Given the importance of tax rulemaking and the difficulties the IRS has suffered with its well-known budget cuts, it is very nice to see a paper defending Treasury’s rulemaking strategy. Moreover, Stephanie’s argument is creative and thoughtful. However, the argument seems to depend on regulations being a critical part of the revenue-raising process, as the need for revenue is what Stephanie relies on to justify application of the good-cause exception. But are regulations needed for that? In explaining the budget process, Stephanie’s paper points out that regulations are not scored as part of that process. I think she agrees that tax statutes can raise revenue even in the absence of regulations. Instead, she argues that regulations help effectuate, albeit imperfectly, Congress’s scoring of the tax legislation. But some Internal Revenue Code sections do not expressly call for regulations. Others do, but some of the latter never actually see regulations promulgated. Yet, the tax laws are applied despite these “spurned delegations.” And given President Trump’s anti-regulation Presidential Executive Order on Reducing Regulation and Controlling Regulatory Costs, we may see more tax statutes operating without regulations. Continue reading “Stephanie McMahon, “Tax as Part of a Broken Budget: Good Taxes are Good Cause Enough”” →