Harley Duncan: The Values and Value of Engagement

Mr. Duncan is a consultant to KPMG’s State and Local Tax practice. His primary responsibilities include improving relationships with state taxing authorities, assisting clients in working with state tax agencies, and dealing with complex indirect tax issues.

Mr. Duncan joined KPMG in 2008 and served as leader of the Washington National Tax State and Local Tax Group through 2021. Mr. Duncan spent the previous 20 years as Executive Director of the Federation of Tax Administrators, the association representing the principal state revenue collection agencies in each of the 50 states, D.C., and New York City. He also served five years as Secretary of the Kansas Department of Revenue. Prior to that, he was the Assistant Director of the Kansas Division of the Budget. He has held positions with South Dakota state government, the Advisory Commission on Intergovernmental Relations and the National Governors’ Association. Mr. Duncan received New York University’s Outstanding Achievement in State and Local Taxation Award in December 2006 and was awarded the IRS Commissioner’s Award in June 2008. In 2018 he received the Franklin C Latcham Award for Distinguished Service in State and Local Tax from Bloomberg Tax. He was named as Person of the Year in 2021 by State Tax Notes.

Mr. Duncan is the author and co-author of numerous articles and papers on state and local taxation and public budgeting. He has published several articles on VAT and the coordination of a VAT with state and local sales taxes as well as the taxation of various technology services. He is a frequent speaker at state and local tax conferences and meetings.

He is a graduate of the University of Texas at Austin and South Dakota State University.

Russ: Harley, we are honored to have you join us today. When I look at the contours of your career, and your achievements across a wide variety of policy and tax administration issues, I see a strong common element and philosophy, the constant urging of engagement, including when it is uncomfortable or unfamiliar territory. Engagement seems to be a natural mode of operation for you.

Let’s start with federal legislation. Your work on the Mobile Telecommunications Sourcing Act and the Internet Tax Freedom Act are cited by both private sector and public sector experts as pivotal in achieving workable compromises on complex, difficult issues in the only venue with jurisdiction to solve them. Getting Congress to actually develop and enact workable solutions on state issues is extremely rare. What was your strategy of engagement going in?

Harley: The strategy was driven by the fact that these were both issues in which there was an industry group driving it with important members of Congress willing to support them. The question for states was then whether there were related issues they wanted to address (e.g., remote sales) that would call for engagement. Once the states (through NGA and NCSL) determined it was important to engage, the FTA and my strategy became clear. It had two parts. The first was to facilitate and participate in a constant flow of communication with the states for their input and with the industry to ensure they remained focused on their stated issue so any resolution would not have detrimental collateral impacts. The second part of the strategy was for FTA and tax administrators to play the role of honest information broker with Congress to ensure they understood the nature of how states actually dealt with the issues involved and the impact of proposals on states. There are few members of Congress or their staff with significant background in state taxation, and the role was to put the immediate issue in the context of state taxation overall to help them understand why the states were taking the positions they were and what the impact was.

Russ: I recall clearly how your mentoring made me a stronger partner and advocate with my state’s Congressional delegation when the above issues were moving forward. I think this was instrumental in making sure our state’s interests were protected while Congress worked on its broader legislative goals. I know you did the same for many other state administrators, and that we are all grateful for the lessons learned.

Harley: Well, thank you for that, Russ. As I get farther along in my career, I realize that helping people develop is one of the most important things we should all have in our job responsibilities. I saw the role of a state representative as, in significant part, being that honest information broker to explain the impact of the matter on your state so that the Member can appreciate the position you are articulating. If an issue and its impact can be made concrete and understandable, it’s easier to appreciate and deal with. The second lesson is that there is no voice more important than one from the home state. You will be able to provide the appropriate local context and will be able to convey what is important for the Member to understand, much better than a hired representative. It is also important that they understand you are speaking on behalf of the Governor (or other policymaker) on the issue. That also imposes a special obligation to be prepared and to be forthright because if you are not, they’ll remember it, and it will reflect poorly on you and those whom you represent.

Russ: At the same time business engagement with the states was essential to find compromises that would work. How did you manage that piece?

Harley: There are a few key elements, I think. First, identify the constructive leaders among those with whom you are negotiating – those that who are motivated by reaching a resolution rather than espousing a position. (We know them as Deborah and Meredith.) Second, maintain constant communication, and third, keep the conversation focused on the agreed-upon target. Don’t chase extraneous issues as it tends to lead you down a rabbit hole and breeds suspicion about the real goal.

Russ: I have heard some tax administrators say states should not engage with Congress on tax issues pertaining to the states, but should simply assert state sovereignty. Is there anything wrong with this approach? Engagement takes a commitment of time and energy, and with no guarantee of a comfortable, or even acceptable result. Do you think this discourages some from getting their feet wet?

Harley: That is an understandable response, and sometimes it is the right response. To pull it off, you need to be able to show the other side’s position is largely without merit (not necessarily easy when you represent 50 different states). If there is some merit, it puts the obligation on you, the states, to try to resolve the issue among yourselves. The Streamlined Project is the premiere example of states working together to do that, but it also shows how hard it can be. I also think straight-out resistance can freeze things in place and consume resources merely fighting brush fires to stay where you are.

