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 LawsStates 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.

Use Tax Reciprocity

Tax Collection TechniqueVendor

SSTGB

Consumer

States

Sales Data

Tax Invoice

Payment

States

Bill

Use Tax Reciprocity

Regulation-Reporting RequirementEach 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, orLegislation.

Use Tax Reciprocity

Regulation - SummarizedRequire 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 NeededBilling 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.

Use Tax Reciprocity

The Technique – Data ReportingData 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.

Use Tax Reciprocity

Follow the Sales DataVendor

State Dept. of Revenue Website

States

CSP

Sales Data

Passes through SSTGB

Consumer

Total Tax Liability

Use Tax Reciprocity

Paying Use Tax - ConsumerInternet 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.

Use Tax Reciprocity

Benefits - StatesRequires 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 - VendorsNo 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 CriticismsSecurity and Privacy-Protecting consumers

shopping habit infoThese are the same issues that are extant

under the current Point of Sale model.

Use Tax Reciprocity

More on PrivacyNo 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 LawsAmazon 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 notThis 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.

Use Tax Reciprocity

Implementation StructureTechnique

CSP

SSTGBLicense use of the techniqueContract

to perform calculations

States

Join the agreement as regulations are implemented

StatesStates

Use Tax Reciprocity

More on Reporting RegulationStates 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.

Use Tax Reciprocity

More on implementationSSTGB 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 ActionsInvestigate creating a reporting regulation in

your state.Explore partnerships with a CSP.Follow up at the next meeting.

Use Tax Reciprocity

Questions?

Use Tax Reciprocity