Episode Transcript
[00:00:06] Speaker A: Welcome, everyone, to Taxing Poetic. My name is Tim Howe. I'm the CEO of Sunexus Tax Solutions, here with.
[00:00:12] Speaker B: I'm Jenny Carter, manager at Sunexus Tax.
[00:00:14] Speaker A: Solutions, and we have Donna McMurray with us. Morning. How are you doing? Well, our director of legislation and tax policy, and as always, we have our famous producer, Jamie.
[00:00:25] Speaker C: How's it going?
[00:00:25] Speaker A: Good, man. How you doing, jb?
[00:00:26] Speaker C: Pretty good. Pretty good.
[00:00:27] Speaker A: Right on.
Today we are going to be talking kind of a hodgepodge around salt and vat and misnomers that have come out of recent conversations in the past from a multitude of different angles. So, as always, we're going to start off with Jenny. With a haiku, of course.
[00:00:46] Speaker B: All right, salt and vat. Y'all ready?
[00:00:48] Speaker A: Yep. Ready.
[00:00:49] Speaker B: Put the cap on salt, or you'll ruin your dinner. Big pile on your steak.
Have you ever done that before? Like, where you open, like, the thin grinder and it's grinded so much, and then you just go to, like, grind it, and then, like, a huge pile of, like, salt, pepper drops on your food.
[00:01:05] Speaker C: That happened in 1960s Disney movies.
[00:01:07] Speaker A: Or when the high. When the high school kids go in and they loosen all the caps on pepper and salt and you go to dump it on something. That's why I never. You'll never see me use salt and pepper shakers at a restaurant ever. Never.
[00:01:18] Speaker B: Really?
[00:01:18] Speaker A: Yep. Nope.
[00:01:19] Speaker C: Just in case youths have been there.
[00:01:21] Speaker B: Youths, get off my lawn.
[00:01:24] Speaker A: You mean the Utes, youths.
[00:01:27] Speaker B: Okay, so I. Like, that's just me. I have totally ruined a dinner with, like, too much salt and pepper. Just dump it on there.
[00:01:33] Speaker A: So.
[00:01:33] Speaker B: Okay. Not my best haiku. Sorry.
[00:01:34] Speaker D: Salt's best.
[00:01:35] Speaker B: But it was nonpolitical because what we're gonna talk about today. I was so excited, you guys. So it's election day, and we're just gonna breeze through that?
[00:01:44] Speaker A: Yep.
[00:01:45] Speaker B: But remember the first debate between our two candidates? The first sentences out of both of their mouths were about salt. Was anyone else super excited about this?
[00:01:56] Speaker A: I was pretty excited until they just both completely butchered the idea of what salt is.
[00:02:01] Speaker B: Okay, Tim, I wasn't.
[00:02:03] Speaker D: Let's.
[00:02:03] Speaker B: Okay, roll it back.
[00:02:05] Speaker D: Hold on.
[00:02:06] Speaker A: I said both.
[00:02:07] Speaker D: Yeah, but, you know, that validated Jenny's choice in her career.
[00:02:09] Speaker B: Thank you, Donna. I needed a lot of validation in a lot of ways, but, yes, that is one of them. And I don't. I don't question my life choices as much anymore. I mean, there's still a lot there, but yes. I mean, billions of people are watching this debate, and I Don't think there's ever been any kind of presidential debate where they just bring up salt tax. So I thought that was so exciting. And so I thought we could, as a group here, since it's topical now and it's kind of sexy, we could talk about what they brought brought up, which is a salt cap. I didn't know about it, actually, because it's not really. It's really an income tax issue, which I know Tim will talk about here. I know Tim has endless thoughts on this, which we'll get to you soon.
But yes. So I honestly needed to do some research on it. And I want to say welcome also to our new tax intern, Jackson SEO, who is now helping us with our tax research.
[00:03:00] Speaker A: There you go. Thanks, Jackson.
[00:03:02] Speaker B: Yeah, thanks, Jackson. Awesome. So, Tim, kick us off with, please, with your thoughts on this.
[00:03:08] Speaker A: Yeah, I mean, essentially what the salt cap is, is it's a cap on state and local taxes. Okay. So it's what SALT stands for, State and Local tax. But it's a cap that was put in by the Trump administration during his tenure that effectively capped out your total deductions on state and local taxes at $10,000. From an income tax standpoint, that meant that any deductions or any taxes that you paid for income tax, sales and use tax or property tax to a state authority or any municipal authority would be capped as a deduction for you on your personal income taxes. Your federal income taxes at $10,000, prior to that, it was an unlimited amount. You were fully deductible for all of your state income tax that you paid, all of your property taxes that you paid. And then if you could also justify a large sales tax, purchase and sales taxes that you paid, you could turn around and potentially get some of that back. But essentially, that cap was put in place, and that's what the debate was starting off about. Like, that's what they were trying to talk about was this $10,000 cap.
