Memorandum

City of Lawrence

City Manager’s Office

Date:	9/20/07
To:	David Corliss, City Manager Ed Mullins, Finance Director
From:	Casey Liebst, Budget Manager Heidi Nelson, Management Analyst
RE:	Streamlined Sales Tax Project Meeting Summary

Per your request, a summary of the Streamlined Sales Tax (SST) Project Meeting held on September 19, 2007 in Kansas City, Kansas is provided below. 

SST Project Background

The SST Project is an effort to simplify and modernize sales and use tax collection and administration.  The Project’s proposals include tax law simplifications, more efficient administrative procedures, and emerging technologies to substantially reduce the burden of tax collection.  The Project’s proposals are focused on improving sales and use tax administration systems for both main stream and remote sellers for all types of commerce.

The goal of the SST Project is to provide states with a SST System that includes the following features:

• Uniform Definitions Within Tax Laws
• Rate Simplification
• Uniform Sourcing Rules
• State Level Tax Administration
• Simplified Exemption Administration

SST 101 for Local Governments

Scott Peterson, Executive Director of the SST Governing Board, presented an overview of the SST project and an update on their goal to make the sales tax system across the country simple and uniform.  He also mentioned the following:

• The main responsibility of his office is to handle the on-line registration system for retailer. 
• The main reason retailers register is to gain amnesty from back taxes owed in a particular state.  However, in order to receive amnesty in one state, a retailer must collect sales tax in all twenty-one of the participating states. 
• The SST body also certifies sales tax administrators.  These third party administrators handle administration of sales tax, including filing returns and submitting electronic payments, for retailers.  There are currently three certified sales tax administrators.  It was recommended that state and local governments encourage use of these administrators because it ensures timely and accurate payment of sales tax by retailers.
• The organization consists of a Governing Board and Executive Committee, made up of representatives from participating states; a State and Local Advisory Council, which provides feedback from the state and local perspective; a Business Advisory council, which provides the business perspective, a certification committee, an audit committee, and a compliance review and interpretation committee. 
• More information is available at:  www.streamlinedsalestax.org.

National Progress of SST

Joan Wagnon, who serves on the Executive Committee, spoke about where local governments fit in the system.  Highlights of her remarks included:

o A review of how Kansas agreed to participate in the SST project and had to add the local use tax in order to make the system work.

o The Governing Board is currently considering a rule to entice other states to participate.  The rule would allow states to use a composite sales tax rate for delivery sales rather than require retailers to know the sales tax rate for all taxing jurisdictions in the state.  Kansas would have the option to adopt this method, though Wagnon recommended maintaining our existing system which uses destination sourcing for delivery sales. 

o The Governing Board’s ultimate goal is for Congress to repeal the laws upheld in the Quill decision.  This would require retailers to collect on all sales, regardless of whether they have a physical presence in a particular state. 

o Local governments should notify Steve Brunken anytime boundaries change due to annexations.  This will ensure that all sales tax within your jurisdiction is being credited back to you.

o Local governments can use building inspection or fire inspection staff to ensure that new businesses are collecting and remitting sales tax.  For example, the City of Olathe created a Business Licensing Program to ensure that all businesses are collecting and remitting sales tax to the state. 

o Future STAR bonds projects will not have the issues that arose with the Kansas Speedway and the Legends.  Bond agreements will be written in such a way that destination sourcing will be used from the beginning rather than upon repayment of the bonds.  

Business Perspective on the Streamlined Project

Rich Prem, who handles tax issues for Amazon.com spoke about the business perspective on SST.  Highlights of his remarks included:

o Smaller retailers are finding ways to use the internet to grow their business.  Future growth in e-commerce will not be big retailers like Amazon, but from smaller retailers using technology to help them reach a broader marketplace.

o Amazon.com likes destination sourcing.  Destination sourcing simplifies sales tax administration by providing credit card addresses from each transaction to retailers.  This information allows them to ship goods from multiple warehouses across the country, thus reducing shipping costs and delivery time. 

o Businesses and local governments should join together in opposition of the small seller exemption that is included in the current proposed federal legislation.  The exemption would apply to sellers with $5 million or less in gross sales.  There should be an exemption for small sellers, but that threshold dollar amount is too high. 

o Local governments should demand that Congress obtain good data when considering the proposed legislation.  This will ensure that the impact on state and local governments is given thorough consideration. 

Status of Federal Legislation

Susan Gaffney with the Government Finance Officer’s Association spoke about the current proposed federal legislation – Senate Bill S34 and House Resolution HR3396. 

o Local government are encouraged to participate in the process by contacting their representatives and voicing opposition for the small seller exemption as it currently exists.

o A requirement for states to streamline their telecom taxes is also included in the current proposed bill.  From the GFOA’s perspective, streamlining telecom taxes could cost local governments.  Therefore, GFOA is lobbying to have the telecom provisions separated from the SST proposal.  

o If the proposed federal legislation were passed as currently proposed, states that have already adopted SST legislation would have to make amendments to their established legislation.  The current Kansas legislation does not include anything about the small seller exemption or the telecom simplification provisions.

o GFOA anticipates that it is unlikely that legislation will be passed in 2008 due to the presidential election.  SST legislation will be perceived as new taxes and it is unlikely members of Congress will support it. 

o Regardless of the results of the election, large scale tax reform is expected beginning in 2009.  GFOA anticipates the issue of SST being addressed as part of that wholesale reform.