Lisa Calhoun
Welcome, everybody, to this edition of the Atlanta Startup Podcast. I’m Lisa Calhoun, your co-host today, and the Founder and Managing partner at Valor Ventures, a seed-stage venture capital firm here in Atlanta. I am really excited to introduce you to my guest today, Rob Piechota. Rob, thank you for joining me.
Rob Piechota
Thank you for having me. Absolutely glad to be here.
Lisa Calhoun
So, Rob is a leading expert in transaction tax. I didn’t even know that was a thing until we met a few weeks ago at a middle-market private equity conference. And I learned of all the things that can happen after a founder already has assigned acquisition opportunity. And Rob’s kind enough to say, I can help you work through some of those details and talk through some of those pitfalls. And so that’s what we’re here to discuss today. He’s with the firm Alvarez and Marsal. And let’s start there a little bit. Algorithm. How many offices? How many practicing attorneys?
Rob Piechota
Well, we are a professional consulting management firm. Pause on that for a second. Alvarez and Marsal is a global professional services firm that focuses on management consulting, well known in the spaces of corporate tax restructuring, overall corporate restructuring, as well as tax transaction services. And that’s where I commit. Like I said, global. So while we have offices in Atlanta, we have them on practically every continent and all over the United States.
Lisa Calhoun
So you can help a founder wherever he or she may be?
Rob Piechota
That’s correct.
Lisa Calhoun
So we’re gonna jump right into the sticky stuff. For most of the startups that valor backs, what those founders want more than anything else is an IPO, and barring that, an incredible acquisition. And every day we talk to founders who are working towards getting that great acquisition opportunity. When they sign that deal, though, it’s not over. What are some of the pitfalls that come after an LOI is already signed?
Rob Piechota
Well, then, if we’re talking about getting into the due diligence phase. There are going to be various types of due diligence being performed, legal, HR, and everything under the corporate umbrella, which of course includes tax. A lot of times tax is a little towards the end of the tail in terms of ordering, but that does not mean it’s not important. Once we do get involved, depending upon the scope and the breadth of the company itself and the different jurisdictions that it touches, it can be everything from state and local tax, where I specialize through federal corporate income tax, through international tax transfer pricing, etcetera. What really kind of caught my ear when were speaking at the conference was the fact that Valor is so heavily invested and interested in software companies, right?
Because on the state and local tax side, sales news tax is near and dear to my heart. And companies that are at one point in time or another hoping to be acquired, hoping for that IPO, really going to need to think about sales tax, or it’s going to be thought about for them when due diligence occurs.
Lisa Calhoun
So open that up for me a little bit. What are some of the possibilities? An acquisition offer comes in and it’s like, hey, we’re going to give you this multiple on your revenue. We’re going to have this kind of an earn-out. These are the highlights of the deal. Usually one of the highlights of the deal is not tax. So what happens after these things come to light? What are some of the gotchas? One of the things to look out for.
Rob Piechota
So once some of the important tax information starts to get shared, you start to get a sense of what the overall footprint is of a company for various different tax types, right? Not only federal corporate income tax, or whether it’s withholding tax, etcetera.
Lisa Calhoun
Most of our founders are operating and selling software not only across the country but usually in a few dozen countries and some of them in 200 countries. But that’s a little bit on the high unusual side. So software is, it’s easy to see that it’s a global industry. So does that have global tax implications at acquisition?
Rob Piechota
It absolutely can. It absolutely can. Probably the most, probably most impactful element that can happen is an impact of the purchase price, right? Everybody is going to pay attention if something is going to be an actual deducted from the purchase price because of a known and acknowledged issue that is spotted and agreed upon by both sides of the transaction. And that’s where sales tax, it has become a real prevalent issue in the software space. It’s really due to a couple of factors happy to elaborate on those now.
Lisa Calhoun
Please do.
Rob Piechota
Okay, so sales tax is a transactional tax. Great. It’s you selling something to me, I pay you something. You as the vendor have a collection responsibility. Collection responsibility, percentage of that transaction, and purchase amount has to be collected from me in the form, of sales tax, state, and local levels, then remitted out to those jurisdictions. So that’s kind of setting the table. But in order for you to even have a collection responsibility, you have to have something called nexus or an actual connection with the taxing jurisdiction that obligates you to collect tax from me. And things have changed since 2018. They’ve evolved very, very quickly because of a Supreme Court case around Wayfair. You’ve heard of Wayfair? Of course, online shopping. Yes. Really?
