Evolving with SALT: Ethics, AI, and the Future of Tax with Glenn McCoy

Intro: 00:00:40

Welcome to SALTovation.

The SALTovation show is a podcast series featuring the leading voices in salt, where we talk about the issues and strategies to help you make sense of state and local tax.

Welcome back to our episode with Glenn McCoy, who, with Meredith and Judy, reflects on the future of salt, from ethics and AI to tariffs and thought leadership, sharing insights from his advisory roles, offering advice for the next generation of tax professionals.

Meredith: 00:01:09

You know, as the evolution, and now having the opportunity to focus more on the article writing and the involvement in Bloomberg. So what are some of the, like, top three issues that you're kind of following in? State and local tax.

Glenn: 00:01:24

I thought about that because. Thank you for giving me the questions a little bit in advance. Artificial intelligence.

Judy: 00:01:31

That's a good one.

Glenn: 00:01:32

Technology and tariffs. Those are kind of the three things that I'm really looking at. I do a lot of speaking on ethics.

So 15 years ago, I don't know how it happened, actually, I think it was Cass Vickers. Do you remember Cass?

Judy: 00:01:48

Yeah.

Glenn: 00:01:48

Was the executive director for ipt.

Judy: 00:01:51

Yep.

Glenn: 00:01:51

And I desperately wanted to speak at nyu, and I never got invited, you know, and everybody always tell me, oh, somebody has to die in order for you. Invited. And I'm like, okay. But I knew.

I knew Paul Frankel really well, and I had hired him as outside counsel a few times on cases at Kermage, actually, and then again at KPMG to represent some of my clients as they'd gone forward, you know, where we needed to hire an outside law firm. And so I knew him pretty well. And so Cass said, well, I'm on the planning committee. I'll ask Uncle Paul and tell him that you want to be on.

And he goes, and I'll give up my seat. I'll give up my. My opportunity to speak, if he'll let you speak. And so he pitched that, and I actually got on. He called me.

He goes, well, good news, bad news. He goes, good news is you got on. Bad news is I'm co speaking with you.

The really bad news is that if you speak at NYU, you have to write an article for Matthew Bender. LexisNexis, that's publishable within a few weeks after the speech about your topic. Okay, you have to write the article.

He was like, I'm not doing it. You're going to do it, and you're going to put my name on it. And I was like, okay, okay, so.

And that is true that you're required to or expected to draft an article. And it's. It's like writing a law review article or Writing a paper with, you know, footnotes and certain formatting and, you know, all of that stuff.

So that they put together this book on the New York Institute of. And every topic that's covered in the Institute that year goes into a LexisNexis Matthew Bender book.

So, yeah, that, that kind of led me down that primrose path to start the writing process and doing all the speaking.

Judy: 00:03:49

Because you obviously enjoyed it, though, or you wouldn't have done it, because a lot of people find it tedious and stressful and just might not want to do it. So you obviously have a propensity to enjoy it. So.

Glenn: 00:03:58

Yeah, no, I've always enjoyed it. So that also led me. That was an ethics. That was not an ethics topic. That was an alternative.

Judy: 00:04:06

Oh, so that's how you got an ethics game. Okay.

Glenn: 00:04:10

And so it started, started like that. And then, then I, I really enjoyed that and I discovered that it's really not, you know, a lot of people think, oh, that's just a fluff session.

That's not really a technical session, but it actually is really pretty technical and pretty important.

And so over the years, I've been following all of the change tech technology rules, for instance, that have changed within the ABA model rules and the ASMPA statements on standards for tax services. And now it's artificial intelligence. And there's something changing all the time.

And so I'm following all of the new issues on AI and what the courts are requiring and what the new sort of, not new model rules, but new formal opinions that are coming out of the ABA that are on AI. Formal opinion.

came out in January of: 2024

Some nods to artificial intelligence.

It really talks about the use of software because think about it, if you're preparing tax returns, you're using software, and if you're going to be using some type of software, that's really a form of artificial intelligence.

And so they're starting to put criterion around what you can do and what you are required to do if you're going to use that, whether or not you're required to give notice to your client that you're using it, get permission that you're using it, how you're going to bill for it, it all kinds of really interesting issues. So That I think is going to stay with us. I'm doing actually a presentation tomorrow in New York for our client base on artificial intelligence.

We've got four hours of continuing education we're giving to clients. And we have a partnership too, with the New York Islanders. And so they have event space in the Flatiron district. It's really great.

And that they let us use. So we're gonna. We're gonna have a little session down there and then go for, you know, happy hour afterwards for clients.

