Avi-Yonah & Mazzoni: Coca-Cola: A Decisive IRS Transfer Pricing Victory

Reuven S. Avi-Yonah (Michigan) & Gianluca Mazzoni (S.J.D. (International Tax) 2020, Michigan), Coca-Cola: A Decisive IRS Transfer Pricing Victory, At Last, 169 Tax Notes Fed. 1739 (Dec. 14, 2020):

Coca-Cola [Coca-Cola Co. v. Commissioner, 155 T.C. No. 10 (Nov. 18, 2020)] is the first decisive IRS victory in a major transfer pricing case since 1979. If not reversed on appeal, the outcome will mark an important shift in U.S. transfer pricing litigation and perhaps indicate that the IRS could win other major pending cases, such as the one against Facebook.

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The Top Five New Tax Papers

This week's list of the Top 5 Recent Tax Paper Downloads is the same as last week's list. The #1 paper is #510 among 15,644 tax papers in all-time downloads:

1. [846 Downloads]  A Simple Regulatory Fix for Citizenship Taxation, by John Richardson, Laura Snyder & Karen Alpert (Queensland)
2. [383 Downloads]  Tax Treaty Negotiations: Myth and Reality, by Yariv Brauner (Florida)
3. [282 Downloads]  Is It Time to Eliminate Federal Corporate Income Taxes?, by Edward Lane (Albany) & Randall Wray (UMKC)
4. [268 Downloads]  Rethinking The Estate Planning Curriculum, by Jeffrey Cooper (Quinnipiac)
5. [221 Downloads]  Assessing the Flaws in the 1920s Compromise in the Times of the Burgeoning Digital Economy and the Great Lockdown, by Craig Elliffe (Auckland)

Facebook, The IRS, And The Commensurate With Income Standard

Stephen L. Curtis (Cross Border Analytics), Facebook, the IRS, and the Commensurate With Income Standard, 169 Tax Notes Fed. 1921 (Dec. 21, 2020):

In ongoing transfer pricing litigation, Facebook is challenging the IRS’s adjustment of a buy-in payment under a cost-sharing arrangement (CSA) with an Irish affiliate. The IRS stated that the adjustment was necessary to ensure compliance with the commensurate with income (CWI) standard added to section 482 by the Tax Reform Act of 1986. It is unclear, however, whether the IRS has performed a reg. section 1.482-7(i)(6) periodic adjustment calculation in this case — either before issuing its initial proposed adjustment in 2016 or before its more recently revised adjustment in October 2019.

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Amarante: Unregulated Charity

Eric Franklin Amarante (Tennessee), Unregulated Charity, 94 Wash. L. Rev. 1503 (2019):

The vast majority of charities in the United States operate in a regulatory blind spot: they are neither meaningfully evaluated when they apply for charitable status nor substantively monitored after they receive charitable status. Driven by severe budget constraints, the IRS decided to essentially ignore any charity that claims it will realize less than $50,000 in annual gross receipts. From a practical perspective, the IRS’s decision makes sense. To the extent smaller charities are less likely to cause harm, it is reasonable (perhaps even preferable) to subject them to less scrutiny. This type of prioritization, known as risk-based regulation, has become increasingly popular as regulatory budgets have continued to shrink. But however intuitive, reasonable, or widespread risk-based regulation may seem, the fact remains that the IRS has effectively absolved itself of its duty to oversee the majority of charities.

This Article explores, on both a micro- and macro-level, the negative consequences of the IRS’s decision to leave smaller charities unregulated.

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Why States Should Consider Expanding Sales Taxes To Services, Part 2

Gladriel Shobe (BYU), Grace Stephenson Nielsen (J.D. 2021, BYU), Darien Shanske (UC-Davis) & David Gamage (Indiana), Why States Should Consider Expanding Sales Taxes to Services, Part 2, 99 Tax Notes State 4 (Jan. 4, 2021):

As we explained in our prior essay, state governments are experiencing severe revenue needs because of COVID-19, and expanding state sales tax bases to include services is a promising option for state governments to manage their budget shortfalls. In this, the second essay in this series — a contribution to Project SAFE: State Action in Fiscal Emergencies — we explain some of the implementation details and options for how states might go about expanding their sales tax bases to include services. In particular, we argue that there are some incremental steps that seem to be technically and politically feasible as responses to the current crisis. In particular, we argue the states should start by expanding their sales taxes to include services that are least problematic as a matter of policy and politics.

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McCaffery: The Death Of The Income Tax

Edward J. McCaffery (USC), The Death of the Income Tax (or, The Rise of America’s Universal Wage Tax), 95 Ind. L.J. 1233 (2020):

Recent proposals from Alexandria Ocasio-Cortez (D NY) to raise the top marginal tax rates under the income tax, and from Senator Elizabeth Warren (D Mass), to add a stand-alone wealth tax to the existing mix of taxes, are promising beginnings. They have burst forth from a veritable desert of progressive tax alternatives in the public political discussion. But both sets of ideas suffer from an allegiance to the status quo; both operate within the existing paradigm of nominally attempting to tax “income” and “wealth” — wealth transfers, in the case of the status quo, wealth itself, in the case of Warren’s proposal. This Article examines that status quo to show that the “income” tax is dead, replaced by a universal wage tax in which payroll taxes add on to a wage/income tax to highly, and inescapably, burden labor while wealth is left off the hook of taxation altogether.

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Hasen: How Should Gifts Be Treated Under The Federal Income Tax?

David Hasen (Florida), How Should Gifts Be Treated Under the Federal Income Tax?, 2018 Mich. St. L. Rev. 81 (reviewed by Ari Glogower (Ohio State) here):

No consensus exists regarding the proper income tax treatment of gifts. Some commentators believe the tax should fall on the donor only; others believe it should fall on the donee only; and still others believe it should fall on both the donor and the donee.