Rob Piechota
What happened there was the inception of what’s called economic nexus for sales tax purposes, which means you as the vendor could be seated here in Georgia and selling SaaS software. Software as a service. And it’s not taxable in Georgia, which is great news. However, it’s taxable in Texas, it’s taxable in Louisiana, Kentucky, Tennessee, and etcetera. And your customers are sitting there and your argument is going to be, well, I have no registration requirement in those states. I have no requirements collect because I don’t have that nexus route. I don’t have that taxable connection.
Lisa Calhoun
Well, unlike with employees where you paying payroll taxes and it’s like, okay, well, I have an employee in New Orleans, so guess what? But now that’s changing a lot.
Rob Piechota
Absolutely. Wow. Absolutely. Since that way. Fair case. It is. It is. You only have to have a certain threshold amount of receipts coming from a given jurisdiction that taxes. How is it the SaaS software? Most of the time it’s a dollar figure amount, $100,000 in most instances, Texas, New York, a little higher, $500,000. And then there’s a few out there, around 250. The other test is on the number of transactions themselves. So you might not hit $100,000 in a twelve-month period coming out of Tennessee, let’s say. But they may also have an actual volume count. If there are 100 transactions, let’s say, and they are smaller than $1,000 a piece, you’re still going to be obligated to collect sales tax on all of.
Lisa Calhoun
Those transactions, even though it’s, let’s assume software as a service.
Rob Piechota
That’s right.
Lisa Calhoun
Okay. How does this play out with different countries?
Rob Piechota
Different countries are more or less out of the scope of anything that I touch from a state and local. Right. I’m going to be just the contingent 48, plus Hawaii and Alaska.
Lisa Calhoun
So what are the top five most defending areas in terms of regression on sales tax collection and software?
Rob Piechota
Oh, let’s see. So anything that has to, well, start with the states. Right. The bad boys that are out there, especially in the software space. Texas, really hard to get around. They find different ways to fit their definitions to suit the type of software.
Lisa Calhoun
Okay. They’re going to Texas, gonna get paid.
Rob Piechota
They’re gonna get their bound. That’s it. New York, a highly sophisticated state. Absolutely. While it’s $500,000 of sales that are gonna generate a nexus with that state, New York is also a very populous state with huge industries. So it’s going to draw more revenue than say, in Idaho, Iowa, and Idaho. Excuse me. Or just some of the Midwest states that maybe just have smaller business ventures that are going to be interested in your software, to begin with. Brings up another good point. I’ll get back to that in a minute. Because Texas and New York, in addition to that, California is notoriously known as just that overall bad boy state. High rates tax everything. You got to remember Silicon Valley is also in California.
And as a result, they’ve got an extremely powerful lobby that has kept software off of the taxability side of the coin for, well, up to this point.
Lisa Calhoun
Great. So you can still get great customers in California.
Rob Piechota
There you go.
Lisa Calhoun
What other states are particularly ones that software founders should watch out for, is, I mean, goodness, you know, sales is sales you’re going to sell. Who needs you? But if you’re looking at kind of retroactively punitive sales tax collections issues, it’s a special world, but it sounds like it comes up at least for you and for your friends.
Rob Piechota
Yes. All the time.
Lisa Calhoun
All the time. And so I think it’s a little bit worth exploring. Are there any other states that sort of rise to the level of, watch?
Rob Piechota
Out, not Illinois, but Chicago and the rate city. That’s right.
Lisa Calhoun
Okay.
Rob Piechota
That’s right. And the rate is high enough that you have to pay attention. It’s, it’s higher than the state rate. So it’s important. The same types of rules for the economic nexus as well as the taxation of SAS software. Okay. And in the southeast, just to give everybody a little bit of the lay of the land there. Kentucky, South Carolina, Tennessee, Louisiana and Alabama. Not Mississippi, not Florida, but the rest. They’re pretty hard and heavy on going after tax when it comes to SAS software. And they’ve even expanded that a little bit further to think about digital products, things like downloading a digital book, a digital movie, a piece of music, et cetera. They’re expanding and evolving their definitions of what is taxable, and what is considered digital.
