Proposal to the States and Streamlined Sales Tax Governing Board

Use Tax Reciprocity Bottom Line Up Front This method provides a mechanism to collect use tax already owed on internet purchases that was previously uncollectable.

Use Tax Reciprocity Use Tax Laws States should address Main Street Fairness via extant authority to collect use tax and regulate commerce within the state. Requires no federal action and no streamlining of laws, therefore states may begin immediately. Creating a single sales data facility used by all use tax states provides the mechanism to collect use tax on internet transactions.

Tax Collection Technique Use Tax Reciprocity Tax Collection Technique Vendor States States Sales Data Tax Invoice Bill Payment SSTGB Consumer

Regulation-Reporting Requirement Use Tax Reciprocity Regulation-Reporting Requirement Each state requires companies with a nexus to periodically report sales data. Companies report sales data annually (or certify that it had no transactions in which it did not collect sales tax). How to create the requirement depends on the state: Regulatory change made by Dept. of Revenue and approved by Ways and Means, or Legislation.

Regulation - Summarized Use Tax Reciprocity Regulation - Summarized Require companies with a nexus to report sales data. Require those companies to post on their sale confirmation page that untaxed sales may be subject to use tax. Designate the SSTGB an agent of the State Dept. of Revenue for this purpose, allowing them to collate information on sellers and buyers on a national level. Authorize collection of unpaid use tax on income tax filings. States protect tax revenues by barring the data from being used for any other purpose not related to sales and use tax collection.

Use Tax Reciprocity Information Needed Billing name and address - used to identify the purchaser. Shipping address - used to identify the tax jurisdiction. Brief description of goods, usually 1 or 2 words each - to determine taxability. Cost of goods - to determine tax owed.

The Technique – Data Reporting Use Tax Reciprocity The Technique – Data Reporting Data Extraction – Companies use their sales database to extract a sales summary into a file (.txt or .csv) Upload - Data files will be uploaded to a secure server and pass to the SSTGB. SSTGB uses a CSP or CAS to determine tax liability.

Follow the Sales Data Vendor CSP Consumer Use Tax Reciprocity Follow the Sales Data Vendor CSP Consumer Passes through SSTGB Sales Data Total Tax Liability State Dept. of Revenue Website States

Paying Use Tax - Consumer Use Tax Reciprocity Paying Use Tax - Consumer Internet transactions shall continue as normal, without taxation at the point of sale. Consumers will receive a notification of use tax owed concurrent to income tax filing. Consumers’ use tax liability is incorporated into the state income tax form.

Benefits - States Requires no streamlining or federal action. Levels the playing field. States collect based on authority to collect use tax and regulate/audit its corporations and businesses. Each state enforces compliance of its own businesses, for the benefit of every other state. By working together, each state ensures maximum collections for itself. Removes the need for a small business exemption. No reliance on consumer self-reporting.

Benefits – States (continued) Creates jobs in local businesses. Increases state government revenue allowing tax relief and preservation of programs. Consumer pays use tax similar to the way businesses pay use tax. Encourages local spending by closing the internet sales tax loophole.

Benefits - Vendors No implementation costs for vendors. Use Tax Reciprocity Benefits - Vendors No implementation costs for vendors. Almost no administrative time for vendors (less time than it takes to collect and remit sales tax). Much easier for a business to implement than using CSPs. Must relieve vendor from the liability of incorrectly collecting taxes across many jurisdictions.

Use Tax Reciprocity Potential Criticisms Security and Privacy-Protecting consumers shopping habit info These are the same issues that are extant under the current Point of Sale model.

Use Tax Reciprocity More on Privacy No agent of any state should ever view the purchases of any individual. All tax calculations should be automated in such a way that no one sees the name of any consumer. Tax information remitted to states should only include identifying information and total use tax owed (no information on shopping habits). If a consumer contests his use tax liability, any audit should be performed by an outside agency, and individuals performing the audit should certify that they do not know the person contesting the bill. These rules will protect the states and the SSTGB from invasion of privacy lawsuits.

Use Tax Reciprocity Amazon Laws Amazon and similar sites will not report sales data if items were sold through an affiliate. All affiliates of Amazon and similar sites will report sales in their respective states.

Use Tax Reciprocity What it is not This project does not completely replace the need for a national solution Non-use tax states have little incentive to participate. it creates the ability to collect almost all of the use tax owed.

Implementation Structure Use Tax Reciprocity Implementation Structure Technique SSTGB States License use of the technique States States Contract to perform calculations Join the agreement as regulations are implemented CSP

More on Reporting Regulation Use Tax Reciprocity More on Reporting Regulation States should only require companies to report transactions in which the purchaser’s state is also a party to the reciprocity agreement, i.e. both the seller and buyer are regulated by their respective state.

More on implementation Use Tax Reciprocity More on implementation SSTGB will require few additional resources, primarily the ability to monitor state implementation and CSP contractors. States will require few additional resources, primarily the ability receive/forward data and mail invoices to consumers once yearly. Collection becomes more efficient as more states join.

Use Tax Reciprocity Summary & Next Actions Investigate creating a reporting regulation in your state. Explore partnerships with a CSP. Follow up at the next meeting.

Use Tax Reciprocity Questions?