Executive Committee Task Force on State and Local Taxation
May 30-31, 2013
Committee Members Present:
Chair: Delegate Shelia Hixson, Maryland
Vice Chair: Sen. Deb Peters, South Dakota
Members: Rep. Joe Atkins, Minnesota; Sen. Don Balfour, Georgia; Sen. Curt Bramble, Utah; Sen. Dwight Cook, North Dakota; Rep. Justin Cronin, South Dakota; Sen. Wayne Harper, Utah; Rep. Jay Kaufman, Massachusetts; Rep. Chris Kelly, Missouri; Rep. Brian Kennedy, Rhode Island; Rep. Gary Knight, Maine; Rep. Norm Major, New Hampshire; Rep. Chris McDaniel, Kentucky; Rep. Justin Olson, Arizona; Sen. Ellen Roberts, Colorado; Sen. Ryan Silvey, Missouri; Rep. Amy Stephens, Colorado; Rep. Ryan Wilcox, Utah; Rep. Ritch Workman, Florida
Task Force Review and Future
The Task Force greeted new members appointed since the previous meeting in Santa Monica: Rep. Chris Kelly, Missouri; Rep. Chris McDaniel, Kentucky; Rep. Justin Olson, Arizona; Sen. Ellen Roberts, Colorado; Sen. Ryan Silvey, Missouri; Rep. Ryan Wilcox, Utah; and Rep. Ritch Workman, Florida. The meeting started with an orientation for all new members and attendees, beginning with a review of the history of the Task Force and current issues that were before the Task Force. There was also discussion about possible subjects the Task Force could address at subsequent meetings.
Marketplace Fairness Act
Neal Osten (NCSL) began by congratulating the Task Force for its efforts in helping to pass the Marketplace Fairness Act in the U.S. Senate on May 6 by a vote of 69-27. He said that this is the first time that the legislation has passed a chamber, which is a great step toward it becoming law. He acknowledged, however, that there is still a lot of work to do in the House, especially in the House Judiciary Committee, which is where the bill was referred. Joe Rinzel, Retail Industry Leaders Association, Leslie McDowell, International Council of Shopping Centers, and Steve Kranz, McDermott, Will and Emery, then continued the discussion about efforts to pass the legislation in the House as well as efforts going on around the country to increase support for the bill. They noted that while House Judiciary Chairman Bob Goodlatte is supportive of the concept of the legislation and that he understands the inequity and competitive disadvantage that main street retailers face compared to online sellers, he wants to be sure the committee vets any problems with the legislation before taking action. Steve Del Bianco, Netchoice, then commented that the legislation will have a much harder time passing the House and that internet retailers are still concerned about the burden that this legislation will put on their businesses.
Following the Marketplace Fairness Act discussion, Representative Amy Stephens, Colorado, voiced her concerns with affiliate nexus legislation, more commonly known as “Amazon Laws,” by stating her belief that attempts by states to pass such legislation is poor policy that has a negative effect on states and therefore this issue should only be addressed at the federal level. Joe Rinzel replied that efforts in states to pass affiliate nexus legislation to solve the competitive disadvantage between brick and mortar stores and online merchants signals to Congress the importance of this legislation in the states and that Congress should take action.
Mobile Workforce/Digital Goods/Internet Tax Freedom Act
Maureen Riehl, Council on State Taxation, began with an overview and update of the Mobile Workforce legislation in Congress. The legislation establishes a 30-day threshold before a state can begin to tax the income of out of state employees when they work in that state. She said that even though she believes that states should pass the Multistate Tax Commission legislation on the taxation of income of business travelers when they do work out of state, it is unlikely that all states will pass the legislation for a state based resolution to be effective. As a result, she said it is an issue that needs to be addressed at the federal level.
Stacey Sprinkle, Verizon, followed with an update of the Federal Digital Goods legislation. She said that the language in the new bill was negotiated between industry and state and local officials after months of work to address concerns by all parties. She said that even though the legislation was offered as an amendment to the Marketplace Fairness Act, it was not considered. However, she expects the bill to be introduced as a standalone measure later in the year.
Annabelle Canning, Capitol Tax Partners, gave an update on the Internet Tax Freedom Act legislation, which prevents taxation of internet access. She said that current law is set to expire in 2014 and that her coalition is working to continue the moratorium, including possibly making the moratorium permanent.