Lisa Calhoun
In nature, frontier that founders need to pay attention to.
Rob Piechota
Absolutely. Get that shop in order early when it’s easier to do so that the expansion of the function, the profile, all of that kind of expands real-time with the footprint as it’s moving into different areas and growing and thriving.
Lisa Calhoun
So, let’s look into the last, say, call it a year or two for you. How many software transaction tax opportunities have you worked on? Projects?
Rob Piechota
Interesting that you would say opportunity, right? And I like to think about it that way because the earlier you address it, the less you’re going to have problems down the road at, say, when the deal closes, acquisition, etcetera. I work on a lot of transactional opportunities that involve software. Probably 50 plus in the last 18 months.
Lisa Calhoun
Somewhere around them at acquisition. How many of them would have seen an adjustment to the acquisition strike price because of tax implications they hadn’t addressed?
Rob Piechota
20% to 25%.
Lisa Calhoun
That’s a lot.
Rob Piechota
Yeah.
Lisa Calhoun
Okay, so let’s move right into best practices.
Rob Piechota
And that’s 20% to 25% where you see an actual adjustment to a purchase price. Right. The actual amount of take-home cash is going to be decreased because of some tax issue that was unresolved. That doesn’t account for escrows and holdbacks. That doesn’t account for. Listen, we disagree with your position, but we’re going to indemnify you for it and kind of see what happens down the road. All of that is always going to be thought about as you’re trying to protect your client. My client being the acquirer. Right. The buyer that’s coming in and thinking about making an acquisition and making sure that they’re not going to be holding the bag if something goes haywire down the road.
Lisa Calhoun
Got it. No. That sounds like some very serious things. Are they very serious implications when it comes to costs, the costs?
Rob Piechota
I’ll give you an example of the largest one that I ever dealt with. It was not only sales tax, but it was also income tax. At the same time, the company sold peripheral items for computers, mice, desktop keyboards, and things of that nature, and sold them directly to individuals all throughout the United States. In addition, they are employees all throughout the United States. We didn’t even think need to think about economics next. There are already boots on the ground and inventory at warehouses all throughout the United States. They were collecting sales tax in exactly two states and they were filing income tax in two states. So we got into remediation mode on the back end to help them with the cleanup. That was the most severe. That was probably the largest project I’ve been involved with.
It was about $12 million in adjusted price that we turned into a remediation effort that was voluntary and disclosure-oriented. I don’t know if you’ve ever run into voluntary compliance with the states or any of the taxing authorities, but it’s a really safe way to get good with the states. And they alleviate the penalties if you do it, still pay the tax you owe and the interest. But the penalties, which are a lot of times 25 30% of the overall taxes due, that can be swept off the table. Okay, those. So take that 1212 million, right? That’s the actual tax due. Then you say okay, what are the actual costs? Which was your initial question.
For a consultant like myself, the range to do a voluntary disclosure agreement in any one state or any one tax type can range anywhere from say seven thousand dollars to fifteen thousand dollars. Again, a little wavering on the front and back, but per state that’s what they can look like. Possibly per tax those can also be implicated sometimes. That is.
Lisa Calhoun
Ok, this can really add up.
Rob Piechota
That’s true. Ok. Our fees were approaching a million dollars on that to remediate the actual problem.
Lisa Calhoun
Fascinating. So what are some of the things that you would advise software CEOs today to do to build in a future compatible way from the way you see?
Rob Piechota
The law evolving, first is education. Education is. It has to be absolutely paramount in terms of understanding how you are offering, whatever it may be, whether it’s SaaS on-prem, et cetera, digital products. We talked about the definition of what it is for sales tax purposes. Sales tax likes things to fall into buckets and as a result, you need to know what your offering is and what bucket it falls into. Once you know that, you’re on your way to having a good understanding of whether it’s taxable or not. Because you can look at the state’s rules per bucket. But I’m not going to lie to you. It’s complicated. I’ve been doing this for 25 years and it’s a big part of my overall practice.
And it is still very much a situation where you have to evaluate each state’s rules on a real-time basis. You might know a little bit in the back of your mind. Okay, well, I know New York taxes that I need to go back and refresh. But there are constantly being issued all types of notices, appendices any sort of new information bulletins, and private letter rulings on different cases that might suit your fact pattern that could help you understand whether or not you’re going to be taxable. There’s a lot of gray, in other words, so it’s education, maybe doing a little bit of the how do I figure out where I align in the taxability spectrum?
