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Organizing Documents  (OD-9) REPORT BY THE TAX RATE SUBCOMMITTEE

Wade Anderson
Chairman
Submitted March 27, 1998

At the La Jolla, California, meeting, the subcommittee to examine the tax rate issue was appointed. The following individuals agreed to serve on the subcommittee:

Three conference calls were held to discuss the issue. While at no time were all the committee members involved in the discussions, a substantial portion of the committee was involved in each conference call. In addition, Betsy Dotson and Dan Bucks took part in some of the discussions.

The first conference call was devoted to whether there should be one rate per state or actual collections at some point below the state level. By the second conference call, this issue had been resolved, with reservations, because the local government organizations concurred with the business representatives that one rate per state should be recommended. However, during this call, it became apparent that there was a substantial disagreement between the government representatives and the business representatives as to how the rate should be determined. There were three options discussed:

1. The lowest tax rate collected state wide

2. A blended rate for the local jurisdictions added to the state rate

3. A rate to be determined by each state's legislature

The government representatives were opposed to option 1 because substantial revenue is presently collected at the actual state and local rates on sales on which there is no collection requirement on the vendor, e.g., use tax reported or discovered through audit on out-of-state purchases by businesses within a state. The local government representatives also were concerned that if option 1 was used, it could affect their bond payment requirements. The business representatives were opposed to option 2 because they did not believe the Internet seller should be placed at a competitive disadvantage in those jurisdictions where the local rate was less than the blended rate. The business representatives were not in favor of option 3 and believed the same concerns they had expressed about option 2 were also appropriate on option 3.

During the second conference call, an alternative which would allow the Internet vendor a choice in collecting the actual rate in each jurisdiction or the single rate in the state was discussed. The government representatives saw this as a benefit to the Internet vendor, but the business representatives did not view it as such. Rather, they saw it as an alternative which would reinforce option 2 with which they disagreed. Furthermore, they believed it would cause confusion for their customers. Because of the business representatives' objections to this proposal, it was dropped.

The third conference call resulted in an agreement. It was decided that a tax system applying differing rates ultimately was not viable. Therefore, it is recommended that a single tax rate per state be applied to all commerce subject to sales or use taxation, whether such commerce is conducted over the Internet or by any other means, including conventional in-state retail sales. In making this recommendation, the committee recognizes that it is a highly charged political issue. However, the committee believes this recommendation best resolves the problem now and in the future; and it should be left to the elected officials within each state to work out a single rate for all commerce within their state.

Report by Wade Anderson, wade.anderson@cpa.state.tx.us

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