Russ: When you were appointed to head the Kansas Revenue Department the agency’s relationships with the business community were at a low point. How did you decide on an engagement strategy and goals? What were those processes like, and how long did it take to develop significant trust relationships with members of the business community?

Harley: There is probably a whole case study on what to do and what not to do there. The concern of the business community, not entirely unfounded, was that the Department was less than transparent, efficient, or consistent. We worked, with the backing of the Governor, to develop and deploy an approach to clear a large case backlog and better target audit policies. We reached out to certain industries (oil and gas, telecom and manufacturing) where we had, shall we say, challenges and listened and learned from them. After a couple of years of fairly diligent work, we built some trust and got closer to where we needed to be. At the same time, we had to implement three significant legislative actions that had serious administrative issues for both businesses and the Department. Working with the state CPA Society, certain industries and the local TEI chapter, we jointly developed approaches that could be reasonably administered. That helped a ton in building relationships and trust.

Russ: Once those initial steps of engagement proved productive how were you able to build on them?

Harley: We took some steps to institutionalize the relationship building and information sharing. We had an advisory committee for the Department, and we had regular consultation sessions with TEI, the CPAs and the state chamber. In addition, as we pursued legislation, we always tried to make sure that affected taxpayer groups were aware of what we were planning and that we wanted their input. It only took once of getting a bill quashed without so much as a hearing to realize that if you are going to try to run a bill on trucking, you better talk to Mary at the state trucking association first.

Russ: Did your Kansas experience help shape how you advised state administrators in your role at FTA?

Harley: Well, it did, but remember that many administrators involved with FTA at that time had a lot more experience than I did. So, I learned more than I gave. But, I think there were two things I was able to bring to the table. First, it is very difficult to design a tax administration process for a business if you don’t know how the business operates or how the process is handled in the business. So, if you learn from the businesses and work with them, you are likely to get better compliance. Second, while each state can certainly do things its own way, to the extent we can do things in a similar way, the better compliance is going to be.

Russ: State tax administrators are probably most familiar with FTA’s cooperative relationship with the IRS regarding income tax issues and administration. What other tax areas has FTA been involved in that have been of practical benefit to state administrators and businesses?

Harley: There were two major efforts to promote uniformity in certain tax administration areas that fly a bit under the radar, but I think have had a long-lasting impact on states and businesses. In the mid-1990s, led by Stan Arnold of New Hampshire, FTA organized the electronic business process working group that analyzed and recommended some uniform approaches to areas such as EFT transmissions, evaluated receipts settlement, procurement cards and recordkeeping. With education and help from the business community, all the reports gained traction and are still in use in many areas today. Similarly, FTA has really been a leader in working with businesses and states to develop standards for various electronic payment, filing and information reporting transactions. This is really “in the weeds,” but is valuable to both states and business. I always called it God’s work. Finally, we were pretty intimately involved in every effort to deal with the remote sales issue from the 1990s forward.

Russ: FTA annual awards provide recognition to the states by their peers for outstanding efforts and innovative solutions in tax administration. How have those awards evolved, and what purposes besides recognition were behind them? It would be remiss of me here if I did not note that the highest award given is the Harley Duncan Leadership Award.

Harley: I think the progression has been that at first, people would see the application announcement and say, “Oh, we should submit this project we just finished. It’s pretty cool.” Now, I think there is more of a mindset that says, “We are doing something that every agency has to contend with. If we do it right, we can share it with everyone and get some recognition in the process. It really is about getting people to think about sharing experiences and providing them a platform to do so. Thanks for the shout out on the Leadership Award. I am proud of that. Regardless of the name, I think that is an important award. There are many people who spend their careers in state tax administration that do creative and important work that often goes unrecognized except for maybe their families and pets. Two that come to mind are your fellow colleague Vicki Smith of Washington State and Diane Hardt of Wisconsin, both of whom are finishing off life-long careers in state tax administration.

Russ: During the years I was able to work with you what I most remember is the number of times you were able to give me informal practical problem solving advice (e.g. use this angle, consult this person or state, talk to this business association, or try this…., etc.). The advice was often directed to get purchase, a point of entry, for starting to resolve an issue or get resources. And you would often make introductions as appropriate. Did you see that as a primary role?

Harley: Absolutely! As I said, mentoring is really everyone’s responsibility. You have to work at it, but mainly it is just offering your time. FTA provided me an opportunity to gain an insight to tax administration across the country. With that national perspective, I think I was able to point people in a direction and help them short-circuit their learning curve and help them avoid some pitfalls.

Russ: With your retirement, where could a young tax professional find such guidance? What other advice would you give someone beginning a career in state tax?