[00:04:15] Speaker B: I was like Leonardo DiCaprio in that meme. Like, I got up and, like, pointed at my TV like, yes, that's me.
[00:04:21] Speaker A: There you go.
[00:04:22] Speaker B: That's me. Salt. So, yeah, so that's what they brought up in the debate is whether to reimplement the cap. Correct.
[00:04:28] Speaker A: Right. And this is. This is a federal income tax. Yeah. Rather than remove the cap. And it's a federal income tax issue. Right. And there were some significant pros around this. Pros were that, hey, it created some equity among taxpayers for having this $10,000 cap. It basically kept super rich from taking a Huge amount of deductions on their income tax. Down from the normal folks who didn't even know that this cap potentially even existed, like myself. Well, I wasn't going to say that, but okay. Yes. But it also brought in a ton of revenue. With this cap, there was an estimated additional $1.2 trillion in revenue that was actually generated by putting this cap in place for having extra federal income tax. Right. Also had greater transparency in taxation and was of effectively kind of a reduction in wealth disparity is what some folks put. But there was also a lot of negative impacts on this. Right.
[00:05:20] Speaker B: Donna's nodding. So, yes. What do you think?
[00:05:22] Speaker D: Yeah, I mean, the states with high property tax, high state income tax, New York, California, saw a mass exodus of people because it was costing them a lot of money.
[00:05:33] Speaker A: Absolutely. I mean, if you think about it, if you have a 12% income tax rate and you're also paying super high amounts in property tax because your property values in those states just happen to be ridiculously high. Right. Because they're not creating any more shoreline in California. Right.
[00:05:50] Speaker D: They kind of are.
[00:05:50] Speaker A: Well, they kind of are.
[00:05:51] Speaker B: Unless you're lex Luthor and Superman1.
[00:05:54] Speaker A: That's exactly right.
I love it.
But yeah, it caused for a lot of folks to rethink their place of domicile and they ended up moving to states like Texas and Florida and to here, to the south that have either lower property values, lower income tax rates and would effectively no income tax or no income tax like in Texas, Tennessee and Florida. Which is why cities like Nashville and Austin and a lot of these other jurisdictions and these, they saw huge explosions. Homa Sassa, Homasassa, Citrus County. Oh, my gosh, yes. Watch out, Crystal River. But anyways, yeah, it's, you know, there are some, you know, cons to that.
[00:06:33] Speaker D: Right.
[00:06:34] Speaker A: Yep. Right.
[00:06:35] Speaker D: So the real question then, you know, if you remove the cap, you know, then you'd lose $1.2 trillion in revenue. So how do you make up for that?
[00:06:45] Speaker A: Well, great that you ask JV's favorite topic.
[00:06:48] Speaker B: Right, right.
[00:06:48] Speaker C: We always. We always. Yeah. Once if you get rid of one, you're just going to add another one.
[00:06:52] Speaker B: Yeah, Right.
[00:06:52] Speaker C: Smoke and mirrors.
[00:06:53] Speaker A: And effectively, people have been talking about this for years. We talked about this on another episode previously. It was a nationalized vat, which is a value added tax. It' if you think about it, it's a tax on all goods and services. There would be limited to no exemptions to this tax. A lot of people have talked about a 4%, 5% nationalized VAT here in the U.S. or some people would call it a GST, a goods and services tax. It will be put on anything that you buy. It would be completely for all individuals, regardless of wealth category, regardless of income.
[00:07:30] Speaker C: It could be federalized. Right.
[00:07:32] Speaker B: Give a quick background what a VAT GST is like. It's basically used in every other country in the world.
[00:07:37] Speaker A: That's exactly right.
As we always see, America tends to do things differently. Right. So our sales tax system here is relegated by our states. It's taken care of or relegated to the states, excuse me, to manage it is a state and local municipal tax. There is no nationalized tax here. But every other country in the world does not typically have municipal taxes. Except for some jurisdictions, like Brazil has localized taxes. There'll be some others, but for the most part it's a national countrywide tax that's put in to generate revenue. And some of the percentages in these taxes are insane. Right. It could be anywhere between 14 to like 24, 25% in some jurisdictions. Some countries, excuse me, and aren't they.
[00:08:21] Speaker B: Easier, correct me if I'm wrong, to like implement and collect? Isn't it an easier system than what we have?
