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Sales tax holidays: Boon or bust for retailers?

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Historically, the first sales tax holidays started in the Southeast U.S. — hurricane-related holidays to incentivize people to prepare themselves for heavy weather events, under the premise that impacts of hurricanes would be lessened if residents were better prepared.

Sales tax holidays then expanded into back-to-school sales, starting pre-Labor Day in late July through early August. These holidays were built around the fact that they were great politics at a time of approaching elections and were great for retailers. This bolstered a weekend when people would be spending money anyway, getting ready for the school season. 

But with the main sales tax season just ending, it’s worth noting one major challenge that comes along with them, according to Scott Peterson, vice president of U.S. tax policy and government relations at Avalara: “States don’t administer sales tax, retailers do. States simply make an announcement — the real change happens in the cash register.”

A back-to-school sale at Target

Patrick T. Fallon/Bloomberg

Avalara conducted a survey to quantify the burden for 500 businesses in the midst of ever-expanding sales tax holidays. “We queried operations and finance professionals in the middle of August, with questions around the operational side of sales tax holidays,” Peterson said. “We asked, ‘What does it take to do that work? How did holidays impact them? What did it cost to administer a sales tax holiday?'”

One-third of retailers said sales tax holidays are a logistical nightmare, with 32% responding that they only broke even at sales tax holidays due to personnel and other expenses, while 27% lost money after investing in new resources. A total of 41% of retailers made more money than it cost to prepare for the holiday.

Meanwhile, 57% needed to hire additional staff for sales tax holiday crunches, and 27% said the biggest challenge is the financial burden it puts on the business.

“The challenge is that retailers sell multiple products,” Peterson said. “Home Depot, for example, sells some goods that would seem to qualify for back-to-school. For instance, is a work shirt something a parent would buy their child for back-to-school? Home Depot sells pads, pens and pencils. What qualifies? A larger retailer might need to go to their state department of revenue to get clarity on the correct course of action.”

A good example of this complexity is Florida — they have eight sales tax holidays this year, including back-to-school holidays twice a year for a week each time. 

“What really causes complexity is the lack of adequate notice of upcoming holidays,” Peterson observed. “Florida has a one-month Freedom Tax Holiday in July, exempting around 30 different types of products — for example camping supplies such as tents, chairs, sleeping bags, stoves, lanterns, flashlights, and so forth. Each product type has a separate dollar limit.”

As tax director of South Dakota, Peterson noted that retailers were often opponents of proposed sales tax holidays. “This was in the 1990s, and rudimentary cash registers were the norm, typically leased from companies that had to make changes to the cash registers. It could cost a retailer $3,000 to bring the leasing company in to make changes to cash registers for a single weekend.”

Adequate notice is considered 60 days, which is often not the case on the ground with state changes to existing sales tax holidays or introducing new holidays. But this year, Avalara received three days’ notice of a new Florida sales tax holiday and had to make rapid system changes.

“State departments of revenue need to decide on, for example, what constitutes a weekend,” said Peterson. “They then need to agree on product categories and dollar limits on products. And sales clerks and point of sale systems need to be aware of and updated for tax free items at the point of purchase.”

The states vary widely in their approach to exempting items for the holiday, according to Peterson. 

“In Iowa, only clothing and footwear are included,” he explained. “But in Florida, back-to-school tax holidays involve a long list of eligible items. For Walmart, operating across states, their computers need to reflect specifics of each sales tax holiday in each state. And sophisticated shopping cart systems need to have each item mapped for the correct sales tax rate, integrated with back-end sales tax software. These holidays represent a big expense for retailers.”

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Two ex-Wells Fargo auditors reach settlement with OCC

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A key U.S. banking regulator unveiled settlements with two former Wells Fargo & Co. auditors who were alleged to have ties to the bank’s systemic sales-practice misconduct, according to a statement Friday.

The orders resolve actions the Office of the Comptroller of the Currency initiated against David Julian, former chief auditor, and Paul McLinko, former executive audit director. The regulator assessed a $100,000 civil money penalty against Julian and a $50,000 civil money penalty against McLinko.

A 2020 investigation by the OCC concluded that executives opened millions of unauthorized customer accounts, transferring funds without customer consent and lying to customers that certain products were available only as a package deal.

The regulator previously entered into consent orders with eight other former Wells Fargo executives related to systemic sales practices misconduct. The OCC said to date those actions have produced more than $43 million in penalties against the former bank officials.

The settlement comes as Wells Fargo is chipping away at legacy regulatory issues. The bank has made compliance and risk management its top priorities since Chief Executive Officer Charlie Scharf took the reins.

Wells Fargo remains under an asset cap imposed by the Federal Reserve that limits the lender’s balance-sheet size. The firm’s executives have been awaiting a decision from the Fed on whether they have done enough to get the restrictions lifted.

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Accounting

Trump floats new income tax cut in bid to ease tariffs bite

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President Donald Trump suggested Sunday that his sweeping tariffs would help him reduce income taxes for people making less than $200,000 a year, as public anxiety rises over his economic agenda.

Trump has previously argued that tariff revenue could replace income taxes, though economists have questioned those claims.

“When Tariffs cut in, many people’s Income Taxes will be substantially reduced, maybe even completely eliminated. Focus will be on people making less than $200,000 a year,” he said Sunday on his Truth Social network.