Streamlined Sales Tax Governing Board
President of the Streamlined Sales Tax Governing Board, Senator Wayne Harper of Utah, and the Governing Board’s new executive director, Craig Johnson, provided an update on the work of the Governing Board to the Task Force. Harper noted the passage of the Marketplace Fairness Act in the Senate and the efforts that the Governing Board has continued to make to pass the legislation this Congress. Craig and Harper also updated the task force about the streamlined meeting in Minneapolis earlier in May, including discussions regarding the future of the Governing Board should the Marketplace Fairness Act become law.
Following Craig Johnson and Harper, Deborah Bierbaum, AT&T, provided an update on Qui-tam/Class Action lawsuits to the task force.
Taxation of Business Inputs
Robert Cline, Ernst & Young, and Maureen Riehl, Council on State Taxation, discussed an April 4, 2013, Council on State Taxation (COST) study that examines proposals to expand the sales and use tax base to include substantially more business-to-business sales. The study explained the sales tax concept and discusses the issues related to taxing business purchases of intermediate goods and services. After their presentation, the Task Force examined proposals to expand the Sales and Use Tax base to include business to business taxes.
Multistate Tax Commission (MTC) Update
Representing the MTC, Commissioner Bruce Johnson (Utah) gave a report on the activity of the MTC, including the most recent meeting in Washington. He said that at the meeting the MTC voted to terminate work on the Insurance Project, which was the request the Task Force had made in Santa Monica and in a subsequent letter from the Task Force co-chairs. Johnson and Steve Kranz also gave an update on state activity regarding MTC’s Uniform Division of Income for Tax Purposes Act (UDITPA). Kranz noted that some states have either repealed MTC’s compact because of lawsuits regarding UDITPA or are in the process of considering repeal due to the lawsuit liability, and subsequent loss of funds, due to being a member of the compact.
NCSL Disaster Response Resolution Model/Digital Goods Resolution/Mobile Workforce Resolution
The Task Force then considered amendments to the NCSL Disaster Response model that it adopted in December 2011. The amendments addressed concerns by the energy industry to help them more swiftly respond to emergencies. After discussion, the Task Force adopted the amendments unanimously.
Following the Disaster Response Resolution, the Task Force considered a resolution that urges Congress to pass the Digital Goods and Services Tax Fairness Act in conjunction with or after passage of the Marketplace Fairness Act. The resolution passed unanimously.
The Task Force also considered a resolution that urges Congress to pass the Mobile Workforce Act. After a lengthy discussion of whether or not NCSL should be urging Congress to preempt state authority over taxing matters, the resolution failed by a vote of 7-5 with three states not voting (3/4 majority required for passage).
Online Travel Companies (OTC) Taxation
The Task Force held a discussion on the taxation of hotel accommodations reserved through an Online Travel Companies (OTC) and whether or not they are collecting all of the occupancy taxes that are owed. Senator Stuart Adams of Utah began the discussion with an overview of the topic and the legislation he has offered in Utah. Shawn McBurney, American Hotel & Lodging Association; Steve Wolens, McKool Smith; Catherine Dority, Charleston Visitors Bureau; and Melissa Froehlich-Flood, Marriott International, then gave the perspective of the lodging industry and how hotels collect the full tax rate on rooms, while the OTCs do not. After their panel, Justin Kintz, Orbitz Worldwide; Kevin Mitchell, Business Travel Coalition; Tim Rosales, Independent Lodging Industry Association; and Darrell Hieber, Skadden, Arps, Slate, Meagher & Flom, rebutted by stating that OTCs collect tax on the portion of the rooms that they contracted with the hotel and that the remaining portion of the customer’s bill is a service fee that is not subject to occupancy taxes. After the discussion, the task force commented that they wish to address this issue again at the following meeting in Atlanta.
Taxation of Community Associations
Matthew Green, Community Associations Institute, gave an overview of how community associations are taxed, including whether or not renting a condominium constitutes a requirement for collecting occupancy taxes. The session also explored the role of community associations within a public tax structure.
Federal Tax Reform—Is it a Good or Bad Thing for State Budgets and State Tax Systems?
This panel was the first of a series of topical discussions along the broader category of issues regarding the federal-state tax relationship. Annabelle Canning, Capitol Tax Partners; Joe Henchman, Tax Foundation; Deborah Bierbaum, AT&T; Scott Roberti, General Electric; and Joe Crosby, Multistate Associates, discussed what the impact of federal tax initiatives will have on states, including the debate over tax expenditures and credits; how reform of corporate and personal income taxes impacts the state tax base; federal pre-emption and coordination; and deductibility of state taxes from federal taxes. The task force will continue discussions of federal tax reform at the next meeting in Atlanta.