Episode 5
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Transcription
Justin Hubbard
Hello, everyone. Welcome to another episode of Unhinged, where it’s our job to highlight business practices that are good, bad, and some that are just downright ugly.
I’m your host, Justin Hubbard. Today, I’m thrilled to have Erica Horn as our guest. Erica is an attorney, a CPA, and a downright hoot of a wonderful person. She’s also a founder of a nonprofit, which we’re looking forward to digging into. So Erica, welcome to the show.
Erica Horn
Well, thank you Justin.
Justin
Erica, will you introduce yourself to the audience?
Erica
Sure. So I’m a Lexington girl for all intents and purposes. I went to Transy, to undergrad, and I went to UK to law school. In between those two things, I was in public accounting for four years, on the auditing side of the business. When I graduated from law school and I was interviewing for a job, they said, “Well, you must want to do taxes and you must want to do equine.” And I said, “No, I don’t want to do taxes.” And here I am. I don’t do taxes like most of our colleagues though, Justin.
Justin
And what’s unique about your practice?
Erica
I actually consult with businesses on state and local taxes, like Kentucky sales tax or California’s tax on the equine industry. So states, and whatever they tax. That’s what I do.
Justin
Very good. Do you have any hobbies when you’re not doing taxes?
Erica
My granddaughter is my hobby. Before her, it was my nephew, but he’s been totally pushed out of the picture. But he’s older now, too. I also like to read.
Justin
What’s the last book you remember reading that made some type of impact on you?
Erica
Well, actually I am reading a book by a woman named Austin Channing Brown. It’s called I’m Still Here, and it’s about our whiteness. And we’ve started White Fragility by Robin DiAngelo. I was in a book club sort of discussion about that last night. The death of George Floyd was overwhelming to me. And how little I know, how very little I know and understand, is embarrassing. So time to change.
Justin
Tell us about Glean Kentucky.
Erica
Ten years ago now, which is unbelievable, a small group of individuals got together after a fellow said to me, “Erica, there’s lots of excess food, there are lots of people who are hungry, and there ought to be a way to marry the two. ” And he was a 100% correct. So after a period of time, we went about building the bridge between the lack of resources and the excess so that we can take care of the food insecurities in our state and our community, or at least help, and also relieve the environmental effect of all the excess waste created by the excess food.
We’ve been blessed with gifts that have enabled us to take risks that you otherwise wouldn’t take, risked growth, like hiring our first full-time person.
Justin
Yeah, that’s excellent. I want to circle back around and touch on that later. Also want just to make sure everyone who listens knows how they can get involved.
Erica
Yeah, send money.
Justin
Send money. Send money.
Erica
Gleanky.org, but you can volunteer there too. We need that desperately.
Justin
Well, along those same lines, we talk a lot about businesses, and what they can do better, what they get wrong. Like how can businesses be better corporate citizens?
Erica
So, you are going to elicit some personal opinions. Here, let’s do a disclaimer: These are not the opinions of Dean Dorton. These are my personal opinions.
I think each of us are charged every moment of every day with being a better person, being a better human to other humans. So I think the first thing the people who comprise corporations can do is try to be better humans. And to know that we’re never going to reach that goal. We’re not suddenly one day going to be perfect. And we can talk about all the traditional things like sponsor fundraising events, or have built-in days where your employees do volunteer service. And certainly all of that is incredibly important. But overall, I think we need to look to the common good, and I think we have a responsibility to each other to work together, to advance one another, and not against each other.
My observation is that much business, not all business, but much business is driven by one of two things: power and money. That’s fine, as long as you have guardrails. Making money for the sake of making money strikes me as not the right thing to do, and doing something because you can is offensive to me.
Yeah. I think we have to try to be better. Just using Black Lives Matter or people of color as an example—knowing now, Justin, how little I know, everybody needs to educate themselves some way about their own privilege. So do you have sons?
Justin
I do. I have three.
Erica
Okay. So one of your primary concerns when your sons leave the house—of course they’re young now, but as they get older—one of your primary concerns will not be whether or not they’re going to be pulled over by the police and killed. That’s an example of our privilege.
So those things that we could just understand just a teeny weeny bit better, or try to, I think are important.
Justin
Yeah. Yeah. That’s actually an example that I’ve shared with my 10-year-old, is one of the privileges you have by just where you were born and the family you we’re born into is relative safety that other people don’t have.
Erica
Yes.
Justin
Well, let’s integrate just some general business discussion. What are some things that businesses have gotten wrong throughout your career—and you just continue to see that they just are oblivious to?
Erica
They don’t ask for help soon enough. They wait until there is a problem. And one thing that I am learning, I spent four years in public accounting and over 25 years in law—and so my experience is tainted. So perhaps you don’t call the lawyer until it’s too late. But even in my work, a lot of times deals get done, businesses get acquired or sold, or things like that. And the state and local tax consequences of that are an afterthought. Everybody thinks about planning for federal taxes, but a lot of times people don’t think about planning for the state and local tax consequences of something.
