Transcript Streamlining State and Local Sales Taxes

Streamlined Sales Tax
Overview and Update
July 2007
Introduction and Background:
 45 states plus District of Columbia impose sales
and use taxes.
 Over 7,000 local jurisdictions impose sales and
use taxes…administered by the state except in
AL, CO and LA.
 Retailers required to collect and remit sales tax
to states where retailer has physical presence.
 Use tax is owed by consumer when retailer does
not collect the sales tax.
2
Why doesn’t seller always collect sales tax?
 For decades, states have sought to require outof-state retailers to collect their tax.
 1992 Supreme Court decision in Quill Corp. v.
North Dakota held: requiring collection of tax by
out-of-state retailers with no physical
presence in a state would be burden on
interstate commerce and would therefore
violate Commerce Clause of U.S. Constitution.
3
Remote sales: What is at stake?
Compliance with sales tax laws by multistate corporations is too complex.
Local merchants suffer from lack of level
playing field.
Significant losses of revenue expected
due to growth in electronic commerce
and inability of states to administer use
tax with consumers.
4
Remote sales: What is at stake?
 "State and Local Sales Tax Revenue Losses from
E-Commerce,” July 2004 update to report by Dr.
Bill Fox at Univ. of Tennessee: State and local
governments lost between $15.5 billion and $16.1
billion in 2003 as states are unable collect sales
taxes from online sales.
 Trend increases: By 2008 revenue projected loss
for state and local governments range between
$21.5 billion and $33.7 billion, with the greatest
losses occurring in states that rely most heavily on
the sales tax as a revenue source.
5
History of Streamlined Sales Tax Effort
1999: National Governors’ Association and
National Conference of State Legislatures
requested tax administrators to assist in
addressing sales tax system issues:
 Make system less complex.
 Address unlevel playing field for merchants.
 Address loss of revenue from states unable to
collect taxes already imposed.
6
Who’s Involved:
44 States, DC and Puerto Rico:
Legislative Branch
Executive Branch
Local Governments.
Tax Practitioners.
Business community.
7
What makes the system complex?
Ask the people trying to comply:
One level of tax administration per state …no locally
administered sales taxes.
Have one rule that establishes who has the right to tax a
transaction.
Do not have so many different tax rates within each state
and locality.
Do not have different state and local tax bases.
Work on common definitions of the same term.
Do not make the retailer be the policeman to determine if
an exempt sale is valid.
8
Goals of the Streamlined Effort:
 Create a simpler system for administering the
various state and local sales taxes.
 Where something could not be made more
simple, make it uniform.
 Balance the interests of a state’s sovereignty.
with the interests of simplicity and uniformity.
 Leverage the use of technology to ease tax
collection.
9
Results: Streamlined Sales and Use
Tax Agreement (SSUTA)
 SSUTA approved November 2002 by the states, and
amended since.
 Provisions are based on simplification, uniformity and
technology principles:
 Simplification (e.g., state-level administration of tax).
 Uniformity (e.g., uniform definition of ”lease,” lease
sourcing rule.
 Technology (e.g., certification of tax calculation
software).
 Balancing interests of state sovereignty.
10
Results: Streamlined Sales and Use
Tax Agreement (SSUTA)
 SSUTA effective October 1, 2005.
 15 full member states.
 Full member status:
 Full member state has made all changes to statutes and rules to comply with the
provisions of the SSUTA.
 Kansas, Kentucky, Indiana, Iowa, Michigan, Minnesota, Nebraska, New Jersey, North
Carolina, North Dakota, Oklahoma, Rhode Island, South Dakota, Vermont, West
Virginia.
 7 associate member states.
 Associate member status:
 For new associate states, changes to state’s statutes, rules, regulations or other
authorities necessary for compliance take effect no later than 12 months after
becoming an associate state.
 For existing associate states, changes to state’s statutes, rules, regulations or other
authorities necessary for compliance take effect on or before January 1, 2008; or
 state has achieved substantial compliance with the terms of the Agreement taken as a
whole, but not necessarily each provision as required by Section 805, and there is a
reasonable expectation that the state will achieve compliance by January 1, 2008.
 Arkansas, Nevada, Ohio, Tennessee, Utah, Washington, Wyoming.
11
Streamlined State Status 7-01-07
WA
MT
ME
ND
MN
OR
VT
ID
WI
SD
MI
NY
WY
CT RI
NV
PA
IA
NE
IL
UT
CA
NH
MA
NJ
DE
MD
OH
IN
WV
CO
KS
VA
MO
KY
DC
NC
TN
AZ
OK
NM
AR
SC
MS
AL
GA
AK
TX
LA
HI
Full Member States
Associate Member States – flex to full
Assoc. Members that re-petition
FL
Advisory States – Not Conforming
Project states – Not Advisory
Non-participating state
Non-sales tax states
12
New “Member States”
 Vermont:
 Associate member from 8/29/06 to 12/31/06.