Trump’s tariff stances have roiled markets, led to fears of higher prices for Americans, prompted recession warnings and sparked bouts of concern about the U.S.’s haven status — a fear that Treasury Secretary Scott Bessent questioned in a Sunday interview.

“I don’t think that this is necessarily losing confidence,” Bessent said on ABC’s This Week. “Anything that happens over a two-week, one-month window can be either statistical noise or market noise.”

Trump’s administration is “setting the fundamentals” for investors to know “that the U.S. government bond market is the safest and soundest in the world,” he said.

“We’re going to make a lot of money, and we’re going to cut taxes for the people of this country” through income from tariffs, Trump said on his way back to Washington from his golf club in New Jersey. “It’ll take a little while before we do that,” he added.

For now, a CBS News poll released Sunday said 69% of Americans believe the Trump administration wasn’t focused enough on lowering prices. Approval of Trump’s handling of the economy in the poll declined to 42% compared with 51% in early March. 

Trump wants to extend reductions in income taxes that were approved in 2017 during his first presidency, many of which are due to expire at the end of 2025. 

He also has proposed expanding tax breaks — including by exempting workers’ tips and social security earnings — while slashing the corporate tax rate to 15% from 21%. 

Trade deals

Bessent said the administration is working on bilateral trade deals after Trump imposed so-called reciprocal tariffs on many countries in early April, which he subsequently paused for 90 days for all affected countries except China.

The effort involves 17 key trading partners, not including China, Bessent said on ABC.

“We have a process in place, over the next 90 days, to negotiate with them,” he said. “Some of those are moving along very well, especially with the Asian countries.”

Bessent reiterated the administration’s argument that Beijing will be forced to the negotiating table because China can’t sustain Trump’s latest US tariff level of 145% on Chinese goods.

“Their business model is predicated on selling cheap, subsidized goods to the U.S.,” Bessent said “And if there’s a sudden stop in that, they will have a sudden stop in the economy, so they will negotiate.”

Trump has said the U.S. is talking with China on trade, which Beijing has denied. Bessent said he didn’t know if Trump and Xi had spoken. 

He said he saw his Chinese counterparts when the world’s financial officials gathered in Washington last week “but it was more on the traditional things like financial stability, global economic early warnings.”

Bessent said he thinks there is a path forward for China talks, starting with “a de-escalation” followed by an “agreement in principle.” 

“A trade deal can take months, but an agreement in principle and the good behavior and staying within the parameter of the deal by our trading partners can keep the tariffs there from ratcheting back to the maximum level,” he said.

In Congress, the framework for a bill that Republicans agreed on in early April would allow for as much as $5.3 trillion in tax cuts over a decade. Trump trade advisor Peter Navarro has suggested Trump’s tariffs will generate more revenue than that, while most economists project that they will bring in significantly less. 

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Draft bill would eliminate PCAOB, empower SEC

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The House Financial Services Committee is considering draft legislation that would transfer the responsibilities of the Public Company Accounting Oversight Board to the Securities and Exchange Commission. 

The bill would also end the support fees that public companies and broker-dealers pay to support the PCAOB. “The proposal would transfer the authorities of the PCAOB to the SEC,” said a spokesperson for the committee. “It modifies PCAOB’s authority to collect and spend accounting support fees and directs fees to be remitted to Treasury.” The PCAOB did not immediately respond to a request for comment.

The bill might be included in the larger tax and spending reconciliation bill that’s currently making its way through Congress, according to the Financial Times. The PCAOB has come under criticism from Republicans, including the new chairman of the SEC, Paul Atkins, who was confirmed by the Senate last week. He was listed as a contributor to the Heritage Foundation’s Project 2025, which called for eliminating the PCAOB and rolling back SEC regulations, and was critical of the PCAOB while he was a commissioner. 

Under the draft legislation, all intellectual property retained by the PCAOB in support of its programs for registration, standard-setting and inspection would be shared with the SEC and any pending enforcement and disciplinary actions of the Board would be referred to the SEC or other regulators in accordance with Section 105 of the Sarbanes-Oxley Act of 2002.

The Sarbanes-Oxley Act originally established the PCAOB in response to a wave of accounting scandals in the early 2000s involving Enron, WorldCom and other companies.

Effectively on the transfer date from the PCAOB to the SEC, all unobligated fees collected under Section 109(d) of the Sarbanes-Oxley Act would be transferred to the general fund of the Treasury, and the SEC would not be able to collect fees under that section. The duties and powers of the PCAOB in effect as of the day before the transfer date, other than those described in Section 107 of Sarbanes-Oxley, would be transferred to the SEC. That section already grants the SEC general oversight of the PCAOB and the power to review the Board’s actions, including general modification and rescission of Board authority.

The draft legislation says, however, the SEC may not use funds to carry out Section 107 of Sarbanes-Oxley Act for activities related to overseeing the Board. The PCAOB would have to transfer all intellectual property to the SEC, along with existing processes and regulations of the Board, including existing PCAOB auditing standards. Those would continue in effect unless they were modified through rulemaking by the SEC; and any reference to the PCAOB in any law, regulation, document, record, map, or other paper of the United States would be deemed to be a reference to the SEC.

Any PCAOB employee as of the date of enactment of the bill may be offered equivalent positions on the SEC staff, as determined by the Commission, and submit to the Commission’s standard employment policies; and receive pay no higher than the highest paid employee of similarly situated employees of the Commission, according to the draft legislation. That provision could in effect lower the salaries of PCAOB board members, who are some of the highest paid employees in the federal government.

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