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The Top Five New Tax Papers

There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a paper returning to the list at #4 and a new paper joining the list at #5:

1. [817 Downloads]  A Simple Regulatory Fix for Citizenship Taxation, by John Richardson, Laura Snyder & Karen Alpert (Queensland)
2. [317 Downloads]  Tax Treaty Negotiations: Myth and Reality, by Yariv Brauner (Florida)
3. [275 Downloads]  Is It Time to Eliminate Federal Corporate Income Taxes?, by Edward Lane (Albany) & Randall Wray (UMKC)
4. [262 Downloads]  Rethinking The Estate Planning Curriculum, by Jeffrey Cooper (Quinnipiac)
5. [208 Downloads]  Assessing the Flaws in the 1920s Compromise in the Times of the Burgeoning Digital Economy and the Great Lockdown, by Craig Elliffe (Auckland)

Hayashi: Dynamic Property Taxes And Racial Gentrification

Andrew T. Hayashi (Virginia), Dynamic Property Taxes and Racial Gentrification:

Many jurisdictions determine real property taxes based on a combination of current market values and the recent history of market values, introducing a dynamic aspect to property taxes. By design, homes in rapidly appreciating neighborhoods enjoy lower tax rates than homes in other areas. Since growth in home prices is correlated with — and may be caused by — changing neighborhood demographics, dynamic property taxes will generally have racially disparate impacts. These impacts may explain why minority-owned homes tend to be taxed at higher rates. Moreover, the dynamic features of local property taxes may subsidize gentrification and racially discriminatory preferences.

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A Simple Regulatory Fix For U.S. Citizenship Taxation

John Richardson, Laura Snyder & Karen Alpert (University of Queensland), A Simple Regulatory Fix for Citizenship Taxation, 169 Tax Notes Fed. 275 (Oct. 12, 2020):

This article explains the simple regulatory actions that United States Department of the Treasury can take that would, in the absence of legislative change, improve the lives of Americans living overseas and permit the IRS to better focus its limited resources to more effectively administer the U.S. tax system.

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Why States Should Consider Expanding Sales Taxes To Services, Part 1

Gladriel Shobe (BYU), Grace Stephenson Nielsen (J.D. 2021, BYU), Darien Shanske (UC-Davis) & David Gamage (Indiana), Why States Should Consider Expanding Sales Taxes to Services, Part 1, 98 Tax Notes State 1349 (Dec. 21, 2020):

States are facing a severe budget crisis as a result of the coronavirus pandemic. And with the federal government unlikely to pass a relief bill to address those state budget issues, states will need to play a significant role in making up revenue shortfalls.

This is the first in a three-part series, which is a contribution to Project SAFE: State Action in Fiscal Emergencies. This essay will lay out the general case for why states should consider expanding their sales tax bases to more services as a response to the COVID-19 crisis. The follow-ups will discuss further mechanics and details of how best to accomplish this goal.

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The Top Five New Tax Papers

There is a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with a new #1 paper and a paper returning to the list at #5:

1. [737 Downloads]  A Simple Regulatory Fix for Citizenship Taxation, by John Richardson, Laura Snyder & Karen Alpert (University of Queensland)
2. [513 Downloads]  State Aid: The General Court Decision in Apple, by Stephen Daly (King's College London) & Ruth Mason (Virginia) (reviewed by Young Ran (Christine) Kim (Utah) here)
3. [360 Downloads]  Federal Tax Procedure (2020 Practitioner Ed.), by John Townsend
4. [343 Downloads]  Tax Treaty Negotiations: Myth and Reality, by Yariv Brauner (Florida)
5. [266 Downloads]  Is It Time to Eliminate Federal Corporate Income Taxes?, by Edward Lane (Albany) & Randall Wray (UMKC)

Jensen: Valuing Tuition Waivers For Tax Purposes

Erik M. Jensen (Case Western), Valuing Tuition Waivers for Tax Purposes, 45 J.C. & U.L. 289 (2020):

Some tuition waivers provided by universities to employees or family members of employees are taxable benefits; that is often the case for waivers in graduate and professional programs. This article argues that the method used by many universities to value the benefit for tax purposes—treating the tuition sticker price as if it measured value—is an incorrect reading of tax law. Because sticker price generally exceeds fair market value, the result is more taxable income to employees who “benefit” from waivers than should be the case—to the obvious detriment of the employees but also to the detriment of the universities, which may lose good students and employees to other institutions.

Weekly SSRN Tax Article Review And Roundup: Eyal-Cohen Reviews Tax Benefits, Higher Education and Race By Crawford & Gerzog

This week, Mirit Eyal-Cohen (Alabama) reviews Bridget J. Crawford (Pace) and Wendy C. Gerzog (Baltimore), Tax Benefits, Higher Education and Race: A Gift Tax Proposal for Direct Tuition Payments (Dec. 2020):

Amid recent nationwide protests and public condemnation of systemic racism, Americans are divided on whether this focus on the race and inequality gap will actually lead to major policy change. This product of collaboration between renowned tax crit Bridget Crawford and gift and estate tax expert Wendy Gerzog yields not only an admirable scholarly inquiry into the correlation between tax, race, and higher education, but also a practical proposal for policy reform to reduce race-based economic inequality. Using the case study of gift tax exemption for direct tuition payments, the Authors illustrate the ways tax rules can aggravate the racial wealth gap and put together a primer to fix the advantage most affluent taxpayers in the U.S. receive through educational tax benefits.  

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Lipman: What National Taxpayer Advocate Nina Olson Did For America's Kids And Their Families

Francine J. Lipman (UNLV), Humanizing the Tax System: What National Taxpayer Advocate Nina E. Olson Did For America's Kids and their Families, 18 Pitt. Tax Rev. ___ (2020):

At their core, taxpayer rights are human rights. They are about our inherent humanity. — Nina E. Olson

The federal income tax system does not exist for statutes, regulations, codes, enforcement, assessments, collection, redistribution, procedures, publications, liens, levies, refunds, liabilities, litigation, compliance, or even revenue. At its core, the federal income tax system exists for people. People like you, me, and all our loved ones including spouses, partners, parents, kids, brothers, sisters, nieces, nephews, grandparents, grandkids, friends, and neighbors. The people who eat at our tables and sleep under our roofs. The tax system is about current and future generations who live and work in America, and even those who don’t but have the coveted prize of U.S. citizenship. It is about our shared vision of ensuring the well-being of all people, young, old, Black, Brown, White, Asian, Native, multiracial, religious, atheist, agnostic, male, female, transgender, straight, queer, or nonconforming. It is about ensuring that the people of and in America have what they need to survive and thrive, especially those who are vulnerable for any reason or no reason at all. Tax systems, like other government institutions, should be designed and administered to make life better for everyone. Because “we the people” are America, the beautiful, the federal tax system serves us. This is the truth that Nina E. Olson laid bare during her eighteen years of service as the longest-serving National Taxpayer Advocate (NTA).