[00:08:27] Speaker D: As far as anything would be an easier system. But yeah, I mean, because everything's taxable. I mean there are like Canada has a GST goods and service tax and everything is taxable. Some of them may be zero rated, like food or something, but literally everything's taxable.
[00:08:43] Speaker A: But the most difficult thing you talk about, ease of implementation, it's easy to put the tax in and calculate it. What makes it difficult is the administration of the tax.
[00:08:51] Speaker B: Because that's what I mean.
[00:08:52] Speaker A: Yeah. The value added tax in and of itself is a tax on the value chain. So if you think about like a person who makes furniture. Right. I always like this example. So somebody makes chairs. Well, if they're making wood chairs and there's like soft cloth covers for them, what they do is they pay what they call input VAT on the. They pay a tax on the cost of the wood, the cost of the cloth, the stuffing, all the other parts, the screws, nails, whatever, and all their tools. And then what happens is they charge output VAT on the cost of the item. Right. Or the retail price of the item when they sell it to an individual. And what they're allowed to do is take documentation from the input vat, net it against the documentation for the output vat and they ultimately claim a credit on the input and then collect the output, and then they Net the difference together, and that's what they ultimately remit to the jurisdiction.
[00:09:44] Speaker B: So it's pretty easy to implement, or.
[00:09:47] Speaker A: It is, but it's documentation intensive. It is very, very documentation intensive. And it's very hard to administer the tax as a taxpayer because you've got think I'm holding on to all these receipts and taking care of all this stuff on the front end because I don't want to have to have paid all this tax and then collect all this tax or admit it. I basically need to net the two together so I can get my credit and then ultimately remit the correct tax.
[00:10:10] Speaker C: It's an extra step from where it is right now, which is just, I pay the tax when I buy the wood, and then you pay the tax when you buy the or issue an.
[00:10:17] Speaker A: Exemption certificate, which is what we have here in this country. Right. So you don't pay any tax on the input of the stuff because it's all for resale, and we just collect it and remit it to the state. So our administration component for our tax is actually a much lower burden as opposed to in these other countries. What we have as a difficulty is the calculation component is understanding all the really weird rates. And also all of our states treating everything as different.
[00:10:44] Speaker D: Right. That's the biggest issue here is the disparity between the states, the rates, what's taxable, what's not, what's the definition of this and that, and does the tax apply? But in this case for the VAT or a gst, it's just all taxable. It is a documentation issue. I mean, the documentation here is a resale certificate is one piece of paper. But in a VAT with the input tax credit, the documentation is everything you've bought.
[00:11:09] Speaker A: That's right. I mean, it's just. It's a voluminous type of, you know, voluminous amount of, excuse me, documentation that needs to be, you know, taken care of. And so it's very, very difficult. But when you think about sheer numbers, when the Congressional Budget Office actually did studies on this, they said a 4 to 5% VAT would generate $4 trillion in its first 18 months of implementation. Ooh, that sounds nice, right?
[00:11:32] Speaker B: $4 trillion.
[00:11:33] Speaker A: When you think about that, we have like a 20, what, $8 trillion deficit right now and growing by the second. I think it's now, like, probably just grew $500,000 in the last second that I talked. It's insane.
We could solve a lot of our budgetary constraints and problems by putting in a nationalized sales Tax people see that.
[00:11:55] Speaker D: Money and go, oh, we can spend that too.
[00:11:57] Speaker C: Yeah, right.
[00:11:57] Speaker A: That's exactly right.
[00:11:58] Speaker D: They gotta stop the spending.
[00:11:59] Speaker A: That's right. And there's so many things about this that concern people, but also are big, bright light bulbs to folks that are like, man, we can do this. We could actually do this and truly help.
[00:12:10] Speaker C: If you do this, it's not on top of the tax that you already would pay on these things. It would replace those, right?
[00:12:15] Speaker A: No, it is 100% on top. Like, oh, no, double taxation.
[00:12:19] Speaker B: Yes, tax on taxation.
[00:12:22] Speaker A: But if you think about it, you're already paying kind of a tax on tax. If you go and you buy tires, there's a tire disposal fee and there's other things that are federal excise taxes that you're paying in conjunction with sales and use. This would just be an additional tax that you would see on a line item that would be like, okay, Well I paid 10% in sales tax and then I've got an additional 4% that I have to pay the federal government in tax. And a lot of people get all bunched up and like nervous and anxious about that. You have to understand, when you look at like our friends at the Tax foundation that do studies, our system of taxation here in the United States is still one of the lowest combined tax rates in the world. We pay much less tax than places like Norway and Finland. In Germany and the uk, their income and their VAT that they end up paying on a day over day basis takes their effective tax rate to many, many percentage points higher than ours.