And the last thing is talk to a professional, understand what your actual offering looks like compared to what they’ve seen in the market, what they’ve seen in real-time, and dealing with state taxing authority.
Lisa Calhoun
So being a software investor, I always love to use software. Are there any software platforms that get it mostly right that can help software companies, you know, when a customer comes on board, properly leverage taxes that they are incurring?
Rob Piechota
There are, there are some very sophisticated programs out there that do get close, but it is not without typically a pretty high cost, to be honest with you, right, if you wanted that, you.
Lisa Calhoun
Think you’re doing a better job.
Rob Piechota
Avalara is one, Vertex is another. Those are probably the two that I run into most in the market and have the most faith in. However, there are caveats that right, if you take Avalara sales tax software off the shelf and you’re a software company, every software company is unique. There are little nits and nuances and different contracts and different offerings. Whether there’s going to be anything else that’s just a tiny nit that needs to be appreciated, that’s going to impact taxability. What I’m getting at is that effectively it’s got to be hand tailored to your specific module. Whatever your platform is and whatever your offerings are going to be, Avalara or a consultant that does some degree of implementation has to sort of map, do that mapping and what they call coding to make sure it’s aligned.
Lisa Calhoun
Coding, indeed, several kinds of coding.
Rob Piechota
In the world, of course.
Lisa Calhoun
So when it comes to making sure you’ve got the right, you know, infrastructure at your firm, that’s one thing. Are there any sectors that are particularly dangerous or particularly, and be careful of the tax rates in these sectors?
Rob Piechota
Sector.
Lisa Calhoun
Wise, the big ones, healthcare, fintech, transportation, and there’s a lot of software in each of those buckets. Do they have any unique concerns?
Rob Piechota
You know, that it’s actually the other side of the coin. It’s instead of concerns, you can have some benefits. Okay, so for instance, we’re talking about SaaS and we’re talking about sometimes on-prem software, there are business-to-business exemptions. Depending upon who is actually going to be the user and the interface with the software that you’re selling. Right. Great news. If you’re selling into a state tax assess software, you’ve got economic nexus. Oh, no. Well, be saved because there is a business-to-business exemption that can pull you out of trouble. Really, even if there are large dollars.
Lisa Calhoun
On the table, is that a fairly large umbrella? Business to business?
Rob Piechota
There are maybe five or so states that I know of that have an active business-to-business that’s widespread enough that will capture probably the majority of the SaaS revenue that’s being generated.
Lisa Calhoun
So let’s ask about a developing model in software AI. Delivering intelligence as a service is a huge and growing business, and we do a lot of investing in AI startups. Frankly, even yesterday I was talking with a very sophisticated investment group and they asked me if AI was a business model, are a product or a service, and they haven’t fully formulated it because the world hasn’t fully formulated how it thinks of delivering intelligence. I tend to think of software as a service, as one of the many business models you could use. With AI as the product, you’re delivering a kind of intelligence on demand. What does tax and sales law have to say about this?
Rob Piechota
Do you remember the buckets?
Lisa Calhoun
Yes.
Rob Piechota
They’re figuring out which bucket Texas is saying, how do we move the bucket to catch the AI? Basically, that’s what’s going on right now. Its extremely hot topic in state tax and sales and use tax in particular, is how is the delivery model actually set up? Would it be taxable if it were something else? And is there anything unique to it being AI that takes it out of a taxable category, out of a taxable bucket? You mentioned before when I was talking about the business to business, what sort of pitfalls, etcetera, and I said, well, there’s potentially some sort of saving graces here, one being the business to business.
And you had mentioned healthcare, depending upon who, let’s say, if it is some type of healthcare-oriented software, even if it’s for some use in the back office, et cetera, depending upon who the customer is, who the actual contracting party is, there can be exemptions for, say, 501 tax-exempt entities. That extends to colleges, universities, and healthcare systems. A lot of times state and local governments. They’re not 501, six three. But a lot of times they were statutorily exempt. And then the big-boy federal government is always exempt from sales tax.
Lisa Calhoun
Got it. So a couple of days ago, I encountered an AI from a husband and wife team actually, that made all case law publicly available for free, which people charge a pretty penny for. Are you aware of any tax laws, free resources, or AIs that are in development or possibly just launched?