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The Law Of High-Wealth Exceptionalism

Allison Anna Tait (Richmond), The Law of High-Wealth Exceptionalism, 71 Ala. L. Rev. 981 (2020):

No family is an island. But some families would like to be – at least when it comes to wealth preservation – and they depend on what this Article calls the law of high-wealth exceptionalism to facilitate their success. The law of high-wealth exceptionalism has been forged, over the years, from the twinned scripts of wealth management and family wealth law, both of which constitute high-wealth families as sovereign entities capable of self-regulation and deserving of exemption from the rules that govern ordinary-wealth families. Consequently, high-wealth families take advantage of complicated estate planning techniques and highly favorable wealth rules in order build walls around their family fortunes and construct bespoke governance systems. Hiding in plain sight, the law of high-wealth exceptionalism protects, privileges, and enables high-wealth families in their own particular form of organizational sovereignty.

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Property Tax Foreclosure And Predatory Cities

Bernadette Atuahene (Chicago-Kent), Predatory Cities, 108 Cal. L. Rev. 107 (2020):

Between 2011 and 2015, the Wayne County Treasurer completed the property tax foreclosure process for one in four properties in Detroit, Michigan. No other American city has experienced this elevated rate of property tax foreclosures since the Great Depression. Studies reveal that the City of Detroit systematically and illegally inflated the assessed value of most of its residential properties, which led to inflated property tax bills unaffordable to many homeowners. Extraordinary tax foreclosure rates and extensive dispossession resulted. Consequently, Detroit has become a “predatory city”—a new and important sociolegal concept that this Article develops.

This Article is the first attempt to understand the intersecting economic, social, and political factors that have caused these struggling cities to become predatory.

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Johnson & Johnson Debate Gitlitz

Point: Calvin H. Johnson (Texas), The Supreme Court’s Statutory Interpretation in Gitlitz: A Failed Approach to Interpretation and a Bad Decision, 40 ABA Tax Times (Fall 2020):

The Supreme Court’s decision in Gitlitz v. Commissioner is an irresponsible decision disrupting the logic of tax for the benefit only of abuse. In Gitlitz the Supreme Court gave the equivalent of a double deduction, both an appropriate exclusion of cancellation of indebtedness income for an insolvent Subchapter S corporation and also an inappropriate increase in shareholder basis. The combination of the exclusion and shareholder basis generated a tax loss that had no economic substance, a loss that in Judge Posner’s wonderful phrase “did not impinge on the world.” ...

The approach in Gitlitz allowing an absurd tax deduction shows a hostility to the tax system that is inappropriate for a court in its role as a faithful servant. There are fundamental principles underlying the tax law, including antagonism to double deductions and deduction of phantom losses. The Supreme Court has a duty to interpret tax law in favor of coherent principle, and Gitlitz violates fundamental principle.

Counterpoint: Steve Johnson (Florida State), The Constitution Is More Important than a Few Tax Dollars Squandered by Congress: Gitlitz Was Correctly Decided, 40 ABA Tax Times (Fall 2020):

Gitlitz was decided two decades ago, and its practical import was rapidly nullified when Congress amended the statute to remove the glitch in the statute Congress originally enacted. That being so, is Gitlitz worth our time and thought today? Yes, it is. In Gitlitz, the Supreme Court reminded us that the constitutional separation of powers principle is for the long term and should not be eroded by yielding to temptations of the moment.

My respect for Professor Calvin Johnson is great, but so is my conviction that, in this instance, his view is unwise.

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Cantley: Captive Insurance Companies

Beckett G. Cantley (Northeastern), FAQ: Anti-Avoidance Law & Estate Planning with Captives:

This article seeks to address how general judicial anti-avoidance law may be applied to estate planning with IRC 831(b) captive insurance companies.

Beckett G. Cantley (Northeastern), Calculating Captive Insurance Settlement Initiative Benefits:

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Fifty Years Of Tax Cuts For The Rich Didn’t Trickle Down, Study Says

David Hope & Julian Limberg (London School of Economics & Political Science), The Economic Consequences of Major Tax Cuts for the Rich:

This paper uses data from 18 OECD countries over the last five decades to estimate the causal effect of major tax cuts for the rich on income inequality, economic growth, and unemployment. First, we use a new encompassing measure of taxes on the rich to identify instances of major reductions in tax progressivity. Then, we look at the causal effect of these episodes on economic outcomes by applying a nonparametric generalization of the difference-in-differences indicator that implements Mahalanobis matching in panel data analysis. We find that major reforms reducing taxes on the rich lead to higher income inequality as measured by the top 1% share of pre-tax national income. The effect remains stable in the medium term. In contrast, such reforms do not have any significant effect on economic growth and unemployment.

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Yin: Repairing The Tax Privacy Rules

George K. Yin (Virginia), Repairing the Tax Privacy Rules, 169 Tax Notes Fed. 1485 (Nov. 30, 2020):

For almost four years, the nation has experienced numerous governmental deviations from rules and norms that have exposed gaps or weaknesses in many areas of law. This article describes needed changes in three tax privacy areas: access and disclosure of presidential tax information; civil enforcement of congressional subpoenas; and confidentiality protections for tax return information obtained by subpoena.

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SSRN Tax Professor Rankings

SSRN has updated its monthly ranking of 750 American and international law school faculties and 3,000 law professors by (among other things) the number of paper downloads from the SSRN database.  Here is the new list (through December 1, 2020) of the Top 25 U.S. Tax Professors in two of the SSRN categories: all-time downloads and recent downloads (within the past 12 months):