Something's going to have to break.
Somebody's going to have to effectively address this issue in the coming years because frankly, we just can't keep growing at the debt rate that we have.
[00:13:28] Speaker C: Why don't we have a vat?
[00:13:32] Speaker A: It's very easy to talk about. Very, very difficult to implement from a constituent standpoint.
[00:13:38] Speaker B: And I can't imagine too many candidates would love to have that as their platform. Right, right.
[00:13:44] Speaker A: Hey.
[00:13:44] Speaker D: To get reelected. They're not gonna.
[00:13:47] Speaker A: What you, what I, what I personally think that you're gonna have to see happen is somebody's gonna have to come out and go, Social Security is insolvent. There's nothing that we can do with Social Security.
[00:13:57] Speaker B: Oh, like it's bankrupt, it's bankrupt.
[00:13:58] Speaker A: We are not going to be able to do anything. We cannot fund this. Or guess what? But our United States military is not going to get paid for the next six months or some other massive program. Right. Is going to take a huge, you know, basically it's just going to fail for someone to actually open up their eyes and go, how are we going to do this? Well, we could put in a nationalized VAT and it could pay for it. Okay, great, let's talk about that. And that would be the platform to solve it all. A lot of people have tried to run on this platform. They've talked about fair tax. True, right. The flat tax, things of that nature. What that, what the difference between the fair tax and the flat tax and a national VAT is though, is that those folks were looking to replace our income tax system.
That's not going to happen. No, that's not. This is going to be something that would augment our income tax.
[00:14:43] Speaker C: Oh yeah. So it's not a flat. This isn't for a flat tax, really. It's like, here's an additional tax on top of things. So would your life be double as hard because you have to do both?
[00:14:52] Speaker B: No, you mean our life as compliance.
[00:14:55] Speaker C: As compliance people.
[00:14:56] Speaker A: We would probably have to submit a return on behalf of our clients that shows the amount that they collected for, you know, federal VAT and push it in. But a lot of these countries now too, on the VAT front, they're actually going to transaction level remittance.
[00:15:10] Speaker B: Yes, right.
[00:15:11] Speaker A: They're automatic. I mean, our friends to the north, right. America's hat, Canada, they turn around and like, I think Quebec implemented a transaction, like a digital transaction flow this last year to where people are submitting the provincial taxes and the GST off of every single transaction.
[00:15:32] Speaker D: Yeah, there's some other countries that do that as well, I believe. South America maybe.
[00:15:35] Speaker A: Yeah, in South America and I think in China they actually have to do invoice level submissions, which makes it very, very interesting. It could ease a compliance burden.
[00:15:44] Speaker C: Tell me again what transaction level remittance is.
[00:15:47] Speaker A: So every time a transaction is completed at a POS system, the taxes automatically get trans. Transmitted to the jurisdiction or trans in.
[00:15:54] Speaker B: This case, automatically to the federal government.
[00:15:56] Speaker A: That would be correct.
[00:15:57] Speaker B: Yes.
[00:15:57] Speaker A: Or be. And it's not that it would happen like right that second. It may occur on a daily basis, it may occur on a weekly basis.
[00:16:03] Speaker B: Like a batch or something.
[00:16:04] Speaker A: That's right. But the fact is, is that there's like QR codes that are being printed on receipts that ultimately show you the tax wasn't, you know, remitted to a jurisdiction. If you're going to claim a credit or whatever, you would have to scan your receipt.
[00:16:16] Speaker B: So basically what we're saying is US Government, if you're listening, call Us, we've got ideas for.
[00:16:23] Speaker A: I mean, yeah, effectively. And it just. It does create some. A lot of political questions, you know, that we don't want to talk about here. But, like, what's going to happen with this money? Right. And making sure that the, you know, government is effectively doing the right things with the money. And I think that's a bipartisan issue, is ensuring that, you know, the right things are being done with the funds and we're not just creating an additional coffer of funds for people to just go out and spend.
[00:16:49] Speaker C: That's the tough part is like. Like, just give us more money. What are you going to spend it on?
Don't worry about it.
[00:16:56] Speaker A: That's exactly.
[00:16:56] Speaker C: No one's voting for that.
[00:16:57] Speaker A: No one's voting for that.
[00:16:59] Speaker C: Yeah.
[00:16:59] Speaker A: And that's. There's going to have to be boundaries and there's going to have to be guardrails put up around it. Right.
[00:17:04] Speaker C: But okay, so just going around. Will of that come to the US.
[00:17:08] Speaker A: Tim, in our lifetime. Yes, 100%.
[00:17:10] Speaker C: Donna agreed.