But the topic is ethics and artificial intelligence. So that's. That's kind of that. And so those two are really critical.

But now what I'm really starting to watch is the tariffs, because there's something coming out on those all the time, every day. We don't know really what's going to happen, what's going to stick and what's not.

But what we need to know and need to be able to advise our clients, I think is what does that mean for sales tax, what does that mean for income tax, and what does that mean for property tax? Because three areas that are going to be the tariffs are going to impact greatly. I think two or three states have recently come out.

Just read today, I think Illinois and can't remember the other state have come out with some rules on what they. The taxability of tariffs. And that come down on the view that from a sales tax perspective, it's part of the cost of the good.

Judy: 00:07:37

That's correct. I just actually provided that research to a client. Absolute taxable. Even if it's separately stated, it's a mandatory cost.

Glenn: 00:07:45

Yeah. So how are you going to treat that for income tax purposes? You know, is it part of the cost of goods sold? Can you deduct it?

Is there a base, you know, is there some basis for figuring out how to minimize that cost from an income tax perspective? I think there could be a argument for that. So we're kind of looking at, you know, all of those issues around the tariffs.

Meredith: 00:08:12

Well, and then when from a sourcing perspective on it from an income tax, you know, is it. Is it non US Revenue? Is it, you know, imposed at the port from, like your port of entry? Is it associated with.

Do you allocate it based on the finished good of final delivery? Like, how are you gonna. Because. Because if it's, you know, revenue.

I mean, I guess it's a little kind of, you know, from an inbound perspective of companies who are collecting on behalf of, you know, the inbound goods. Yeah. Where. What's. Where are You. Where are you putting it?

Glenn: 00:08:43

Yeah, what is the point of taxation? And you know, what if it's a component part that goes into something, where does that terrify and who's responsible for it?

So it's pretty complicated, I think.

Judy: 00:08:54

Really complicated. I'd even thought of it that way. I mean, obviously they haven't been imposed yet.

So, like, everybody keeps talking, like all the big auto manufacturers, like, we're taking a $2.5 billion write off because that's how much money you think we're going to lose in the next few years.

Glenn: 00:09:07

Our clients are all worried about it. I mean, obviously they're all looking at it and it's going to be. It could be a game changer for some of them. Yeah.

You know, if they're imposed and they're taxable. Yeah. It's going to cause some big issues. So those are kind of the current things.

There's always something new, you know, I mean, that, that's kind of what, where I'm thinking things are going right now.

Judy: 00:09:29

Yeah. Well, it's funny, Mayor and I were presenting a Stratford presentation because we speak for them every once in a while.

And, you know, we're like, how do we figure out, like, everything that happened? Like, you know, different CPA firms pull together information.

So we went into like, chat GPT to say, what are the recent tax cases in Yada Yada State? Totally wrong, but gave us a foundation, which was also really interesting. Like completely wrong sites, you know, wrong years.

But it was something where it was like, oh, this resonates, right. Because like, what are the tax cases? What are the, the legislation? Has it passed? Is it proposed? Is it going to get any traction?

So, so we used it for just as a basis because. How do you start?

Glenn: 00:10:07

Yeah, well, I just can't start. I think that's, I think that's good.

I think, you know, the fact is that you follow the rules unwittingly, maybe by reviewing it and making sure that you knew that you got was not right. But that was a good starting point for you.

Judy: 00:10:21

Yes.

Glenn: 00:10:22

That's why a lot of law firms are. You know, I always thought an LLM was a master's in, you know, tax law, but it's really, it's a large learning model.

That's the new LLM large learning model.

And that's within the AI kind of thought processes that law firms and accounting firms, every firm starting to create their own LLMs so that they have a closed rather than, you know, chat open system. So the LLMs are closed and you can control what goes into it, control how the system.

System learns, allegedly, and hopefully protect client confidentiality.

Judy: 00:11:00

Right.

Glenn: 00:11:01

By keeping it in that fashion. So I think, you know, there's. There's just so much going on with that, with, you know, the use of artificial intelligence that's going to be used.

And so the question is, how do we harness that use productively? And I think, you know, it's. And it's moving so fast. It's one of the things that keeps it interesting even from perspective, is that.

Yes, you know, I'm sure you're aware of the Avianca case that came out two years ago in the Southern District of New York. Do you know.

Judy: 00:11:32

I don't remember.

Glenn: 00:11:33

No. Do you know that case? It was a law firm. There was a lawsuit that had taken place and the lawyer broke the brief.