		All-Time		Recent
1	Reuven Avi-Yonah (Michigan)	194,887	Reuven Avi-Yonah (Michigan)	7,703
2	Dan Shaviro (NYU)	121,838	D. Dharmapala (Chicago)	4,901
3	Lily Batchelder (NYU)	118,829	Ruth Mason (Virginia)	4,561
4	Daniel Hemel (Chicago)	117,744	Lily Batchelder (NYU)	3,825
5	David Gamage (Indiana-Bloom.)	117,709	David Kamin (NYU)	3,399
6	Darien Shanske (UC-Davis)	110,971	Daniel Hemel (Chicago)	3,395
7	David Kamin (NYU)	106,965	Diane Ring (Boston College)	3,335
8	Cliff Fleming (BYU)	105,449	Bridget Crawford (Pace)	3,312
9	Manoj Viswanathan (Hastings)	102,444	Shu-Yi Oei (Boston College)	3,213
10	Rebecca Kysar (Fordham)	101,351	Hugh Ault (Boston College)	2,849
11	Ari Glogower (Ohio State)	100,202	Margaret Ryznar (Indiana-Indy)	2,413
12	Michael Simkovic (USC)	44,965	Richard Ainsworth (BU)	2,392
13	D. Dharmapala (Chicago)	42,797	David Gamage (Indiana-Bloom.)	2,139
14	Paul Caron (Pepperdine)	37,639	Dan Shaviro (NYU)	2,139
15	Louis Kaplow (Harvard)	34,026	Robert Sitkoff (Harvard)	1,838
16	Richard Ainsworth (BU)	31,102	Darien Shanske (UC-Davis)	1,823
17	Ed Kleinbard (USC)	27,305	Brad Borden (Brooklyn)	1,699
18	Vic Fleischer (UC-Irvine)	26,517	Louis Kaplow (Harvard)	1,505
19	Bridget Crawford (Pace)	25,565	Paul Caron (Pepperdine)	1,459
20	Jim Hines (Michigan)	25,434	Cliff Fleming (BYU)	1,345
21	Brad Borden (Brooklyn)	25,400	Katie Pratt (Loyola-L.A.)	1,255
22	Robert Sitkoff (Harvard)	25,216	Michael Simkovic (USC)	1,250
23	Ted Seto (Loyola-L.A.)	24,667	Ari Glogower (Ohio State)	1,230
24	Gladriel Shobe (BYU)	24,248	Yariv Brauner (Florida)	1,158
25	Katie Pratt (Loyola-L.A.)	24,015	Manoj Viswanathan (Hastings)	1,097

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Crawford & Gerzog: Tax Benefits, Higher Education, And Race

Bridget J. Crawford (Pace) & Wendy C. Gerzog (Baltimore), Tax Benefits, Higher Education and Race: A Gift Tax Proposal for Direct Tuition Payments:

A tax system should be fair. According to conventional wisdom, this fairness mandate means that similarly situated taxpayers should pay similar taxes. Notably absent from most discussions about tax fairness is any consideration of race. This makes sense, if one focuses on the tax laws’ facial neutrality, as well as the Internal Revenue Service’s failure to collect official data about the race of taxpayers. But if one is interested in the “fairness,” as the word is commonly understood, of the tax law in action, then race and other identity characteristics must inform any analysis. This Article intervenes in the discussion of tax fairness with three principal claims: one descriptive, one normative, and one utilitarian.

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Wiseman: Taxing Local Energy Externalities

Hannah Jacobs Wiseman (Penn State), Taxing Local Energy Externalities, 96 Notre Dame L. Rev. 563 (2020):

There is a fundamental problem of scale in the governance of industrial development. For some of the fastest-growing U.S. industries, the negative impacts of development fall primarily at the local level, and the benefits tend to accrue more broadly to states and the federal government. These governments accordingly have inadequate incentives to address the very localized negative externalities of development. Yet states also increasingly preempt most local control over some forms of development. This creates a regulatory void, in which state and federal regulations are inadequate, and local governments lack the power to use traditional Pigouvian tools such as regulation, taxation, and liability to address local harms. Without these Pigouvian sticks, local governments are also constrained in their use of Coasean bargaining, in which they could threaten regulation or taxation to bring industry to the table and negotiate for private solutions. This gap is particularly evident in the energy space, in which oil and gas and associated pipelines, wind energy, and solar energy have strong local effects, but local control is constrained to varying degrees.

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Abramowicz & Blair-Stanek: Contractual Tax Reform

Michael Abramowicz (George Washington) & Andrew Blair-Stanek (Maryland), Contractual Tax Reform, 61 Wm. & Mary L. Rev. 1537 (2020):

One-size-fits-all taxation fails to accommodate diverse taxpayer circumstances. This Article proposes allowing taxpayers to contract into alternative tax regimes administered by private intermediaries. Participating taxpayers would make payments to the intermediaries pursuant to contract, and the intermediaries would be required to pay to the government at least as much as these taxpayers would have paid the government otherwise. That amount is determined based on the actual tax receipts of a control group, taxpayers who wish to contract with an intermediary but instead are chosen at random to continue under the status quo. These alternative tax regimes might better accommodate taxpayers’ preferences, leaving the taxpayers with greater utility, without reducing government revenue.

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Call For Tax Papers And Panels: Law & Society Annual Meeting On Crisis, Healing, Re-Imagining

Neil Buchanan (Florida) has issued his annual call for tax papers and panels for next year's annual meeting of the Law & Society Association in Chicago (May 27 - 30, 2020):

For the seventeenth year in a row, I will organize sessions for the "Law, Society, and Taxation" group (Collaborative Research Network 31).  For the fifth year in a row, I am pleased to be carried along in these organizational efforts by Professors Jennifer Bird-Pollan and Mirit Eyal-Cohen.

The conference will mostly be held online, but LSA does hope to hold some events in person in Chicago for those who are willing and able to travel.  They are also indicating that they will take account of time zone differences in their scheduling. ...

Although there is an official call for papers, please remember that you are not bound by the official theme of the conference ("Crisis, Healing, Re-Imagining").  We will give full consideration to proposals in any area of tax law, tax policy, distributive justice, interdisciplinary scholarship, and so on.

The deadline for submissions is 11:59 p.m. ET (USA) on Thursday, January 7, 2021.

Please be aware that the online submission system has been changed significantly since last year.  (For what it's worth, I think the changes are all for the better.)  Please follow these instructions carefully:

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A Year Of Lessons From The Tax Court (2020)

• Jan. 6:  Taxpayer Who Got $1.6m Assessment Reduced To $170k Not Entitled To Costs (Klopfenstein v. Commissioner, T.C. Memo. 2019-156 (Dec. 9, 2019) (Judge Lauber) — § 7430)
• Jan. 13:  A Practical Interpretation Of The Penalty Approval Statute § 6751 (Belair Woods LLC v. Commissioner, 154 T.C. No. 1 (Jan. 6, 2020) (Judge Lauber); Tribune Media Co. v. Commissioner, T.C. Memo. 2020-2 (Jan. 6, 2020) (Judge Buch) — § 6751)
• Jan. 20:  Employee Cannot Deduct Expense That Could Have Been Reimbursed (Near v. Commissioner, T.C. Memo. 2020-10 (Jan. 14, 2020) (Judge Kerrigan) — § 162)
• Jan. 27: §6672 Trust Fund Recovery Penalty Is Really A Penalty ... Sort Of (Chadwick v. Commissioner, 154 T.C. No 5 (Jan. 21, 2020) (Judge Lauber) — § 6672)