[00:17:11] Speaker D: Yes.
[00:17:12] Speaker B: I'm going to say yes because they said yes.
[00:17:14] Speaker C: Cool. I'm going to say no because I like to have fun.
[00:17:19] Speaker B: Because you like to pay less tax. You like to pay less taxes.
[00:17:21] Speaker A: Bucking the trend.
[00:17:22] Speaker C: Yep. Bucking the trend.
[00:17:23] Speaker A: I love it, dude.
[00:17:24] Speaker C: Okay, you've heard our votes. Let's take a quick break and we'll come back and see who won the quiz.
Okay. Welcome back to Taxing Poetic. If you've been following along, we do a quiz most of the episodes and we are just starting in on season season three. And so we have a winner. And this year it's Jenny. Congratulations.
[00:17:48] Speaker B: Thank you so much.
[00:17:49] Speaker C: Yeah. I'd like to thank some fake applause that just happened.
[00:17:53] Speaker A: Notice my hands are tied and held together.
[00:17:56] Speaker C: She was really in the lead the whole time. I just, like, there was a. I don't know. I would randomly ask the questions. Me and Donna both came up with quizzes. It was just.
[00:18:04] Speaker A: No, it was a lower. That's such crap.
[00:18:07] Speaker C: It was a low scoring.
[00:18:08] Speaker B: You know what? I do my homework, Tim.
[00:18:10] Speaker A: I'm going to throw all over that. I think I got the harder question.
[00:18:14] Speaker B: Donna does them randomly and JB administers them randomly.
[00:18:18] Speaker C: So you can get lucky and unlucky. But it was a lower scoring year. So maybe me and Donna made the quiz just too hard for everybody. There was a lot of half points.
[00:18:27] Speaker A: There was a lot of half points.
[00:18:28] Speaker C: It's like, all right, true. But it's like, yeah, but why? It's like, oh, I Don't know.
[00:18:31] Speaker A: Yeah, you guys put together. You guys definitely put together some whoppers.
[00:18:34] Speaker B: Thank you for doing that. It was a lot of fun.
[00:18:35] Speaker C: We learn either way on the quiz. Yes, that's. But you learn either way. We get it right, we get it wrong, we still learn.
[00:18:42] Speaker B: The real winner is the friends we made along the way.
[00:18:45] Speaker C: Yes. The real winner is the friends we made along the way. The best kind of ship is a friendship.
[00:18:52] Speaker A: Is that like the good ship Lollipop?
[00:18:53] Speaker C: Yes.
[00:18:54] Speaker B: You can tell Tim is a little.
[00:18:55] Speaker A: Bit of a sore loser.
[00:18:56] Speaker C: As always, the winner of this gets a letter written to them from the loser. So, Tim, the letter that you wrote, go ahead and read it out loud. Yes.
[00:19:05] Speaker A: Okay. Dear Jenny, congratulations on your big win. You have come a long way since your absolute trouncing the first season. Maybe the Mariners will fall in your footsteps soon and finally make it to a World Series. In fact, I'm so proud of you that I purchased my first pair of jean shorts to source support of one of your favorite teams. I can't wait to wear them this year's game or to this year's game in Jacksonville. I'll be doing the chop and loving every minute of it. I'd also like to award you and your entire compliance team with unlimited PTO and swag. Just send me a list of what you're thinking. Lululemon, Patagonia. You know, what's one size fits all? Cash and trips. The possibilities are endless, just like your quiz winning potential. I'm already working on next season's letter to you. It will be in the form of a haiku, of course. Here's what I have so far. Jenny is the best. Not being forced to say this. Jenny is the best.
P.S. here's my Amex. Take the rest of the day off and enjoy shopping.
[00:20:05] Speaker C: Man, that's a really nice letter. Chem.
[00:20:07] Speaker B: That's so nice.
[00:20:08] Speaker C: I could tell that was from your heart.
[00:20:13] Speaker A: If I only had a device on me that measured my heart rate right now. Oh, wait, let me look.
[00:20:18] Speaker C: The watch is like. Hey, it looks like you're straining, but you're not moving.
[00:20:22] Speaker A: That's exactly it. Why is your stress level at 3.0?
[00:20:25] Speaker C: All right. Hey, Donna, want to try to do the close?
[00:20:28] Speaker D: Sure. Thank you so much for listening today. Remember, you can listen to our podcast in any order or wherever you download your podcast again, if you need our help, and we're sure you do, please give us a call at Synexis Tax Solutions.
[00:20:41] Speaker B: I love it. Yeah, I'm sure you do, Don. I need your help all the time.
[00:20:46] Speaker A: Fantastic.
