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Organizing Documents  (OD-15) STATEMENT OF POSITION OF THE BUSINESS GROUPS

STATEMENT OF POSITION OF THE BUSINESS GROUPS

January 13, 1999

In response to the request of the government group members of the NTA Tax Project, the business group members have prepared the following list of proposed policies for use by the Project in continued dialog. While a majority of the business representatives support this proposal, the support for each and every line item may not be unanimous. And, due to time constraints, some business group members have not yet been able to consult with their constituencies regarding some or all these principles.

In order for the business groups to consider supporting a proposal which includes an expanded duty to collect sales and use taxes by remote sellers, the following measures must be included in the proposal:

1. THE POLICIES DESCRIBED IN THIS PROPOSAL APPLY TO ALL VENDORS (I.E., NOT LIMITED TO ELECTRONIC COMMERCE VENDORS.)
    
   Sales and use tax reform should be extended to all forms of commerce, and not be limited to only electronic commerce. The benefits derived by both business and government groups from a new and improved sales and use tax system will clearly benefit all participants in commerce. Further, broadening the scope of this Project will, in many ways, reduce the obstacles facing the Steering Committee. For instance, the importance of determining the definition of electronic commerce will be negated. Therefore, the Project's solution to improving the current sales and use tax system should be extended to all forms of commerce.
    
2. TOTAL SIMPLIFICATION OF SALES AND USE TAXES SHOULD BE IMPLEMENTED
    
   The Project's work product must represent a simplification of the current sales and use tax system. The business group members have termed the level of simplification necessary to reach agreement as "Total Simplification." The components of Total Simplification follow:
    
   1. DEFINITIONS
       
      1. Absolute uniformity among the states regarding the definition of relevant terms and concepts. A "glossary" will be developed and operative language in all state and local statutes and regulations regarding sales and use tax will utilize the terms as defined in the glossary. Defined terms will, at a minimum, include: "telecommunications," "tangible personal property," "intangible property," and "various services" (and classifications of same, such as "data processing").
          
      2. Uniform categorizations of products and services, and an analysis of whether and how each state taxes each category. States will jointly develop and provide this information in an electronic form suitable for use with sales and use tax software programs.
          
   2. UNIFORMITY AND SIMPLIFICATION OF SALES TAX STRUCTURE
       
      3. Absolute uniformity is the ideal outcome of the efforts of this Project. Uniform acceptance and application of any new system will likely require implementation of the system or rules by federal legislation.
          
      4. A single sales and use tax rate will be set by each state.
          
      5. Telecommunications services should not be subjected to higher or additional transaction taxes than other goods and services. Each state's state and local transaction taxes on telecommunications should be consolidated into the single, statewide transaction tax, reportable to a single remittance point in each state.
          
      6. Uniform, multistage registration forms and requirements will be developed (i.e., national registration form).
          
      7. Uniform effective dates. The effective date for tax rate changes (or other statutory changes) will be limited to January 1 and July 1, with a minimum six (6) month notice period of any tax changes.
          
      8. Bad debts. A bad debt deduction and other provisions (e.g., handling of bad checks, etc.) will be provided to vendors and assignees who do not collect amounts due in taxable transactions with respect to which tax has already been remitted.
          
      9. Uniform direct pay permit rules and registration requirements will be provided.
          
      10. Uniform refund claim forms and procedures will be provided.
           
      11. Uniform resale certificates will be provided.
           
      12. Vendor safe harbors and reliance on customer-provided information. Certain presumptions, rebuttable only upon a showing of bad faith by the vendor, will arise to protect vendors who follow approved procedures regarding:
           
          1. customers paying by check,
              
          2. resale exemption certificates, and
              
          3. transaction sourcing information provided by customers.
              
             A uniform mechanism which is non-punitive to vendors will be developed for dealing with purchases by customers who decline to voluntarily provide information.
              
      13. Uniform exemption for shipping and handling charges will be provided.
           
      14. A de minimis threshold for sales and use tax reporting will be established.
           
      15. Uniform provisions for audits, assessments and appeals. These will include audit procedures, sampling methods, statutes of limitations and provisions for mitigation thereof.
           
   3. RETURNS AND FILING

   16. If tax returns are to be used for some or all taxable transactions:

   1. a national uniform sales and use tax return will be developed,
       
   2. a single national filing and remittance point will be employed (such as the one used under the International Fuel Tax Agreement),
       
   3. taxpayers will have the ability to file and remit electronically (EFT) through a uniform national mechanism, and
       
   4. sales and use tax returns will be required no more frequently than quarterly.

   17. If a "real time" system is to be used for some or all taxable transactions:

   1. it will enable the automatic electronic collection, remittance and credits of tax at the point of sale, and
       
   2. no tax returns will be required to be filed for any sales subject to such a "real time" system.

3. VENDORS SHOULD BE COMPENSATED FOR THEIR COSTS INCURRED IN COLLECTING AND REMITTING SALES AND USE TAXES AS AGENTS OF THE STATE
    
   Vendors will be provided a meaningful merchant's discount, with no maximum or cap. As agents of the state who incur substantial costs associated with collection and remittance of sales and use taxes, vendors are entitled to appropriate reimbursement of those costs. Three percent (3%) of tax collections appears to represent a fair amount based on the limited research performed to date.
    
4. UNIFOR SALES AND USE TAX SITUSING AND SOURCING RULES SHOUD BE ADOPTED
    
   1. Destination based system. Vendors will be required to collect and remit tax based on the destination state when that is known. A uniform national default rule will be employed where the destination state is unknown or when there is indication that the object of the transaction is a gift being shipped directly to the donee by the vendor.
       
   2. Wireless sourcing. Wireless telecommunications will be sourced in conformance with the concepts included in the Wireless Tax Group's "Uniform Sourcing Proposal."
       
5. PHYSICAL PRESENCE SAFE HARBORS SHOULD BE ADOPTED FOR BUSINESS ACTIVITY TAX NEXUS
    
   Sales and use tax nexus, or the duty to collect sales and use taxes, cannot be examined in isolation. There undoubtedly will be "spillover" and other tax nexus will be affected. Even the most substantial "firewall" cannot prevent the perception that income tax nexus is affected by an expanded duty to collect sales and use taxes. Furthermore, nexus issues are not limited to sales and use taxes; all types of taxes and taxpayers will benefit from clarification of the nexus rules.
    
   It should be made clear that the following do not create nexus:

1. Electronic contacts or signals (wire, wireless, broadcast, internet, etc.)
    
2. Temporary (less than 30 days) presence of employees or owned or leased property.
    
3. Coverage of news and other media events of public interest (without regard to the duration of in-state presence.)
    
4. De minimis presence (expressed in both minimum numbers of employees and minimum value of owned or leased property.)
    
5. Apparent agency inferred from the conduct of independent contractors and other 3rd parties. (I.e., there should be no attributional (agency) nexus unless there is actual agency under state law.)
    
6. Presence of quality control inspectors at suppliers' sites.
    
7. Exploitation or other use of trademarks, tradenames, patents and other intellectual property in a state by an out-of-state taxpayer.

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