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The Top Five New Tax Papers

There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with new papers debuting on the list at #2 and #4:

1. [490 Downloads]  State Aid: The General Court Decision in Apple, by Stephen Daly (King's College London) & Ruth Mason (Virginia) (reviewed by Young Ran (Christine) Kim (Utah) here)
2. [423 Downloads]  A Simple Regulatory Fix for Citizenship Taxation, by John Richardson, Laura Snyder & Karen Alpert (University of Queensland)
3. [347 Downloads]  Federal Tax Procedure (2020 Practitioner Ed.), by John Townsend
4. [258 Downloads]  Tax Treaty Negotiations: Myth and Reality, by Yariv Brauner (Florida)
5. [248 Downloads]  Rethinking The Estate Planning Curriculum, by Jeffrey Cooper (Quinnipiac)

Afield: Social Justice And The Low-Income Taxpayer

W. Edward Afield (Georgia State), Social Justice and the Low-Income Taxpayer, 64 Vill. L. Rev. 347 (2019):

Tax justice is social justice. To those regularly working to resolve tax controversies for low-income taxpayers and who are often dealing with the financial implications of life and death issues like human trafficking, the ability to afford medical care, and the risks of financial despair leading to suicide, this is an uncontroversial statement. To those for whom “tax attorney” is often the punchline to their favorite lawyer joke, however, this statement appears not to fit in with traditional conceptions of social justice. This is particularly true when social justice is defined as requiring not just improved access to representation in any type of legal matter but also as requiring specific societal outcomes that reduce poverty, improve housing access, combat racial discrimination, reduce hunger, and improve healthcare access. At first blush to those outside the tax bar who do not appreciate that most of these issues are inextricably linked to the tax system, tax justice does not appear to do any of these things. Accordingly, tax issues are often overlooked in the conversation about improving social justice.

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The Uniform Basis Rules And Terminating Interests In Trusts Early

Lad Boyle (South Carolina), Howard M. Zaritsky (www.howardzaritsky.com) & Ryan Wallace (Sojourner, Caughman & Thomas, Columbia, SC), The Uniform Basis Rules and Terminating Interests in Trusts Early, 55 Real Prop. Prob. & Tr. J. 1 (2020):

The resolution of income tax issues that may arise for trust beneficiaries who dispose of temporal interests in trusts remains relatively obscure. Additional issues exist for subsequent interest holders; the methods that the Code and Regulations prescribe for establishing, maintaining, and potentially recovering basis for successor owners of interests in a trust are not well developed.

In some instances, the trust instrument creating a temporal interest will supply a suitable path for early termination and distribution of assets. In those cases, Sub-chapter J of the Code typically governs the transaction and provides that terminating the trust and distributing its assets be treated as nonrecognition events. However, one must look beyond the confines of Sub-chapter J when trust beneficiaries participate in the disposition without a settlor-provided power to do so. The Internal Revenue Service has consistently applied in letter rulings a different tax regime other than the income tax rules provided in Sub-chapter J of the Code; gain may be realized and recognized under section 1001, which often brings into play the uniform basis rules.

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Holderness: Navigating 21st Century Tax Jurisdiction

Hayes R. Holderness (Richmond), Navigating 21st Century Tax Jurisdiction, 79 Md. L. Rev. 1 (2019):

Hailed as a massive victory for the states, the Supreme Court’s 2018 decision in South Dakota v. Wayfair, Inc. brought dated state tax jurisdiction standards into the twenty-first century, freeing the states to tax internet vendors. However, the decision left the larger state tax jurisdiction doctrine undertheorized and at a crossroads: Should the doctrine concern itself only with notice and fairness issues akin to those found in the due process personal jurisdiction realm, or should it also concern itself with protecting interstate commerce from undue state tax burdens? This Article will argue for the latter path by developing a robust theory of state tax jurisdiction that focuses on the potential undue burdens of tax compliance costs, burdens a threshold jurisdictional standard is uniquely able to address. From this compliance burden theory emerges a jurisdictional standard which would protect interstate commerce—particularly the activities of small businesses and entities that facilitate the commerce of others, such as online marketplaces, payment intermediaries, and common carriers—from the chilling effects of heavy state tax compliance costs.

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Crawford: Blockchain Wills

Bridget J. Crawford (Pace), Blockchain Wills, 95 Ind. L.J. 735 (2020):

Blockchain technology has the potential to radically alter the way that people have executed wills for centuries. This Article makes two principal claims – one descriptive and the other normative. Descriptively, the Article suggests that traditional wills formalities have been relaxed to the point that they no longer serve the cautionary, protective, evidentiary and channeling functions that scholars have used to justify strict compliance with wills formalities. Widespread use of digital technology in everyday communications has led to several notable cases in which individuals have attempted to execute wills electronically. These wills have had a mixed reception. Three states currently recognize electronic wills and the Uniform Law Commission is drafting a model Electronic Wills Act This Article identifies some of the weaknesses in existing state statutes and the model law and considers how technology can address those problems.

This Article explores how blockchain, the open-source technology underlying cryptocurrency like Bitcoin, could be harnessed to create a distributed ledger of wills that would maintain a reliable record of a testator’s desires for the post-mortem distribution of estate assets.

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Kahn & Kahn: Recovery For Causing Tax Overpayment — Lyeth v. Hoey And Clark Revisited

Douglas A. Kahn (Michigan) & Jeffrey H. Kahn (Florida State), Recovery for Causing Tax Overpayment - Lyeth v. Hoey and Clark Revisited, 74 Tax Law. ___ (2021):

The question has arisen in numerous cases as to the extent to which a settlement between arms’ length parties is dispositive in tax cases of the claims on which the settlement is based. Another issue that often arises is whether the receipt of compensation for a tax payment that was incurred because of the negligence of the payor is excluded from gross income. While those two issues were central to the proper resolution of a recent case in the United States Court of Appeals for the Eleventh Circuit, McKenny v. United States [No. 18-10810 (11th Cir. Sept. 30, 2020)], the court failed even to note one of those issues and did not resolve the other. The court’s failure to deal with those two issues led it to reach an incorrect result.

The two landmark cases establishing the doctrines that should have been applied in McKenny are the Supreme Court’s decision in Lyeth v, Hoey [305 U.S. 188 (1938)] and the decision of the Board of Tax Appeals (now known as the Tax Court) in Clark v. Commissioner [40 B.T.A. 333 (1939)]. Using McKenny as a springboard, this article reviews the continued misapplication and sometimes disparagement of the Lyeth v. Hoey and Clark v. Commissioner reasonings.