Rob Piechota
I am not, I am not at this juncture, no. That’s a fascinating model too because they offering publicly available. That’s right.
Lisa Calhoun
Information.
Rob Piechota
That’s right. And I’m doing some mental gymnastics right now. That’s right.
Lisa Calhoun
Okay.
Rob Piechota
Yeah. But it’s interesting that the reason I pause for a second too is for sales tax purposes. What’s free is not always free. And what I mean by that is there is another side of the coin to sales tax which is called compensating use tax, which means I don’t think.
Lisa Calhoun
I’ve never heard of compensating use tax. So I learning things every minute.
Rob Piechota
Got to know about it early on. Growing up in New Jersey, Southern New Jersey, I would hear radio stations that would advertise to come down to Delaware, the home of tax-free shopping. Delaware has no sales tax. Five states in the country don’t have sales tax. Delaware is one of them. And that means come on down from New Jersey. You buy something here, pay no sales tax on it, take it home. Right. A pair of Jordans, a diamond ring, whatever you want. Here’s the gotcha. Okay. You get back to New Jersey. New Jersey has what’s called a compensating use tax, which means anything you purchased and you’re going to make a taxable use of in that state where you’re a resident, you have to self-assess tax on yourself and hand it over.
So what does that mean in terms of software and what we’re talking about? Even if you have instances, let’s say, where you, as if you’re the software vendor and you’re selling it to a state where software is taxable, whatever form, whatever platform we’re talking about. Whereas maybe you don’t pass the critical thresholds, either the volume, right, that the number count or the actual dollars that are generated in that state to give you economic nexus, you’re home free. Your buyer, your customer still may technically have a use tax requirement to charge.
Lisa Calhoun
But that’s on them. That’s exactly, it’s not going to come back to you.
Rob Piechota
That’s exactly right.
Lisa Calhoun
Okay. So speaking of keeping your head on straight around tax, is there a window of validity, a look back period on tax for software? For example, you mentioned the laws evolving very rapidly a lot of times with business laws, as they evolve, they come into play in stages over the years. So a software founder who’s looking for acquisition potentials, maybe considering IPOs down the road today, how far back do they need to look to be sure that they’re keeping everything in the right boxes?
Rob Piechota
So if they have never filed sales tax returns in a state, the true letter of the law, technical answer is there’s no statute of limitation that’s stolen whatsoever.
Lisa Calhoun
No, you did not just say that. Okay, I see why this comes up.
Rob Piechota
That’s right. That’s right. Now I have to tell you that. Right. Because tax professionals, that is the letter of the law. And that’s, you know, if the state wanted to pursue you to the ends of its power, that’s exactly what they would do. Now, knowing how the states operate. And I know this because I started my career working for the New Jersey Division of Taxation. They want, they don’t want to chase businesses out of the state, right? At the same time, they recognize there’s money due to them and they want to be reasonable. Some. Some states, again, Texas, and California, are more aggressive than others.
Lisa Calhoun
Less reasonable.
Rob Piechota
Less can be. But what will happen is you’ll see kind of a general range of how far back they’ll look. I’m going to say anywhere from four to six years is probably a good way to think about it. It’s another sort of beauty of that voluntary compliance program I was talking about. If you do a voluntary compliance agreement with a state, typically the lookback is only three to four years. So you’re getting some additional benefits. You’re maybe cutting off some old years. If you find a problem, cut it off early, you get rid of penalties and move forward. And, you know, I don’t recommend this, right? But companies make their own business decisions at the end of the day. Right. Tax does not drive how a business does business. So I have seen clients where they said, what should we do?
And I said it’s advisable to think about maybe cleaning this up through voluntary compliance. And the last stage of that is you start collecting on a go-forward basis and they say, nope, we’re going to play the lottery. We’re not going to clean it up and let it sit and take our chances. We don’t think this is a big risk. And the truth is, it’s really just a hedge bet as far as what is going to generate that risk. Sometimes I can see a factor and know that’s going to put you higher on the radar screen than another company. And other times it’s pure dumb luck as to whether or not the auditor comes knocking and says, I want to take a look at what your sales in my state are.