So if you sell your business, you’re calculating what your federal income tax liability is going to be. If your business is in Lexington, what’s your Lexington liability going to be? Do they treat it the same way that the federal government does or do they treat it different? And even in Kentucky could be even a third different scenario. So ask sooner, ask sooner. I can help you more on the front-end.
Justin
On the front. Do you think that there’s a hesitancy to ask or maybe there’s just a lack of awareness?
Erica
Yes. I think it’s primarily a lack of awareness and I think the other thing that has happened, I think states and local governments are desperate for money and—woah to what is coming—have gotten a lot more aggressive on every front in terms of trying to capture taxable income, in terms of enforcing their laws, in terms of audits. So I think most states now think that they can tax everything. So you might not have been worried about whether or not you delivered pizza across the border in West Virginia, or one of the other six contiguous borders, but maybe you should? Well, I promise you, you should, because you just don’t want an assessment that shocks you out of your socks.
Justin
Yeah.
Erica
It’s expensive, Justin. The hard thing about it is it’s like, okay, “Well that’s going to cost me money. If I deliver pizza in Tennessee or West Virginia, am I going to have to collect sales tax on that? If I ask her, a) she’s going to charge me and b) I suddenly might have to collect tax. And that sounds like a pain. So I think I’ll just let it ride. I think I’ll just wait and see if they catch me.” So it’s hard. I understand it’s hard, but it’s not as hard as the whatever thousand dollar assessment, four years later, or two years later, or 10 years later.
Justin
And practically speaking, what does that look like? If if I’m a business owner and I’m just going about my business, I’m thinking, “Okay, I’m going to grow.” Maybe I’ll stick with the pizza example. Maybe I want to look to buy franchises in these areas. Maybe I’m just going to expand my existing pizza joint. Maybe I’m just going to expand my delivery fleet. Is there a point in which I should be contacting Erica Horn for her with specific questions? Or should it be more of just I have an Erica Horn who I meet with monthly, or I have a call with quarterly, and we just talk?
Erica
My preference would be—of course it’s self-serving, and I’ll acknowledge that upfront, all right? —but my preference would be that you call me before you put your toe in West Virginia or Tennessee.
Justin
Yeah.
Erica
Just so you know what to expect. So maybe it would be better to put your toe in West Virginia, than in Tennessee, but I can’t tell you that if you don’t ask me first.
Justin
Yeah.
Erica
And people will go to large markets as fast as they can. And the large markets can be really tough places to be.
Justin
Yeah.
Erica
That would be one way. Then we’ve had, if you expand your delivery fleet, you have it branded, and your trucks are driving into West Virginia, and out of West Virginia, and into West Virginia, and one of the local tax assessors see your trucks, you might get a letter or a call that says, “We saw your Justin-branded truck. And we’re just wondering if you were paying our tax?” Different states have different approaches.
Justin
It’s interesting to me how the business climate now seems it requires partnerships with people who deliver professional services and it’s just an embedded cost of doing business. Either you pay up front or you pay down the road.
Erica
Yeah. I would agree with that. I hadn’t thought of it in those terms. And sales tax, for example, it’s too hard. It is devastating for some small businesses.
Justin
Yeah.
Erica
They cannot afford it. And Congress needs to act, but that’s true about a lot of things. So we won’t hold our breath on that one.
Justin
At some point, a few moments ago, you said, “Just wait and see what the states are going to do next, or localities.”
Erica
Or even the federal government.
Justin
Yeah. I mean, what’s your crystal ball say?
Erica
That there’s going to be an unavoidable increase in tax rates, and theoretically an increase in enforcement. So if they had 10 auditors pre-COVID, they’re going to have 25 when this is over. And the scope of that, I mean you add 15 people, you can do theoretically 15 times the work once you ramp up, something like that. I would expect states and local governments to be looking under every rock.
Justin
Yeah.
Erica
For revenue.
Justin
With so much of our economy being digital now, with the transactions, they’re all electronic. Does that not just make it easier for the enforcement groups within these taxing jurisdictions, if they have the technology required to?
Erica
Yeah. It might, but not necessarily. So one of the things about law is it lags the times. So we might not have a mechanism to tax something that’s digital. Let’s take my favorite example, TurboTax.
Justin
We do not condone the use of TurboTax on the show. Or TurboTax can sponsor our show. I’m looking for my first sponsor.
Erica
So use a product, something that you can buy in a store or that you can download off the internet, and also something that you could do through a portal. So TurboTax is an example of that. I could go to Walmart and buy a CD or a DVD. I can go online and buy a copy from TurboTax or Intuit and download it on my computer. Or I could just go to Intuit’s online portal and I could do my taxes on there.
The states know what to do when you buy it at Walmart—you tax that, for sales tax purposes. It’s taken them a long time, but most of them now know what to do when you download it on your computer—they tax that. What they don’t know is what to do when you go to a portal, and you do it in the cloud or online. That’s a mystery. We call it software as a service. About half the states have addressed that, and about half the states haven’t. Kentucky desperately wants to tax software as a service. But so far it hasn’t been slated as taxable.
