Once upon a time it was believed that an excess of regulatory oversight would prove itself to be justified. Such a belief was short lived. In the case of the Dodd-Frank Act, it’s not only the regulation that’s complex; it is the uncertainty of if, how and when it applies.
The Dodd-Frank Act was signed into federal law in 2010, and it brought about game-changing modifications to financial legislation in over fifty years. Some of the biggest challenges are based on the requisite interpretation of over 1,000 new pages of law.
For example, Dodd-Frank draws attention to the fact that states are indeed authorized to collect and enforce certain procurement taxes. A recent analysis identified scores of state taxes that “could” be applicable. Yet, the haphazard enforcement by regulatory bodies and varying level of competence in interpreting the Dodd-Frank Act makes it nearly impossible for businesses to satisfy these unclear regulations.
Worse still is the concern that Dodd-Frank could be twisted around by authorities and used to procure additional revenue at some uncertain time in the future.
For example, take the case of a New Jersey based company paying $100 million a year for services applicable to self procurement taxation under Dodd-Frank. After five years, New Jersey could arbitrarily levy a 5% self-procurement tax ($25 million, plus penalties and interest over the previous 5 years). If you think that’s a hoot, check out what happens next. Each state in which the company does business could posit that the pro rate portion of services received in that state are allocable to the transaction, thereby necessitating collection of their proportional share of the revenue . Now our hypothetical company has a complex problem (and likely s spending millions in legal and accounting fees simply to sort this out). It can’t be certain which states may apply the tax, and how and to what extent the tax would be calculated.
Some states have varying time periods governing the statute of limitations on self-procurement taxes, while others have no such limit. The possibilities of penalties and fines for underpayment are incalculable.
At the very least, states need to recognize the appropriate application of this type of tax regulation. Until then, the unpredictable nature of its enforcement will keep businesses and their advisors guessing as to how to deal with further bureaucratic uncertainty.
Brad Barros is Managing Director and co-founder of Attainium Capital Development Advisors, LLC (Attainium). Over the past 35 years, Attainium‘s founding principals have worked with hundreds of successful privately and publicly held businesses, designing and implementing benefit, insurance and risk-management solutions effectuating more than $4 billion of benefits with programs involving more than $300,000,000 of recurring annual insurance premiums.
