Transcript Slide 1

Tennessee and the Streamlined
Sales Tax Project (SSTP)
Presented to the TACIR
Nashville, Tennessee
February 7,2011
By
Stanley Chervin, Senior Research Associate
Inability to Require Remote Sellers to
Collect Sales Tax
• National Bellas Hess Inc. v. Illinois Department
of Revenue (1967)
• Quill Corporation v. North Dakota (1992)
Result: Without a physical presence in a state or
“nexus,” states have no legal authority to
required remote sellers to collect state or local
sales taxes.
Inability to effectively collect Tennessee Use
Tax from households and some businesses
• The Use tax complements the Sales tax (1947 for both) in order to
ensure collection of the tax on merchandise purchased from out-ofstate sellers who do not collect the sales tax.
• In such cases, the buyer has a legal responsibility to remit the tax to
the Department of Revenue. The Department of Revenue provides
a consumer use tax form (SLS 452) that households and businesses
can use to report and pay any use tax due.
• While many Tennessee businesses are audited each year to insure
proper payment of both the sales and use tax, many unaudited
businesses and most households for obvious reasons are not.
• In 2009, individuals filed 1,376 use tax returns and paid $1,746,111.
TENNESSEE AND THE SSTP
• States invited to work together by the NCSL, NGA, FTA,
and MTC to work together to simplify sales taxes.
• Organized in 1999 & 2000 with participation by 44
states and the District of Columbia.
• Participating states called SSTIS (Streamlined Sales and
Use Tax Implementing States).
• Tennessee played an active role in the development of
the SSTP including leadership roles in the Streamlined
Sales Tax Project Governing Board.
• Its active role reflects a combination of leadership
decisions to participate in the project and some very
obvious but sometimes overlooked or forgotten fiscal
realities.
Greatest Combined State and Local Tax Dependence
On General Sales Taxes (2008 Census Data)
1
2
3
4
5
6
7
U. S. Census data
adjusted
Tennessee
46.3%
South Dakota 40.1%
Arizona
39.6%
Louisiana
39.6%
Arkansas
39.5%
Hawaii
38.9%
New Mexico 35.7%
Highest combined average state and local sales tax rate: 9.41%
E-Commerce Sales as Percent of Total Retail Sales
4.5
4.0
% of Total Retail
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
4Q99
Source: U. S. Census
4Q00
4Q01
4Q202
4Q03
4Q04 4Q05
Quarter and Year
4Q06
4Q07
4Q08
4Q09
Growth in Remote Sales
Source: U.S. Census:, QUARTERLY RETAIL ECOMMERCE SALES 3rd QUARTER 2010
Significant Lost Revenue From
E-Commerce Only
1. State and local sales tax revenue loss for all states is estimated at
$11.4 billion by 2012.
2. Projected 2012 state and local sales tax loss for Tennessee is
estimated at $410.8 million.
3. Total loss for Tennessee between 2007 and 2012 is estimated at
$ 1.9 billion.
4. Estimated 2007 losses in Tennessee represent 3.04% of actual
2007 state and local sales taxes, fifth highest of the 47 states
(includes DC) analyzed. Budgetary impact (of the loss) in
Tennessee forecasted to rise to 4.8% of actual collections by
2012.
Source: Bruce, Fox, and Luna: State and Local Government
Sales Tax Revenue Losses from Electronic Commerce, April
2009.
Estimated Losses from all Untaxed Sales (ECommerce plus other types of remote sales)
1. State and local sales tax revenue losses for
all states is estimated to reach $23.3 billion
by 2012.
2. Projected 2012 state and local sales tax loss
for Tennessee is $748.5 million.
Source: NCSL interactive map at
http://www.ncsl.org/default.aspx?tabid=20274
SSTP Goals
• State level administration of sales and use tax
collections.
• Uniformity in the state and local tax bases.
• Uniformity of major tax base definitions.
• Central, electronic registration system for all
member states.
• Simplification of state and local tax rates.
• Uniform sourcing rules for all taxable
transactions.
Source: SST Governing Board website:
http://www.streamlinedsalestax.org/index.ph
p?page=About-Us
SSTP Goals
•
•
•
•
Simplified administration of exemptions.
Simplified tax returns.
Simplification of tax remittances.
Protection of consumer privacy.
Source: SST Governing Board website:
http://www.streamlinedsalestax.org/index.ph
p?page=About-Us
SSUTA Conformity Requirements
• Common state and local sales tax base within
a state (over 30 states impose both state and
local sales taxes)
• A single state rate (few exceptions such as
food)
• A single local rate in each jurisdiction (easily
mapped)
• Uniform destination sourcing rule for goods
and services but with an alternative for
intrastate sourcing under certain conditions
SSUTA Conformity Requirements
• Uniform sourcing for telecommunications
• Uniform product definitions
• Reasonable vendor compensation (a clear
requirement in seeking federal legislation)
Streamlined State Status 01-01-11
WA
ME
MT
ND
MN
OR
VT
ID
WI
SD
MI
NY
WY
CT RI
NV
PA
IA
NE
IL
UT
CA
NJ
DE
MD
OH
IN
WV
CO
KS
VA
MO
KY
NC
TN
AZ
OK
NM
AR
SC
MS
AL
GA
AK
TX
LA
HI
Full Member States
Associate Member States – flex to full
Advisory States – Not Conforming
Source: Streamlined Sales Tax Governing Board
NH
MA
FL
Non-sales tax states
Project states – Not Advisory
Non-participating state
DC
Tennessee Conformity Changes
• Adoption of most conforming definitions.
• Creation of a jurisdiction boundary database (for use
by remote sellers for establishing local sales tax rate).
• Establishing a central registration system.
• Telecommunication sourcing rules.
• Uniform remittance and recovery of bad debt
procedures.
• Providing SSUTA amnesty provisions.
• Uniform sales tax holiday definitions and procedures.
Tennessee Hurdles to Full Conformity
• Destination sourcing rule needs to be readdressed in
Tennessee. Optional origin sourcing now available under
certain circumstances.
• Single article limitation (local and state) must be ended (not
allowed under SSUTA except for motor vehicles, watercraft,
aircraft, and modular, manufactured and mobile homes).
• Special sales tax rates (different than standard rate) levied on
a small group of items in Tennessee must be repealed. These
will be replaced with special privilege taxes (in lieu of sales
taxes).
Tennessee Hurdles to Full Conformity
• Uniform sourcing rules for telecommunication
service will result in some redistribution of
local sales taxes; actually back to method used
in late 1990s.
• Vendor’s Compensation must be provided to
both remote and instate vendors.
• Additional taxpayer education by DOR needed
before full implementation.
Congressional Hurdles Remaining
• Congress facing significantly more important
issues at current time. New composition of
Congress may frown on what some consider a tax
increase.
• Congressional interest and involvement must be
maintained, and this will require continued
momentum by the SSTP.
• Issue of appropriate level of vendor’s
compensation and deminimus rule amount,
although both issues recently addressed in
SSUTA, must satisfy Congress.