 Full member on 1/1/07.
 Rhode Island-Full member 1/1/07.
 Washington:
 Associate member from 7/1/07 to 6/30/07.
 Full member on 7/1/08.
 Advisory states
 Anticipated new states in 2007:
 Wisconsin
13
Governance of SSUTA
 All member states have seat
on the Governing Board.
 Governing Board formed nonprofit entity: Streamlined
Sales Tax Governing Board,
Inc.
 Governing Board advised by:
 State and Local Advisory
Council.
 Business Advisory
Council.
SLAC
Governing
Board
BAC
14
Governance of SSUTA
SSTGB, Inc.
Dwight Cook
President
Executive Director
Scott Peterson
Issue
Resolution
Committee
Finance
Committee
Executive
Committee
Compliance
Review And
Interpretations
Committee
Nominating
Committee
15
Governing Board
 Interpretations of and Amendments to SSUTA:
 ¾ vote requirement
 Certifies tax technology systems and service
providers.
 Reviews state compliance with SSUTA.
 Implements of Administrative mechanisms:
 Vendor compensation
 Multi-state audit procedures
 Handles dispute resolution.
16
State and Local Advisory Council
 Provides means by which states and local governments
not on the Governing Board have input into the process.
 Ex officio membership on Governing Board:
 Chair – Diane Hardt (WI)
 Vice Chair – Sherry Harrell (TN)
 Develops new definitions and analyzes proposed
amendments.
 Develops rules and advises on requests for
interpretations.
 Works with Business Advisory Council (“BAC”).
17
Business Advisory Council
 Voice of business community members.
 Provides input to Governing Board and State and
Local Advisory Committee related to administration,
interpretation, compliance with and amendments to
the agreement.
 Members include businesses, associations, and
practitioners.
 Two ex officio seats on Governing Board:
 Stephen Kranz, COST
 Richard Prem, Amazon.com
18
SSUTA: Key Features
State level administration of local sales
and use taxes.
Rate simplification:
 Allows one general state rate per state.
 Allows second rate on food and drugs,
electricity delivered by the seller; rate could be
zero.
 Allows single local rate per jurisdiction.
No caps and thresholds.
19
SSUTA: Key Features
Common state and local tax bases within a
state.
Common tax base for local jurisdictions.
Uniform sourcing rule for goods and services:
 Destination based.
Uniform sourcing rule for:
 Telecommunications.
 Lease or rental of property.
 Direct mail.
20
SSUTA: Key Features
Uniform Definitions









Food and food ingredients
Prepared food
Candy
Soft drinks
Dietary supplement
Clothing
Lease or rental
Tangible personal property
Bundled Transaction
 Drugs
 Durable Medical
Equipment
 Computer Software
 Prewritten Computer
Software
 Delivered Electronically
 Load and Leave
 Sales Price
21
SSUTA: Key Features
Uniform treatment of bank holidays.
Uniform rules for sales tax holidays:
 limited to defined products and within
administrative guidelines.
Uniform drop shipment rule.
Uniform rule for bad debt credits.
22
SSUTA: Key Features
Simplified electronic tax return.
Uniform exemption certificate and
simplified exemption processing.
Uniform rounding rule.
23
SSUTA: Key Features
 Central Registration System:
 www.sstregister.org/sellers.
 Must register for all full member states.
 May register for associate member states.
 When new states are added as full members, sellers receive
notice from the Governing Board and automatically become
registered to collect taxes in those states.
 Must register on Central Registration System to be eligible for
AMNESTY.
24
SST Agreement Key Features:
Amnesty Provisions
 Sellers who voluntarily register to collect tax receive amnesty
against liability for prior sales regardless of nexus.
 Not available to any seller that has received an audit notice
from a state.
 Available from date state joins Governing Board until one year
after it has been a full Member State.
 Unavailable to sellers who are registered with state during
preceding year or who are being audited.
 Must remain registered for 36 months.
 Sales tax liability only.
25
Amnesty
 Must register for all full Member States.
 Unavailable to sellers who are registered with state
during preceding year or who are being audited or
have received notice of intent to audit.
 Expired for the first full Member States on October 1,
2006.
 Currently available in all the Associate States and in
the full member states of Rhode Island and Vermont.
26
Technology Implementation
States must provide:
 Database matching tax rates to local jurisdictions.
 Database of boundary information for local
jurisdictions.
 Taxability matrix that identifies whether defined
products are exempt or taxable under the state’s
laws.
27
Technology Implementation
 Certification of sales tax administration
software.
 Central registration system.
28
Taxability matrix
A state database that tells sellers what is
and what is not taxable.