Judy: 00:11:43

Prepared, oh, right out of Chat cpt. I didn't remember the name of the case, of course, because I don't remember music or any case law, the names, but I remember the concept. Yes.

Glenn: 00:11:52

So, yeah.

And then, you know, the mistake that they made was that whenever they were called on it, when after, after Chat GPT hallucinated and created these three cases that were exactly on point, the lawyer and the judge asked for them.

And instead of going and checking to see that they weren't real, the lawyer just asked Chat GPT to spit out the cases, which it did, and he turned him in to the judge. And, you know, they were not amused when they figured out what was going on.

So, you know, that was the first case where lawyers were called before the judge for a sanction hearing. They were not disbarred or even suspended. He gave them kind of a slap on the wrist and fined him $5,000 each and said, don't do it again.

But their reputations were tarnished and ruined as a result of that fact. And so now there are cases going out. I've got another one in a scenario I'm doing tomorrow, actually, where the.

It was a criminal case, a criminal tax case, and the attorney had her paralegal write the closing argument. Right. Brief for the closing argument. And then the attorney didn't review it, presented it in court. The defendant lost on all 10 counts.

And it came to light that they had. The attorney had a financial interest in the experimental AI tool that they used to create the closing argument. And the closing argument was.

Was left out some key cases and sort of didn't cover the right areas to protect the client. And so this is probably going to be the first place case where there's on the client, the defendants appealed and they'll probably get a new trial.

And it's kind of a case of a first impression where that artificial intelligence was used to draft a closing agreement that caused a mistrial. So it's going to be a good one to follow, but they're all over the place.

Judy: 00:13:53

So it is exhausting.

Meredith: 00:13:55

Kind of over your career, how have you seen state and local tax evolve or not? Right. Depending on, depending on some of the laws that we're reading and trying to interpret it as to modern day, you know, technological evolution.

Glenn: 00:14:12

That's a very good question.

I think I would look at it not only from the perspective of how has it evolved from an actual technical issue perspective, but how has it evolved from a viewpoint from others as they, as they look at state, local tax. When I started, we every focus was on the federal tax return.

When you did compliance, you focused on the federal tax return and at the very end you left 15 minutes to do all the state returns.

Judy: 00:14:42

Right?

Glenn: 00:14:42

Totally right. And you would just plug in all these things into the system and you put them in and if there were overrides, whatever.

And I think what I'm trying to say is that people did not pay attention to state and local tax. Companies did not pay attention to it. It was a small fraction of what they paid from a federal tax perspective. Right.

Just sort of a nuisance to everybody. And I think people who were starting to go into that, when I started, there was not really a lot of state and local tax experts.

There were people who worked for state agencies like all the tax commissions that did state tax, but they were the tax commission. They were unique to that group.

There weren't groups, big groups of people in companies or in consulting firms or big four public accounting firms that just did state and local tax. They would oftentimes even pull in the international tax people to do the state returns. The federal people are too busy.

We're doing the federal returns.

Let's pull these national tax associates over to come and do the state returns because they've got like foreign countries, which you said earlier, Judy.

So I think that I've, over my career I've watched that evolved into the point where state levels becoming as important or more important than feminine people are really focused on the nuances of the laws and how can they structure their business so that they are functioning at the right level to pay the correct amount of tax and the least tax that screen in that jurisdiction. So I think, you know, that that has been an evolution that I have witnessed. We've got credibility. We still fight for it in some instances. Yeah.

Meredith: 00:16:24

As we wrap maybe a way to as a selling point for those who are elite, not maybe entering the CPA profession or whatever or whatnot, but maybe for those considering a career in state tax or, you know, accounting or whatever in general, like what advice would you have or how would you sell it or kind of what any last minute thoughts that you have that, you know, we haven't talked about that you would want to share with, you know, our listeners?

Glenn: 00:16:56

You know, that's. I think that what I would say is that no matter what career you choose, you have to be passionate about it. I really love it.

And that there's a lot of opportunity in state and local tax and there's a lot of camaraderie within the community.

Judy: 00:17:13

That's true.

Glenn: 00:17:14

And so that, you know, you, a lot of businesses and professions you go into, you can be very successful professionally, but you don't come away with a lot of friends or, you know, an infrastructure within your life that is a result of your professional career. And I think that in state and local for from my experience, it has been that way.

Judy: 00:17:34

That's true. I hadn't thought of it that way. But you are so right.

Glenn: 00:17:38

You start networking, you start meeting people, then they become more than just a colleague or more than just an auditor.

