When you think about technology, what’s hotter than AI? Can AI be used to help provide tax advice?
Given the subject matter, why not ask Google’s Gemini, available at gemini.google.com, and OpenAI’s ChatGPT, available at ChatGPT.com?
Let’s start with the basics.
What Is AI?
According to Gemini, “Artificial intelligence (AI) is a broad field of computer science that revolves around creating intelligent machines capable of performing tasks typically requiring human intelligence.”
What about generative AI? “Generative AI, a branch of artificial intelligence, is all about creating entirely new content. It uses machine learning algorithms to analyze massive datasets of existing content, like text, images, code, or audio. By understanding the patterns and relationships within this data, generative AI can then produce entirely new, original content that is similar to what it learned from.” Gemini.
Gemini views itself as “a factual language model from Google AI, also known as a large language model (LLM) or conversational AI … under the category of Artificial Narrow Intelligence (ANI) or Narrow AI.” Similarly, ChatGPT views itself as “a type of AI known as a language model. [Its] primary function is to understand and generate human language text based on the input [it] receive[s].” Curiously, each refers to itself using the first person singular pronoun “I”.
What Can AI Do for Tax Advisers?
What can Artificial Intelligence do for you as a tax adviser? What better way to find out than to ask AI?
According to Gemini, “The tax landscape is a labyrinth of ever-changing regulations and complex calculations. Tax advisors, while brilliant, can find themselves bogged down by repetitive tasks and research. Artificial intelligence (AI) is emerging as a game-changer, offering tax advisors a powerful toolkit to elevate their services and provide unmatched value to clients.”
ChatGPT suggested, “Artificial Intelligence (AI) is revolutionizing how tax advisers operate, offering a multitude of benefits from enhanced accuracy to improved efficiency.”
As anexample of efficiencies that AI can provide tax advisors, Gemini suggested that, “AI-powered research tools can scan vast legal databases, identify relevant tax code updates, and deliver concise summaries. This ensures advisors stay on top of the latest regulations and provide clients with the most up-to-date advice.”
Sounds impressive.
How Does One Get the Most Out of AI?
You may ask, how do I get the most out of AI? According to Genesis, “AI systems rely on the data they’re trained on and the instructions they receive. The more precise your prompts and questions, the better the results you’ll get.” Also, “mastering the art of asking clear, focused questions is crucial. This helps the AI understand what you’re looking for and generate the most relevant response.” Good advice. ChatGPT advises, “Ensure you collect relevant and high-quality data. AI systems rely on data, so having accurate, comprehensive, and clean data is critical.” As Genesis succinctly put it, “Quality input, quality output”.
Genesis also cautions, “AI is not perfect: AI systems can make mistakes, especially with complex tasks or biased data. It’s important to critically evaluate the outputs and not blindly trust everything an AI generates.” Sometimes, incorrect or misleading AI output is often referred to as a hallucination, though AI cannot hallucinate like people do.
Both Genesis and ChatGPT had additional comments on the topic of getting the most out of AI. Of these, the points above appear to be the most important at a base level. To answer a question, AI needs to have access to the requisite knowledge, and the question needs to be asked clearly enough for AI to access that knowledge and formulate a coherent and correct answer. Otherwise, it’s garbage in, garbage out.
What’s the Best Tax Advice AI Can Give?
When prompted, “You are a tax advisor. What is the best tax advice you can give a client?” Gemini said, “As a tax advisor, the best advice I can give depends entirely on your specific situation.” Similarly, ChatGPT suggested, “The best tax advice is proactive and personalized.” One certainly cannot disagree with those comments.
Does Kentucky Sales Tax Apply to AI?
Asking a substantive tax question seemed to be a good test of AI’s capabilities to assist in providing tax advice. An obvious question is whether Kentucky sales tax applies to amounts paid for artificial intelligence? According to Gemini (footnote omitted):
Kentucky’s sales tax situation regarding artificial intelligence (AI) is a bit nuanced. Here’s what we know:
- Current Law: As of June … 2024, Kentucky applies a 6% sales tax to “prewritten computer software access services”. This means if you’re purchasing access to a pre-built AI tool or service (like an AI writing assistant offered as a subscription), it might be subject to sales tax.
- Ambiguity: The law doesn’t explicitly mention “artificial intelligence” itself. There could be some room for interpretation depending on how the specific AI offering is structured.
Then, Gemini suggested that one could contact the Kentucky Department of Revenue or a tax professional.
ChatGPT responded, “In Kentucky, the application of sales tax to amounts paid for artificial intelligence (AI) services or products depends on the nature of the AI and how it is delivered.” ChatGPT then discussed the various ways AI could be procured and the Kentucky sales tax treatment. For example, “If the AI is sold as prewritten software, even if downloaded or accessed online, it is likely subject to sales tax…. When AI is part of a professional service that includes consultation, customization, and other non-tangible elements, these services are generally not taxable.”
ChatGPT’s advice regarding AI sold as SaaS did not take into account the change in Kentucky sales tax law, effective January 1, 2023, subjecting prewritten computer software access services to Kentucky sales tax. But, ChatGPT is only updated through September 2021, and ChatGPT cautioned, “Given the complexities and potential changes in tax law, consulting with a tax professional or legal advisor can provide clarity and ensure compliance with current regulations.”
How did Gemini and ChatGPT fare in their attempts to answer the Kentucky sales tax question? While Gemini provided an answer, it was not confident in its answer. In contrast, notwithstanding ChatGPT’s challenge with using data updated only through September 2021, ChatGPT approached the sales tax question by reference to what was actually purchased and provided more direct answers, though limited by its outdated dataset.
Is It Ethical to Use AI to Provide Tax Advice?
Gemini identified ethical concerns in using AI to assist in providing tax advice, including limited scope, bias in algorithms, lack of human judgment, and security and privacy risks. ChatGPT concluded that “Ethical considerations are paramount to ensure trust, fairness, and compliance. By implementing best practices such as transparency, accountability, data security, and continuous improvement, tax advisors can ethically integrate AI into their services, providing valuable and reliable support to their clients.”
Gemini provided a couple of solid takeaways: “For simple tax situations, AI tools might offer basic guidance. For complex situations, consulting a tax professional is crucial.” Can’t argue with Gemini here.
The Future of Tax Advice
According to Gemini, “While AI isn’t replacing tax advisors, it’s augmenting their capabilities. By leveraging AI, advisors can become more efficient, gain deeper client insights, and offer exceptional service. This positions them as strategic partners, guiding clients through the intricacies of the tax code and helping them navigate an ever-changing financial landscape.”
“I’ll Be Back.” The Terminator in Terminator (1984).
The Terminator’s iconic catchphrase, “I’ll be back”, is the favorite Terminator movie series quote of both Gemini and ChatGPT. Is that a bit too cliche?
But, what about? The Terminator in Terminator 2: Judgement Day (1991) – “The Skynet Funding Bill is passed. The system goes on-line August 4th, 1997. Human decisions are removed from strategic defense. Skynet begins to learn at a geometric rate. It becomes self-aware at 2:14 a.m. Eastern time, August 29th. In a panic, they try to pull the plug.” Sarah Connor – “Skynet fights back.”
Let’s hope for the former in a positive light and not the latter.
This is a modified version of Mark A. Loyd’s regular column, Tax in the Bluegrass, “Tax Meets AI” which appeared in Issue 3, 2024 of the Kentucky CPA Journal.