To start with, a list of uniformly defined
products and services, but will eventually
include more.
Sellers are not liable for errors in how
something is taxed if they follow what is
in the taxability matrix.
29
Technology Implementation
Model 1 Sellers use services of a Certified
Service Provider (CSP).
Model 2 Sellers use a Certified Automated
System (CAS).
Model 3 sellers have an in-house
(Proprietary) System.
30
SSTP Technology Model One: The
“Certified Service Provider” (CSP)
 CSP is a third party that provides “cradle to grave” tax service that
includes liability determination, return filing and tax remittance.
 CSP software applications must apply certification standards and
must receive approval by the Governing Board:
 Calculation accuracy standards.
 Technology standards (e.g., ISO 17799, SAS70).
 Three CSPs have contract with Governing Board:
 Avalara
 Exactor
 Taxware
 Businesses who volunteer to collect tax in state may use CSP’s at
no cost – states pay CSP for services to volunteer sellers.
 As of 6/30/07 there were 91 companies using a CSP.
31
CSP - Responsibilities & Liabilities
 Integration of software with seller’s order
processing system.
 Applied data & tax calculations.
 Tax liability & statistical reporting.
 Funds transfers.
 System performance & security.
32
SSTP Technology Model Two: The
“Certified Service Provider” (CAS)
 CAS is a third party that provides liability determination tax
administration service.
 CAS software applications must apply certification standards
and must receive approval by the Governing Board:
 Calculation accuracy standards.
 Technology standards (e.g., ISO 17799, SAS70).
 One CAS has contract with Governing Board:
 Taxware
 Businesses who use CAS pay the CAS for services.
33
CAS - Responsibilities &
Liabilities
Integration of software with seller’s order
processing system.
Applied data & tax calculations.
Tax liability & statistical reporting.
System performance & security.
34
Central Registration System
 The Streamlined Sales Tax Registration
System (SSTR) is a web-based system that
enables taxpayers to volunteer to register to
participate in Streamlined Sales Tax.
 Taxpayers can use SSTR for both new
voluntary registrations and updates to
previously submitted registration information.
 This system is a pass-through system in that
the states will incorporate the data into their
state system.
35
Central Registration System
 Updates to taxpayer information can be
submitted by taxpayers using SSTR.
 SSTR maintains all taxpayer information for
specific business processes.
 The SSTR is web based and a relational
database is used as a back-end for the storage
and retrieval of the data thus providing
dynamic information anytime, anywhere.
 An XML file schema is used to exchange data
between the SSTR system and the states.
36
Central Registration System
As of June 30, 2007 there were 1,013
companies registered on the central
registration system.
As of June 30, 2007 those companies
had collected $102 million in sales tax
for the Streamline states.
37
Interpretations
 2006-01: Amnesty/treatment of taxes already
collected.
 2006-02: Amnesty extension for users of CSP
model.
 2006-03: Sourcing of down payments on
leases.
 2006-04: Prepared food/eating utensils.
 2006-05: Fur clothing excise tax.
 2006-06: Amnesty related to de-registration.
38
Interpretations
 2006-07: Guidance on MPU- “concurrently
available.”
 2006-08: Amnesty related to de-registration.
 2006-09: Amnesty for predecessor entities.
 2006-11: Definition of food sold with eating utensils
provided by the seller.
 2006-12: Whether billing invoices, return envelopes
and any additional marketing materials are included
in the definition of “direct mail”
 2007-01: Whether the word “drug” is limited to an
item or liquid that is consumed internally by the
person or used externally on a person.
39
State and Local Advisory Council
Update
Digital products definition
 audio visual works
 audio works
 book
 undefined digital products
 definition of tangible personal property
40
State and Local Advisory Council
Update
Relief for purchasers - - reliance on
rate jurisdiction databases and
taxability matrices.
Issue papers converted to rules of
Governing Board:
 Telecommunication definitions.
 Drop shipments.
 Exemptions.
41
State and Local Advisory Council
Update
Replacement taxes:
 listing of taxes
 rules
 New Jersey compliance
Definition of sales price / sale for
resale.
Maintenance contracts.
42
CRIC
Committee role and process.
Interpretation Requests.
Impact on ruling requests, dispute
resolution process.
On going work to establish guidelines for
business.
43
Strategic Goals
Recruit remote sellers.
Expand legislative leadership.
Recruit additional member states.
Resolve outstanding compensation
issues with Model 3 and 4 sellers.
Work with Congress on federal
legislation.
44
What’s next?
 2008 Legislative sessions:
 Full member states
 Associate member states
 States seeking membership
 Items being addressed in 2007:




Direct mail
Sales price
Digital products
Dispute resolution process
45
Streamlined Sales Tax
Questions:
[email protected]
615-460-9330
www.streamlinedsalestax.org
46