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2020 Tannenwald Tax Writing Competition Winners

The Theodore Tannenwald, Jr. Foundation for Excellence in Tax Scholarship has announced the winners of the 2020 tax writing competition:

First Prize ($5,000):
Ryan Bullard (North Carolina), I Am “QOZ,” The Great and Terrible: A Policy Analysis of the Qualified Opportunity Zone Nominations Process
Faculty Sponsor:  Leigh Osofsky

Second Prize ($2,500):
Heydon Wardell-Burrus (Harvard), Blending Under A Global Minimum Tax
Faculty Sponsor:  Alvin C. Warren, Jr.

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Weisbach & Hemel: The Legal Envelope Theorem

David A. Weisbach (Chicago) & Daniel J. Hemel (Chicago), The Legal Envelope Theorem:

Non-tax legal rules regulating the workplace, the financial sector, real property, and many other areas affect the ability of governments to collect revenues and provide public goods. Yet tax-collection considerations rarely enter into economic analyses of non-tax legal rules. Usually, tax-collection concerns are shunted aside to separate studies (and separate law-school courses) rather than being integrated into debates in non-tax spheres. This separation between non-tax legal rules and tax-collection considerations bears significant negative consequences for the ability of law and economics to generate descriptively accurate and normatively attractive accounts of important non-tax legal questions.

This Article takes a step toward remedying that oversight. We present an analytic framework for understanding the interaction between non-tax legal rules and tax collection. This framework—which we call the Legal Envelope Theorem—demonstrates that legal rules should systematically deviate from simple notions of efficiency to take stock of tax effects.

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Mason: Identifying Illegal Tax Subsidies

Ruth Mason (Virginia), Identifying Illegal Subsidies, 69 Am. U. L. Rev. 479 (2019):

This Article argues that current methods for identifying illegal tax subsidies trigger the well-known conceptual difficulties of tax-expenditure analysis. To avoid these problems—particularly the irresolvable conflict over the correct baseline for measuring tax expenditures and tax subsidies—this Article advocates the “internal consistency test” as a superior method for identifying illegal subsidies.

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Hellerstein & Appleby: State Estate Taxes And The Due Process Clause

Walter Hellerstein (Georgia) & Andrew Appleby (Stetson), State Estate Taxes and the Due Process Clause, 98 Tax Notes State 771 (Nov. 23, 2020):

After two decades of relative dormancy, we are witnessing a resurgence in state estate tax controversies. Federal estate tax amendments beginning in 2001, which eliminated the federal credit for state estate taxes, greatly diminished the general significance of state estate taxes, as most states repealed their preexisting “pickup” or “sponge” taxes designed to absorb the maximum federal estate tax credit. Indeed, as of 2020, of the 50 states that had some form of federally based “death tax” in 2001, had no death tax at all and only 18 states had some form of death tax. Recently, however, five state courts have addressed the due process clause implications of state estate taxes. Each court considered the question of whether the due process clause permitted the state to impose estate tax on qualified terminable interest property. The U.S. Supreme Court has thus far declined to consider this question, having denied petitions for certiorari from two of the state court decisions that raised it (most recently just two weeks ago). In 2019, however, the Court did address a related state trust tax issue in Kaestner, which informs the QTIP due process analysis. ...

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Corporate Behavioral Responses To TCJA In 2017 And 2018

Tim Dowd, Christopher P. Giosa & Thomas Willingham (Joint Committee on Taxation, U.S. Congress), Corporate Behavioral Responses to TCJA for Tax Years 2017–2018:

We analyze the initial corporate response to the 2017 enactment of the “Tax Cuts and Jobs Act” or TCJA. TCJA changed many corporate tax provisions, including a reduction of the corporate statutory tax rate from 35 percent to 21 percent effective in 2018 and sweeping changes to the taxation of income earned abroad by U.S. corporations. Based on a sample of U.S. corporate tax returns, we find that corporations accelerated deductions into 2017 and delayed income into 2018, thereby minimizing their taxes. We estimate an income and deduction shifting tax elasticity of -0.11 and 0.08, respectively.

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Trump’s Taxes: An Analysis Of The Allegations

Robert W. McGee (Fayetteville State University), Trump’s Taxes: An Analysis of the Allegations:

For years, the media and President Trump’s political opponents have been talking about the amount of taxes Trump pays (or doesn’t pay). As of this writing, his recent tax returns have not been released, so anything anyone says needs to be discounted. However, it is possible to make certain tentative statements and conclusions based on the facts that have been made available and the application of economic and political theory. The present paper does that.

Thimmesch: States, The PPP, And Planning For Fiscal Shocks

Adam Thimmesch (Nebraska), States, the PPP, and Planning for Fiscal Shocks, 98 Tax Notes State 1029 (Dec. 7, 2020):

This article is one in a series evaluating potential state responses to the COVID-19 pandemic. Prior articles in this series have focused on changes that the author and others recommend states make to both their personal and corporate income taxes, with a focus on provisions of the Coronavirus Aid, Relief, and Economic Security Act (P.L. 116-136) that make little sense for states to adopt in the midst of a global pandemic. This article focuses on the Paycheck Protection Program and the federal and state tax treatment of funds received by taxpayers under that program. The article is a part of Project SAFE (State Action in Fiscal Emergencies), an academic effort to help states weather the fiscal crisis by providing policy recommendations backed by research.

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Afield: Moving Tax Disputes Online Without Leaving Taxpayer Rights Behind

W. Edward Afield (Georgia State), Moving Tax Disputes Online Without Leaving Taxpayer Rights Behind, 74 Tax Law. ___ (2020):

As the Service’s technological infrastructure continues to show its age, both the Service and Congress appear to be recognizing the importance of the Ser-vice having technological infrastructure that allows it to take advantage of the capabilities of modern computing systems to improve both its enforcement and service efforts. The National Taxpayer Advocate has entered this conversation as well, encouraging Congress and the Service to prioritize improvements to the Service’s technological infrastructure but simultaneously raising legitimate concerns about the impact that an overreliance on technology might have on taxpayer rights, particularly rights of vulnerable population groups who may not be able to utilize technology.