Justin
So the past five months, what have you been busy doing?
Erica
Paycheck Protection Program loans.
Justin
Paycheck Protection Program loans.
Erica
PPP loans. What do you want to know?
Justin
I’m just curious. So from, again, your perspective, a handful of things. What has gone well, I find it more interesting what went wrong, and what needs to be fixed for next time?
Erica
So one of the hardest things in life, I think is uncertainty. We hate it, because change is on either side of that and we hate change. So we are already in uncertain times when all of our businesses had to close or all of our people had to go home. And then we wondered how we were going to make a living or how we were going to keep our businesses. And Congress got to work and passed and President Trump signed on March 27, 2020, this first, was actually the second business recovery package. The first one was called the Families First Coronavirus Response Act or something like that.
That was good. That was good. That was good that they understood that businesses were going to need help, that people were going to need help and they were going to need it soon, that this is not something we could wait on. That need for immediate action also created a huge downside when it came to these loans, PPP loans. So the President signed the act on March 27. Seven days later, April 3, I think it was, the Treasury Secretary announced that they would begin accepting applications the next week. We didn’t even know how to calculate the loan amount. The cart came before the horse, and in this program that has continued to be the problem.
It’s frustrating, and it’s exhausting, as a business owner and as a professional for me to be faced moment by moment by moment with, “I don’t know. I don’t know.” I read the words and I don’t know. I can’t tell you how many times I’ve been asked, “Can I pay rent to my related company?” “I don’t know.” That not knowing has been really, really hard. And it has created a ton of confusion, a ton of anxiety, but the money was necessary, and the money is good. And it really, Justin, it was just another unemployment program, but it was run through the business. So employees, people got paid, and the business didn’t have to lose its people, et cetera.
But it has been incredibly difficult to help people because there has been so little guidance. And it’s hard. The things that they have built into the statute, the requirements you have to meet and things like that, are hard. And in part of it reflects—and nobody could have known—part of it reflects the fact that Congress never envisioned that the virus would last this long.
Justin
Yeah.
Erica
And that’s why we had to have an extender bill and another extender kind of. And I think the help for state and local government is critical. The help for hospitals, educational institutions, et cetera, is absolutely critical. I think more help is critical. We—Dean Dorton and the COVID-19 Solutions Team—we’ve done a great deal of this work, really as a public service. I mean, obviously we have to know for our clients, but we’ve done webinars, we’ve done blog posts, we’ve done everything we can to try to help people. And it’s been one of the most rewarding parts. You feel like you’re helping somebody.
Justin
If you’re a business, a business owner, an executive, whatever, what are some of the key lessons that you hope that they have learned or that you would have walked away from this season with, the season being the COVID-19 thing that we’re still in?
Erica
Yeah. Wow. I think that that’s really hard, because I don’t know what a restaurant or a gym or a salon could do differently. And saying something like pick a different business, that’s not an option for the vast majority of people. Find something new to do? No, that’s not helpful. Every business owner wishes they had more cash. Every business owner probably now wishes they could do things remotely to the extent that they can’t. Our ability to go remote was phenomenal. And if you have a business like that, then that should be your number one priority.
Justin
It is unique in that maybe in our culture, we’re so obsessed with self-improvement and self-betterment and so much planning ahead. But to your point, if your livelihood is based upon people walking into your restaurant and you giving them food to consume and the government says “People are not allowed to come into your establishment anymore,” that’s unfortunate luck. I mean, it’s a horrible situation.
Erica
Yeah. And the businesses that were lucky enough to be able to pivot to a curbside delivery model, at least were able to save something, 20% or 30% of their business. But who knows if that’s enough.
Justin
Anything else on Glean Kentucky that you want to share? You said you plugged the website, gleanky.org.
Erica
It’s fun. Gleaning is fun. We’re nearing two million pounds of food that we have rescued from the landfill. On a Friday after Thanksgiving, I went to Costco. They had dozens of fruit trays and relish trays, dozens, dozens. And I picked all those up and I took them to a local nonprofit. And as I was walking back to my car, having taken those in and dropped those off, I could hear the people clapping and hollering. That was a great joy. I get cold chills just talking about it. To know that you have impacted someone in that way, to hear someone say, “But for you, I didn’t know where the next meal was coming from.” “But for you, we would have no vegetables or fruits.”
Justin
Wow.
Erica
It’s fun to go to the orchard and pick up thousands of pounds of apples and deliver them to elementary schools to go in the backpacks of children, that’s rewarding work, brother. We also go into the fields and pick excess berries, greens. It makes the producer feel good. It makes you feel good. And it makes the recipient feel good.
Justin
Yeah.
Erica
And how much better could that be?
Justin
Thanks for being on our show.
Erica
Thank you for having me. It’s been fun.
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