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June 19, 2007
The Honorable Dwight Cook
North Dakota Senate
1408 17th Street, SE
Mandan, North Dakota 58554-4895
The Honorable Joan Wagnon
Secretary of Revenue
915 South West Harrison
Topeka, Kansas 66612
Dear Senator Cook and Secretary Wagnon:
As you are aware, the National Conference of State Legislatures (NCSL) Executive Committee Task Force on State and Local Taxation of Telecommunications and Electronic Commerce (Task Force) met May 4, 2007, in Madison, Wisconsin. At our meeting we had the opportunity to discuss some of the amendments that you and the members of the Streamlined Sales Tax Governing Board will consider June 22-23, 2007 in Detroit, Michigan. This letter will serve to provide you and the members of the Governing Board with the views of the Task Force with regard to some of the amendments.
- The Task Force reaffirms its long standing position that there must be a separate definition for digital goods, independent of the definition for tangible personal property (TPP), added to the Streamlined Sales and Use Tax Agreement Library of Definitions. We believe that the decision to tax or not tax any item should be decided by each state’s elected policymakers and not through departmental or administrative interpretations. The Task Force does not support language to grandfather the taxation of digital products under the definition of TPP. We believe that grandfathering those states where through an administrative interpretation digital products are taxable under the definition of TPP would undermine the simplification effort and the entire premise of a streamlined sales tax system. Allowing for two separate treatments of digital products would result in an increased burden, higher cost for sellers to comply and demonstrate to Congress a lack of resolve on the part of the Governing Board and the states to maintain our commitment to simplification and fairness.
With that said, we understand that recent discussions between the various stakeholders has brought all sides closer to a consensus definition of digital products. However, as of this date, it appears that final agreement on a definition will not be reached prior to the vote of the Governing Board in Detroit. Therefore, we want to inform the members of the Governing Board, that we would be supportive of delaying a final vote on a definition of digital goods until the next meeting of the Governing Board in September.
- The Task Force voted to provide “qualified” support for the extension of associate member status under the Agreement. The members of the Task Force are concerned that an extension of the associate member status must confer a serious obligation upon an associate member state to move forward in complying with the Agreement, which should be measured by a performance-based standard. The performance standard should not make an explicit reference to time, though associate member status may otherwise be revoked if the state fails to make measured progress toward full compliance. We believe that its is important to recognize the efforts of the associate members, but ensure that these states continue to undertake the necessary steps in fully complying with the Agreement or face consequences as envisioned under the Agreement.
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The Task Force is equally concerned about actions in some member states to enact “replacement taxes” in order to maintain a sales-like tax on a certain product within an approved definition of the Agreement, that the state has exempted from taxation. While the Task Force would support an amendment to prohibit such taxation, we appreciate that stakeholders can not agree on what kind of replacement tax would be counter to the Agreement. At the request of Senator Dwight Cook, the Task Force has agreed to take up the issue of defining those replacement taxes that would undermine the intent of the Agreement. The Task Force will discuss replacements taxes during our next meeting in Boston, Massachusetts on August 4 and 5, and make a recommendation to the Governing Board. Therefore, the Task Force would encourage the Governing Board to postpone any action on the issue of replacement taxes until a future meeting.
The Task Force also discussed the sourcing amendments, including the extension of the temporary exception for the floral industry. The members of the Task Force acknowledged the difficulty some states have had with the transition from origin to destination sourcing and that in some states it has been the only stumbling block to full compliance. Many members of the Task Force raised concerns about amending the Agreement to allow for limited in-state origin sourcing. Members were concerned that it would be unfair to those states that have made the transition, like Kansas, North Carolina, Iowa and most recently, Washington. Concerns were raised that other states that have hurdles to overcome to comply with the Agreement, e.g. rounding changes or caps and thresholds, will ask for similar treatment. Members also raised constitutional issues to having two systems for souring for out of state sales and in state sales. At the same time, a number of Task Force members expressed appreciation for the efforts of our colleagues in Ohio, Senator Amstutz and Representative Gibbs, to keep Ohio as an affiliate member of the Governing Board and can sympathize with the reasons for their efforts in once again proposing alternative sourcing amendments. The Task Force did not make a recommendation.
With regard to the extension of the sourcing exemption for the floral industry, the Task Force was not pleased that it appears little progress has been made in assisting the floral industry transition from origin to destination sourcing during the original two year exemption. However, the Task Force did not make any formal recommendation on the floral sourcing amendments.
In closing, we are pleased to report that Senator Mike Enzi of Wyoming has introduced the Sales Tax Fairness and Simplification Act (S. 34) in the 110th Congress. The Sales Tax Fairness and Simplification Act grants states that have complied with the Streamlined Sales and Use Tax Agreement the authority to require businesses to collect sales tax on remote sales. The legislation has the support of the National Conference of State Legislatures, the National Governors Association and numerous sellers and retail organizations. We would respectfully request that you contact the members of your congressional delegation and seek their sponsorship and support of this legislation.
On behalf of the members of the NCSL Task Force, we thank you for taking the concerns of state legislators under consideration and welcome the opportunity to discuss them further with you. Please know that you are always welcome to come before the Task Force with your concerns.
Sincerely,
| Representative Christopher Rants, Iowa |
Delegate Shelia Hixson, Maryland |
Co-Chairs, NCSL Executive Committee Task Force on State and Local Taxation of Telecommunications & Electronic Commerce
cc: Delegates and Advisors - Streamlined Sales Tax Governing Board
cc: State and Local Advisory Council
cc: Business Advisory Council
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