Fortunately, increasing technological deployment as part of taxpayer service is not a zero sum game that requires sacrificing taxpayer rights in the name of efficiency. The Service can accomplish the goal of deploying technology in a pro-taxpayer rights manner if it brings considerations of affirming taxpayer rights to the forefront of its deliberations about how best to utilize technology. Both the academic literature and Service strategic documents have focused on a wide variety of taxpayer interactions with the Service in proposing how this can be done. There is one type of interaction, however, that has thus far been underexplored both in the academic literature and in the Service’s strategic efforts to move more of its taxpayer interactions online: taxpayer controversy resolution.

This Article argues that the Service has insufficiently considered whether it can increase its use of technology-based interactions with taxpayers in the controversy-resolution process in a manner that both achieves efficiency gains and affirms taxpayer rights. Specifically, three areas in controversy resolution could lend themselves to such rights-affirming technological implementation.

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Brauner: Tax Treaty Negotiations

Yariv Brauner (Florida), Tax Treaty Negotiations: Myth and Reality:

Tax treaties are the building blocks of the international tax regime. There are currently over 3000 tax treaties that regulate the lion’s share of cross-border investment. They are largely fashioned after a single model reflecting an increasing convergence of international tax norms. Despite this convergence, and despite the passing of nearly a century from when the first modern tax treaties were formalized into a model, there remains a great many unanswered fundamental questions about their application, interpretation, and effectiveness.

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Andrew Hayashi Named Inaugural Director Of New University Of Virginia Center For Tax Law

New Center To Emphasize UVA’s Contributions to Tax Law:

The Virginia Center for Tax Law has been established at the University of Virginia School of Law, with Professor Andrew Hayashi serving as the center’s first director.

The center will bring to the fore faculty scholarship in tax law — emphasizing the present conversation while building upon UVA Law’s historical strengths and storied past in tax.

“The center will sponsor events that advance scholarly research on tax law and foster the exchange of ideas and experience between academics, judges, practicing attorneys and government officials,” Hayashi said.

Hayashi is the Class of 1948 Professor of Scholarly Research in Law and an expert in tax law, tax policy and behavioral law and economics. Prior to joining the Law School, he was a fellow at the Furman Center for Real Estate and Urban Policy at New York University, where his research focused on the effects of tax policy on real estate and housing markets. He practiced tax law earlier in his career as an associate at Davis Polk & Wardwell. He holds a doctorate in economics from the University of California, Berkeley.

The center’s faculty include Michael Doran, Joshua Fischman, Kevin A. Kordana, Ruth Mason, Paul B. Stephan ’77 and Ethan Yale.

In addition to their scholarly endeavors, the faculty remain engaged with practice organizations such as the ABA Tax Section, the American Law Institute, Congress, the Treasury Department and the IRS.

“Tax is a wide-ranging area of law, and we are very fortunate to have a faculty that can cover so much of it,” Hayashi said. “My colleagues have diverse interests and topical and methodological expertise. Their scholarship reflects that, and it makes for an exciting intellectual culture.”

Recent papers by UVA Law faculty include “Identifying Illegal Subsidies,” by Mason, forthcoming in the American University Law Review; “Legislative Entrenchment and Federal Fiscal Policy,” by Doran, published in Law and Contemporary Problems; and “Property Taxes During the Pandemic,” co-authored by Hayashi and published in State Tax Notes. ...

The center will engage with other UVA faculty members producing related work on Grounds. They include Jeri K. Seidman of the McIntire School of Commerce, Mary Margaret Frank and Justin J. Hopkins of the Darden School of Business, and Leora Friedberg of the Department of Economics.

“These scholars do research on tax law and policy, they participate in events at the Law School, and they co-author with Law School faculty,” he said. “We’re fortunate to have such talented colleagues in other departments.”  

UVA’s strength in tax owes a considerable debt to the past, Hayashi said.

The late alumni Mortimer Caplin ’40, former IRS commissioner, and Edwin S. Cohen ’36, a former undersecretary of the Treasury, are among the Law School’s storied government servants who taught at the Law School. Professors Emeriti George Yin, Mildred Robinson and Thomas R. White III have also been exemplars, Hayashi said. The trio have served in influential volunteer and public service roles. Yin served as chief of staff of the U.S. Congress’ Joint Committee on Taxation, one of the most influential tax positions in the country.

And, of course, countless alumni who weren’t academics have served in senior positions in government and private practice.

“These are people who are responsible for the distinguished history of tax scholarship and service at UVA,” Hayashi said.

Virginia offers one of the strongest tax law curricula in the country, including courses in corporate, partnership and international tax; tax policy; taxation of private equity; gratuitous transfers; nonprofits; and employee benefits, among many others. The Law School is home to the Virginia Tax Review, the nation’s leading student-edited tax journal. In addition to their work in the classroom and on the journal, students have won the International and European Tax Moot Court competition three times in a row, and fielded the first U.S. team to win the event.

Faculty, students and alumni also learn about cutting-edge issues in tax from the Virginia Tax Study Group, an annual tradition at the Law School that brings together alumni from private practice, government and academia. In the fall, the annual UVA Invitational Tax Conference brings leading tax academics to Grounds to discuss scholarly works in progress. Students are invited to attend both meetings. During the summer, the Law School hosts the Virginia Conference on Federal Taxation, an annual conference that marked its 70th anniversary in 2018.

Rossotti, Sarin & Summers: A Comprehensive Approach To Shrinking The Tax Gap

Charles O. Rossotti, Natasha Sarin (Pennsylvania) & Lawrence H. Summers (Harvard), Shrinking the Tax Gap: A Comprehensive Approach, 169 Tax Notes Fed. 1467 (Nov. 30, 2020):

Over the course of the past year, we have written independently about the substantial revenue potential of a significant investment in tax compliance. In several articles, we have estimated that overhauling the IRS — by increasing effectively allocated examination resources, filling the holes in information reporting of income that cannot now be cross-checked against third-party reports, and investing in technology so the IRS is better able to leverage the information it collects — can raise well over $1 trillion.