Lisa Calhoun
Well, you know, it’s interesting that you bring that up. Headlines do tend to generate a lot of looks back. And the more profiles a company has, the more they’re going to tend to come up on different radars and different screens. Is there a revenue threshold where states start to get a little bit more interested?
Rob Piechota
That’s just, I think, human nature right there. The largest companies in our country, the largest companies globally, are under audit constantly, not only by the federal government, and by other foreign governments but by every state and local government constantly on some cycle. And that’s because they know a, it’s practically impossible to get it all right. And that’s why those companies have not only huge tax departments, but they have huge blocks of tax consultants that are constantly advising.
Lisa Calhoun
Like you said, you’re a global firm. That’s it.
Rob Piechota
That’s it.
Lisa Calhoun
Okay. But effectively, a lot of the startups and a lot of the founders listening to our podcast today, they’re going to tend to be at emerging firms and they’re excited about targets like their 1st 1 million, their 1st 10 million. A few will be looking for their 1st 100 million in software revenue. Are they flying under the radar in your experience, just as asking about you as a professional, or do things start to get a little bit more interesting for some of the taxing authorities?
Rob Piechota
At a certain level, the only one that probably falls off the table is the first one you mentioned, the 1 million. And that’s just practical experience. Not, not saying it won’t happen to the 1 million revenue companies that are out there, but in terms of an auditor’s interest, in terms of just visibility. Right. A lot of the ways that companies get audited is through sort of the web of connections that they have in the market through other companies, through advertising, through having personal property on the ground, employees on the ground. And one thing leads to another and that’s sort of the algorithm that pushes an assessment towards a company.
Lisa Calhoun
So I’m going to give you a hypothetical. I know everyone, all professionals love hypothetical. Pretend we have a 50 million-a-year run-rate software business. It’s just under ten years old. All they’ve been focused on is growth, growth. They have been trying to also do their part, filing the right taxes. They’ve got a professional on the team, they’ve got a whole room of five professionals working on tax and finance. But those people are also busy doing other things, like looking for the right revenue financing. And it’s really, it’s all they’ve been doing is growing. Now they’re starting to think about being acquired. What’s the checklist you would suggest to that founding team about? Let’s make sure that you’ve done what you need to do by software sales tax opportunities.
Rob Piechota
Yep. The first piece is education. Education for that tax department, education for the CFO, all the way up to the CEO of that company. Let’s all make sure that we understand that what we’re selling is taxable and that means something. They go for that you can start, well, Google. Right? There’s a lot out there. A chat, GPT. Of course. Conferences, middle market conferences, similar to the ones that are the ones where we met. Some are focused exclusively on sales tax. To have an even more in-depth conversation to understand with their company’s needs, where would be the pressure points? Probably the next most important thing to do would be if you meet someone at one of those conferences, great. Otherwise, get in touch with a middle market firm. If you’re a smaller company, 50 million.
Get in touch with a middle market firm to have a conversation. That’s all any consultant wants is to start the conversation, understand more about your business, understand what you can do and how they can be a part of the story, and have the conversation. And really the best prediction I can have is it’s probably going to go one of two ways. One is the consultant is going to come in and they’re going to say, listen, you lucked out. Your team here has done baseline work as far as getting grounded on where your actual filings should be. We’re collecting tax appropriately in those states. They are the material states, you’re in decent shape. Scenario two is the not-so-good one.
The consultant comes in and says, all right, just from a high level looking at just your material jurisdictions, let’s take 80% of your revenue into four states. Looking at the rules in those states, you guys missed the ball, you missed the ball, and three out of the four states. And as a result, we’re going to help you size it as to what that bogey can be, what that dollar figure can be. So you’re at least if you choose not to clean it up or do something about it. Now you at least have in your mind a dollar figure when you’re headed towards the transaction. When a buy-side due diligence team comes in and says, oh, everything’s wrong, throw the kitchen sink at them and comes up with some.
Because a lot of times if they don’t get the information they want, a lot of times due diligence is done very quickly. Just the right data might not be presented that those consultants still take top line times 7%. Here’s the exposure. Here’s as bad as it could be. Meanwhile, you’ve already done the work to contain, and that’s. That’s my recommendation.
Lisa Calhoun
That kind of review, If I heard you correctly, it can cost about $5,000 per region, municipality, or state.