Harley: Nearly every organization has people that can be good stewards and mentors. Generally, those same people enjoy the responsibility and make themselves available to young people. Once you identify them, introduce yourself or arrange to be introduced. As to career advice, don’t be afraid to raise your hand to try a new area and make it a learning experience. Also, if a new area comes along, don’t be afraid to volunteer and learn about it. If it is really new (e.g., NFTs), you know as much about it as anyone.

Russ: The ability, structurally and culturally, of state administrators to engage with elected officials and influence tax policy varies widely among the states. How can state administrators find ways to maximize that ability?

Harley: That was something I learned when I moved to FTA. Like you in Washington State, in Kansas we had the role of tax policy advisor and advocate for the Governor. Some states, however, see the job as administration and not policy. Even there, however, there will be relationships with legislators. I think in both cases, the job of the administrator is the same – keep them apprised, consult with and learn from them, and provide your honest advice as appropriate. It is important, however, to always remember your role and their role. They are the elected official, not you.

Russ: Making the extra effort to have true engagement with businesses during rule making and other administrative functions can seem like a lot of extra work to folks who already have plenty on their plates. What makes it effort and time well spent?

Harley: Well, it is like your mother probably told you, “If it is a job worth doing, it is worth doing well.” It is not a costless undertaking. But, if done well, it will likely lead to a better product and greater buy-in by all parties. The resources and time required needs to be understood by those who control the resources and the time.

Russ: State tax agencies are often not able to embrace technological change with the resources and in the timeframes the private sector can muster. At the same time, technology developments can be drivers for taxability questions and administrative improvements. How can state tax departments work within these circumstances to better conduct their business and provide better service to taxpayers.

Harley: Tax departments in business will also tell you they must struggle to get technology resources and enhancements. It seems to me that the scarcity of technology resources for tax administration goes both ways and needs to be recognized by businesses and administrators when actions on either part are required. That said, both sides are probably becoming more nimble over time. I do think efforts such as SST and CSPs provide important learning points. They show the value of working together and developing one system to serve multiple states. The CSPs are a prime example of cooperative business-government relationships to achieve a certain end and providing the proper incentives and infrastructure (i.e., rules, standards, etc.) to achieve a market solution to a challenge facing both government and business.

Russ: How did your years of experience with Kansas and FTA prepare you for your role at KPMG? How has it helped you in advising businesses? And what new have you learned from working with business clients at that level?

Harley: It gave me such an in-depth and broad understanding of tax administration, how administrators think and how agencies operate. That helps me in advising clients and trying to resolve sticking points by helping them see the agency’s position and needs. By the same token, it helps me work with agencies to understand the client’s position, needs and motivations. The combination helps you be a broker and bridge between the parties. Two things I have learned in working with businesses from the practitioner side. I am amazed how the accounting treatment of an issue and its effect on financial statements can affect how the client approaches it. Also, clients really are trying to get things right, but it is very often a question of knowing what the right answer is, how to get guidance from the tax agency, and having the information to do it properly.

Russ: It seems like all of these kinds of engagement, both on the state side and the business side work to positively reinforce relationships and successful outcomes. What do you see as the career benefits of being engaged in the way you have advocated, whether in state service or as a business person?

Harley: It is without a doubt the people I have gotten the chance to work with and the relationships I’ve formed, among state administrators, practitioners and business people. SALT (State and Local Tax) is such a small community we don’t even need a secret handshake. You can just say Wayfair and see if they give you a knowing look. I have been very lucky in that regard. Also, I have gotten to work on an incredibly broad range of issues in all sorts of contexts that has provided a real variety to my life.

Russ: When you think about it, does this work philosophy carry similar benefits when carried over into private life?

Harley: That is a really good question that causes me to pause a bit. I really think it comes down to so much of what is important in life requires good relationships with family, friends and people you meet and work with. That means to me that you need to treat everyone with respect, learn from every experience and be willing to help whenever you can.

Russ: I hesitate to end on a negative note, but there’s one very recent development I’d like to get your views on. You remain a keen observer and analyst of state and local tax trends. As such, I’m sure you’ll agree that not all questions can be worked out in a cooperative manner. Sometimes litigation is necessary and sometimes it is even helpful. I saw in a recent article for the State Tax Research Institute that you concluded, “Many states and localities are initiating actions to extend the additional collection authority authorized by Wayfair to locally administered sales and accommodations taxes, often without taking steps to make the local taxes more uniform or otherwise simplifying compliance in a meaningful way.” It appears that you were finalizing your article while Wayfair was drafting a complaint to challenge local home rule tax collection in Colorado. Does the new Wayfair litigation in Colorado suggest that the states and localities have misread the original Supreme Court Wayfair decision and are engaged in overreach?

Harley: I don’t know that they have misread it as much as it seems they stopped reading after the economic nexus discussion and didn’t get to the “undue burden” discussion and those factors in South Dakota that the Court said would address any undue burden question. The concern is that in certain cases states with home rule sales taxes and accommodation taxes are not putting a meaningful economic nexus threshold or any meaningful simplifications in place. Without central collection, base uniformity, and (I would argue) rate simplification, I think they are inviting a challenge. I will be watching the Colorado litigation with more than a passing interest.