Interim Report Small SellerVendor Compensation Task Force

1
Interim ReportSmall Seller/Vendor Compensation
Task Force

• Streamlined Sales Tax Governing Board
• December 6, 2008

2
Task Force Mission

• Assist Governing Board with two issues
• Small Seller Threshold
• Vendor Compensation
• Intent
• Gather information on topics
• Identify issues relevant to GB duties
• Provide principles and framework to allow
  Governing Board to develop consensus
• Not intended to answer specifically, e.g.,
  specific threshold or compensation requirements

3
Task Force Approach

• Identify information needs
• Gather information through meetings,
  teleconferences and presentations
• Develop issue list
• Answer and refine principles and report through
  in-person meetings and teleconferences

4
Cross Cutting Thoughts

• Must be considered in tandem
• Movement in one area can cause movement in the
  other
• Must be considered in relation also to technology
  and simplifications
• Board should focus on additional simplifications
  and technology that reduce costs and foster
  participation
• Both require continuing review

5
Small Seller Threshold

• Legislation should contain a small seller
  threshold
• Over time, threshold should gravitate toward an
  occasional seller/sales threshold
• Achieving this level will require improved
  technology that is proven and readily available
  and additional simplifications

6
Small Seller Cont.

• Should be plain, simple and straightforward
• Seller should not be in doubt as to position
• Based on gross remote sales
• Differs from current legislation
• 12-month period
• At least one calendar quarter to ramp up for
  collection

7
Small Seller Cont.

• Determined on basis of seller and affiliates
• Not a separate company threshold as in current
  legislation
• Phased-in to allow Streamlined to accommodate
  participants and to allow further
  simplifications/technology
• Question on certification
• Board should review periodically

8
Vendor Compensation

• Joint Cost of Collection Study provides a
  reasonable benchmark
• Identifies drivers of cost
• Indicates relative levels and differentiation by
  size
• Still information that is necessary/desirable
• Greater differentiation of large sellers
• Effect of Streamlined simplifications
• Econometrics as in Phase II
• Relationship of various types of costs to amount
  of tax collected

9
Vendor Compensation Cont.

• Definition
• Bear relationship to actual costs incurred solely
  as result of collecting and administering state
  and local sales tax
• Need to consider those incurred only because of
  sales tax and mixed costs that serve other
  business purpose
• Need also to consider types of costs and
  relationship to amount of tax collected, e.g.,
  credit card fees v. cash registers v. exemption
  certificate management

10
Vendor Compensation Cont.

• Compensation should reflect
• Differences in size of retailers and economies of
  scale that are present
• Best achieved through differentiation of rates
• Complexity of different state tax structures
• Number of local governments
• Variability of local rates
• Sourcing rules

11
Difference of Opinion

• Can a system that has an across-the-board limit
  on total compensation be considered reasonable
• Retailer Position
• Some costs (e.g., credit card fees) are not
  capped increase in direct proportion to tax
  collected
• Violates relationship to actual costs

12
Compensation Limits

• State Position
• Limits should not be per se unreasonable
• Flexibility necessary to accommodate different
  types of costs and variability across sellers
• Necessary to mitigate over and under-compensation
• Need is to examine types of costs, effect of
  Streamlined and further work

13
Vendor Compensation

• Within a state, compensation system should be the
  same for state or local taxes
• Board should establish standards
• Board should identify drivers of costs and adopt
  simplifications to drive them down
• Consider using compensation to offset technology
  implementation costs
• Not important to differentiate on basis of nexus
  v. non-nexus sellers or in proportion of remote
  sales

14
Additional Simplifications and Technology

• Simplifications
• Centralized location of rate and boundary data
  bases
• Enhanced taxability matrix
• Clearinghouse for filing of returns and
  remittances
• Technology
• Procedures for private sector certification
• Tax credit for implementation of technology

15
Additional Information Needs

• Small Seller Threshold
• Revenue impact of various thresholds
• Vendor Compensation
• Impact of Streamlined on costs
• Differentiation of large seller category
• Impact of additional simplifications
• Relationship of various costs to amount of tax
  collected
• Impact of various structures on costs
• Variations in proportion of credit card
  transactions