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The Top Five New Tax Papers

There is quite a bit of movement in this week's list of the Top 5 Recent Tax Paper Downloads, with new papers debuting on the list at #3 and #5:

1. [463 Downloads]  State Aid: The General Court Decision in Apple, by Stephen Daly (King's College London) & Ruth Mason (Virginia) (reviewed by Young Ran (Christine) Kim (Utah) here)
2. [328 Downloads]  Federal Tax Procedure (2020 Practitioner Ed.), by John Townsend
3. [234 Downloads]  Is It Time to Eliminate Federal Corporate Income Taxes?, by Edward Lane (Albany) & Randall Wray (UMKC),
4. [209 Downloads]  An Analysis of Vice President Biden’s Economic Agenda: The Long Run Impacts of Its Regulation, Taxes, and Spending, by Timothy Fitzgerald (Texas Tech), Kevin Hassett (Hoover Institution), Cody Kallen (Wisconsin) & Casey Mulligan (Chicago)
5. [188 Downloads]  Rethinking The Estate Planning Curriculum, by Jeffrey Cooper (Quinnipiac)

Weekly SSRN Tax Article Review And Roundup: Elkins Reviews Tax Policy And Pharmaceutical Innovation By Eyal-Cohen & Rutschman

This week, David Elkins (Netanya) reviews a recently posted work by Mirit Eyal-Cohen (Alabama) & Ana Santos Rutschman (St. Louis), Tax Policy and Pharmaceutical Innovation (2020):

With so much of the world’s attention this year focused on the COVID-19 pandemic, it is little wonder that tax scholars too have waded into the breach. A quick search on SSRN turns up no less than 146 articles containing the key words “COVID” and “tax.” However, most of these articles are concerned either with the tax implications of the current pandemic or with what the government should do within the field of taxation in light of the economic havoc created by the virus and by the shutdowns and other measures instituted in an attempt to keep it at bay. This week’s article, co-authored by a tax law scholar and a public health law scholar, takes a step back and asks how the tax system can help prevent the next pandemic.

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Satterthwaite: Tax Signaling

Emily A. Satterthwaite (Toronto), Tax Signaling, 75 Tax L. Rev. ___ (2021):

A job applicant’s investment in education can function as a signal of her high productivity under certain circumstances. Might an entrepreneur’s choice to opt-in to a tax regime act in much the same way, as a signal of her business’s high quality? This paper explores the counter-intuitive notion that paying more tax than is legally required can be a signature of successful businesses. It uses as its jumping-off point recent evidence from both the United Kingdom and Canada that small-firm entrepreneurs view registering voluntarily for their countries’ value-added taxes (“VATs”) as enhancing their businesses’ reputations and legitimacy.

To make sense of these seemingly-disadvantageous tax choices, the paper introduces the notion of “tax signaling.” Its thesis has two parts. First, despite an apparent conflict, the signaling account of voluntary VAT registration complements the standard profit-maximizing account of voluntary registration offered by economists. Second, it argues that signaling is normatively desirable. Signaling reflects and, in turn, reinforces a high-trust-low-enforcement taxpaying equilibrium among businesses that are least likely to pay VAT voluntarily. This equilibrium generates a number of positive spillovers, including better matching of firms with counterparties, reduced competitive distortions between VAT-registered versus unregistered firms, and increased tax revenue at low administrative cost.

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Florida Tax Review Publishes New Issue

The Florida Tax Review has published Vol. 23, No. 1:

• Albert H. Choi (Michigan), Quinn Curtis (Virginia) & Andrew T. Hayashi (Virginia), Crisis-Driven Tax Law: The Case of Section 382, 23 Fla. Tax Rev. 1 (2019)
• Ellen P. Aprill (Loyola-L.A.), Revisiting Federal Tax Treatment of States, Political Subdivisions, and their Affiliates, 23 Fla. Tax Rev. 73 (2019)
• Itai Grinberg (Georgetown), Stabilizing 'Pillar One': Corporate Profit Reallocation in an Uncertain Environment, 23 Fla. Tax Rev. 130 (2019):
• Patricia A. Brown (Miami), Can Anyone Be Trusted to Enforce National Treatment Disciplines with Respect to Tax Measures?, 23 Fla. Tax Rev. 193 (2019) 
• Roberta F. Mann (Oregon), Fiona Martin (New South Wales) & Bill Butcher (New South Wales), Saving the Planet by Cutting Corporate Taxes: A Comparative Case Study Analysis, 23 Fla. Tax Rev. 238 (2019)
• Rory Gillis (Toronto), Carbon Tax Shifts and the Revenue-Neutrality Dilemma, 23 Fla. Tax Rev. 293 (2019) (reviewed by Sloan Speck (Colorado) here)

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Political Affiliation In The Selection Of Opportunity Zones

Mary Margaret Frank (Virginia), Jeffrey L. Hoopes (North Carolina) & Rebecca Lester (Stanford), What Determines Where Opportunity Knocks? Political Affiliation in the Selection of Opportunity Zones:

We examine the role of political affiliation during the selection of Opportunity Zones, a place-based tax incentive enacted by the Tax Cuts and Jobs Act of 2017. We find governors are on average 7.6% more likely to select a census tract as an Opportunity Zone when the tract’s state representative is a member of the governor’s political party. Further, we find that this effect ranges from 0.0% to 25.6% depending on the state-level information channels governors used to select Opportunity Zones, such as engagement of professional advisors and implementation of public comment procedures. These effects are incremental to local demographic factors that increased the likelihood of selection, such as lower income levels and preceding improvements in local conditions.

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Mazur & Thimmesch: Closing The State Tax Digital Divide — A Consumption Tax Agenda

Orly Mazur (SMU) & Adam Thimmesch (Nebraska), Closing the Digital Divide in State Taxation: A Consumption Tax Agenda, 98 State Tax Notes ___ (Nov. 30, 2020):

In this installment of Academic Perspectives on SALT, Mazur and Thimmesch argue that while taxing digital goods and services presents practical and legal challenges for states, it is still a worthwhile measure to address the pandemic and related budget problems.

Conclusion
Expanding the consumption tax base to digital consumption is a relatively easy way for states to raise essential tax revenue as they cope with the pandemic and its accompanying economic downturn. Although a digital tax is an imperfect solution and requires overcoming some practical and legal issues, implementing one on consumption is better than the alternative of maintaining the status quo. Under the current patchwork of state laws, digital activities either escape taxation or are only partially and inconsistently taxed. This complex system can place onerous burdens on suppliers, results in governments losing out on a growing revenue stream, contributes to discriminatory and multiple taxation, and does not reflect the economic realities of the digital era. Given the current situation and the tough times ahead, it is worthwhile for states to implement digital taxes on consumption now.

The digital tax debate is far from over, and expanding the consumption tax base is just the first step. The wide range of attention being paid to DSTs and their various forms should not detract from this basic point: A broad, neutral, and strong state tax base is one that includes digital transactions.