Rob Piechota
We talked about the price that I was talking about with cleanup earlier. Yeah, that’s the low-end spectrum. If you’re going to do a cleanup, voluntary disclosure, low end of the spectrum, probably low dollars involved. Maybe one tax type all the way up to probably, maybe 15 to 20, depending upon if it’s an income tax issue, it’s a separate type of analysis, and that’s why it gets a little pricier. But sticking just with sales tax, probably the five to 15 range is where you’re going to land. Now, that is for doing literally the agreement here. We help you fill out the facts, you give us the data. The data is in good working order. A lot of times what is found out is that it’s not just a voluntary disclosure that’s needed.
It’s some assistance, some handholding, some taxability analysis, and some overall vetting of the information so that it is complete and accurate enough to present to a tax authority. And they say, you know what, this is a perfect format. Here’s your clean bill of health. Thank you for the money, and keep collecting tax. Now, that means five to 15, let’s say, on some of those small VDA opportunities, maybe another, you know, depending upon what needs to be done, it’s probably going to be bucketed as well. 10,000 to look at Nexus, right? If you don’t know what you don’t know as far as which states you’re in unless you have ten bodies sitting in each state around the country, then it’s an easy question. But the taxability, especially when it can fall in digital products in Texas. Texas doesn’t actually tax SAS as software, as a service.
That’s data processing that they’ve fitted into that definition. But you don’t know it until you’ve actually played with the contract and the statutes and regs to get yourself there. And that’s. That’s some of the other maneuvering that can add some supplemental costs to those VDAs that get done. It’s usually the v days that are probably what I’ll call 75% of the costs.
Lisa Calhoun
And what does VDA stand for?
Rob Piechota
Voluntary Disclosure Agreement.
Lisa Calhoun
Okay.
Rob Piechota
Yep. Sorry, sorry. I should, I should.
Lisa Calhoun
That’s all right.
Rob Piechota
I should have stressed that. But those VDAs, the actual costs of those contracts themselves that you help with, that’s going to be the lion’s share, but the other piece is going to be making sure the right polish is on them and the right picture is created going forward so that you have what you need heading into sale opportunity.
Lisa Calhoun
So sounds like a lot of people hours here. How long does it take for someone to get secure about what their waterfront is with tax liability in this situation? So let’s say that, you know, like, you don’t know what you don’t know, but you’ve decided listening to this podcast that you’re going to find out and you get that ball in motion, you select the right person, are the right team, and then what? Is it going to take two weeks? Is it going to take two months?
Rob Piechota
Yep, it’s that and then, so it’s going to be fit, it’s going to be customized to the actual circumstances. Right. It doesn’t make sure, it doesn’t make sense to bring in, you know, bazooka to act as a fly swatter, you know, you.
Lisa Calhoun
Right. Because the maximum liability can roughly be calculated as 7%.
Rob Piechota
There you go.
Lisa Calhoun
So you always do know what the ceiling is.
Rob Piechota
That’s right.
Lisa Calhoun
And then you can make an ineffective determination about where you want your floor.
Rob Piechota
Yep, that’s exactly it. And the availability of information always helps. But I mean, I’ve turned in or turned around, I should say pretty fast calculations, not quite doing the top line times 7%, but at least looking at some material states in an afternoon, looking at taxability, just to say, hey, I’m going to go super conservative, super high level. This is probably where you want to think about spending more time. Then after that, it’s a question of, okay, how much more time do we want to do? 80/20 rule, how much are we going to cover, et cetera. And then ultimately what’s this going to cost? We want to make sure if there’s liability of $25,000 in the state, we’re not recommending doing a cleanup activity that’s going to cost fifteen thousand dollars to twenty thousand dollars. The juice and the squeeze, right? It’s not there.
We’re going to always recommend a letter to the law. Like I said, to think about this. This is what the state requires. Here’s how we can help. We understand some business decisions at the end of the day.
Lisa Calhoun
Awesome. So one of our founders is sure to want to talk to you more how can people in our audience get in touch with you, or what would you recommend if they want to look into this issue more deeply?
Rob Piechota
Sure. I’m happy to help. Again, my name is Rob Piechota. I’m on LinkedIn. That’s Rob. R O B, Piechota is P I E C H O T A, and, yeah, please reach out to me there. I’m happy to make the connection.
Lisa Calhoun
Thank you, Rob.
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