I like to use that example I mentioned earlier, my California auditor, Lisa Elliott, I remember telling my assistant at Carmagee, she's California auditor, she's on Louisiana street in Texas. And always confused my. She was like, what state is that? Who is she from?

She came, she got pregnant with her son during our first audit cycle, had that child. Second audit cycle, twins. The girls, they are out of college, graduated. One's a nuclear physicist. You know, they.

And I've stayed in touch with her recognized birthdays. Her husband was a big wig at the California Franchise Tax Award too. So it was always helpful to me throughout my career.

If I had any issues in California, I could call Lisa or Richard, if Lisa didn't know Richard knew or knew who to contact.

So I think that, you know, there aren't a lot of professions and a lot of types of professional careers where you can develop that kind of a relationship that will stay with you for 30 years.

Judy: 00:18:50

Yeah.

Glenn: 00:18:51

And help you right. Right through your career.

Judy: 00:18:55

There's really not a lot of competition. There's way too many clients and too many issues. There's plenty of work for all of us.

And you're talking international and national like a Lot of people want to sell to Americans.

Glenn: 00:19:06

Right, right. So that's what I think I would say.

I would say that, you know, if you, if you want to be an accountant, you want to be a lawyer, the state and local areas, as is a certain specialty that you could. Should consider, you know, to have a focus of. And if you like it.

I mean, a lot of times, you know, federal taxes, they change, but a lot of stuff stays the same.

Judy: 00:19:27

Right.

Glenn: 00:19:28

All the time. And things always change, right?

Judy: 00:19:32

Yes. I think it's more creative is what I kind of. Because I was federal at first. And I'm like, all right, I got.

Everyone memorizes the code provisions, you know, so I'm like, okay. And then I go look up something.

I'm like, oh, there's a letter ruling on it because, you know, there's like 300 million Americans, so it's probably addressed somewhere. So I'm like, well, I'm not really good to be on the curve. Like I can go find the answer. And I was like, why did I go to law school?

Just to be so perfunctory, I guess, for me. And then the salt thing kind of fell in my lap too. And I'm like, oh, this is very creative.

I don't know, the rule says this, but this is what's happening. I'm not so sure that applies.

Glenn: 00:20:05

Yeah, yeah. And you get to do it too. You know, for me is that, you know, I've actually gotten to do so many hearings and actually handle.

Judy: 00:20:13

Right.

Glenn: 00:20:14

Many cases. Some of them, you know, have gone to the Supreme Court of that state. Oh, interesting issues. I mean, at Carnegie. I'll leave you on that note. That was.

We had a.

The oil company, probably a non unitary segment was sodium chlorate plants in Mississippi, which sodium chloride is the pigment that makes paint white.

So we had these sodium chloride plants in Mississippi and there was a question about whether or not in order to create the pigment, you have to include electricity goes into the compound. And so we were, we were deducting the electricity. We're saying the. The cost of electricity was exempt because.

Judy: 00:20:56

Manufacturing exemption or whatever.

Glenn: 00:20:58

Okay. So that was the issue.

So I found myself talking with chemists and trying to explain to a Mississippi administrative law judge what the catalyst was that created sodium chlorate and why it should be exempt from tax. So that was like one interesting issue, you know, that went to the Mississippi Supreme Court and we won. No, it's true.

Judy: 00:21:24

The definition of things and expanding it or detracting it. I think that is awesome. And it is True.

You know, one thing I've noticed, and Mayor I think has, too, like, we're on site, we're taking tours, we learn the company, we see everything they have because, you know, use tax and where your presence, where are your employees, what are they doing in each state? What's the type of business you run?

And so we have to put all that together to kind of build the platform of, like, what you need to do and where and why. So that is super fascinating. That's awesome. That's so true. Yay. All right.

Meredith: 00:21:55

And I love that that's where you ended, because we have, you know, for those who continue to follow and keep listening, is, you know, at the central theme of where we're.

Where we're at, how we're here, how the three of us are speaking right now, how this thing even started, is relationships at its fundamental core, and how it'd be impossible to do this without the help and the friendship of everyone else that's doing it along with us. And so thank you for ending this episode with that.

Thank you for your friendship, and I look forward to seeing you in Florida in June at the IPT Annual Conference.

Glenn: 00:22:38

I will be there. Thank you. You better look me up and we'll definitely grab a cup of coffee or a drink.

Meredith: 00:22:44

Yeah, absolutely. And so that is another episode of SALTovation. Till next time.

This podcast is for educational purposes only and is not intended for, nor should it be relied upon as legal, tax, accounting, or investment advice. You should consult with a competent professional to discuss specifics of your situation and the applicability of the information presented.