SALES TAX AUTOMATED COLLECTION

STAC Media, Inc.

The inevitability of real time sales tax collection has been acknowledged by national experts for many years

The Sales Tax in the 21st Century Matthew Neal Murray, William F. Fox Greenwood Publishing Group, Jan 1, 1997

“Yet, when virtually all commerce is transacted electronically, there is no technical reason why sales taxes cannot be transferred directly to the tax agency at the close of the transaction. There will be all sorts of barriers to that, political and otherwise, but none of them will be technical. It will happen in our lifetimes, and the cash flow implication for the states will ultimately make it happen...When electronic commerce is ubiquitous, the logic (and the dollars) of real time sales tax payment will become a reality.”

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Antiquated sales tax systems lead directly to the loss of millions of dollars for states and local governments

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Noncompliance resulting in significant sales tax revenue leakage New York has attributed $1.7 Billion form Sales Tax supression

Software Florida’s annual sales tax gap of taxes collected from

customers but not paid to the state is estimated to be as much as $2 billion2

Scholars have estimated that in some corners of the retail market only about half of sales are reported3

resulting is sales tax losses in every state Slow remittance of sales tax cash collected

materially negatively impacts state and local cash generation and costs of doing business Reduces the millions of dollars of interest float that cash on hand would deliver Increases debt burden costs as more borrowing is

required to satisfy operating cash flow needs

Sources: 1Report of the California State Board of Equalization, ‘‘Addressing the Tax Gap, Fiscal Years 2011-2012 Through 2013-2014,’’; 2‘‘Final Report of the Miami-Dade County Grand Jury,’’ Feb. 7, 2011, at page 27; 3Susan Morse, Stewart Karlinsky, and Joseph Bankman, 20 Stan. L. & Pol’y Rev. 37 (2009).

UNNECESSARY BURDENS TO BUSINESSES

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State imposed sanctions on businesses are unnecessary burdens for the merchant.

The system of forced requirements are structured

in a way that encourages small and mid sizer

merchants to become delinquent

What is STAC?

STAC Media, Inc.

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Sales Tax Automated Collection (STAC) is a patented and the only sales tax payment methodology that would enable the collection of sales tax from credit and debit transactions in real time.

STAC methodology uses existing payment systems, technology, and infrastructure to create an easy vehicle to remit daily credit and debit sales tax transactions.

STAC methodology will require no change to the current sales tax return filing processes.

STAC methodology works with both types of Point-of-Sale (POS) Systems

Software/Hardware examples: NCR, Toshiba, Micros, Epicor

Processor Processor

Makes up 60% of the total number of merchants. Examples: VeriFone, Ingenico, Equinox (HyperCom)

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Stand-alone terminals(aka countertop or non-

integrated)

Fully Integrated Point-of-Sale (POS)

VeriFone’s POS Device already accepts sales tax data today

Prompting for sales tax is a core feature

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75 % of New York State merchants use terminals like this to process CREDIT AND DEBIT CARDE sales

STAC methodology applied to the credit abd debit card transaction and settlement process

CUSTOMERmakes a purchase with a

credit card

STORE records

card information with Point-of- Sale

system and transmits to

a PROCESSOR

PROCESSOR

sends the transaction to a CARD

BRAND

CARD BRANDsubmits the transaction

to the ISSUER

ISSUER pays the CARD BRAND

CARD BRAND

pays the PROCES

SOR

PROCESSORpays the

STORE sale amount

PROCESSORpays sales tax to the

STATE

CUSTOMER pays bill to ISSUER

ISSUER bills

CUSTOMER on

their monthly statemen

t

ISSUER receives payment

STATE receives payment

Who is involved in typical transaction?

CUSTOMER – makes a purchase with his/her credit card

STORE – accepts credit card as payment for goods/services

PROCESSOR – processes credit card sales for stores

CARD BRAND – includes VISA, MasterCard, Discover, American Express

ISSUER – provides the card to the CUSTOMER and maintains that account

STAC methodology enables sales tax payment process to be a real time automated process

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STAC patented methodology is straightforward and leverages existing technology and payment process infrastructure

Start

Purchases Input into POS

Calculate Sales Tax

Transaction Card Tendered

Approval Sought

Transaction Closing

Transaction Added to Sales File

Send Sales File for Settlement

Separate Revenue and Tax Portions of

Sales Transactions(s)

Process at Transaction Card Processor

Receive Revenue

Payment at Merchant Account

Receive Tax Payment at Tax Account of the State

Processing technology today supports Corporate Purchasing Cards which require the processing and reporting of sales tax transaction amounts.

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US Patent numbers 8321281and 8583518

Antiquated sales tax collection system costs states millions (and some billions) of dollars every year

Total

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0 86 106 234 1,17 87 142 0 732 200 102 91 46 303 250 107 115 106 192 154 40 337 186 117 116 0 210 42 59 0 305 75 130 449 312 91 0 346 32 110 32 246 924 70 132 13 400 162 48 37

1,400

Mill

ions

of I

ncre

men

tal

Dol

lars

Sources: 1FY2014 enacted state sales tax revenue from The Fiscal Survey of States, Fall 2013 p. 43; 2Estimate based on additional 60 days of compounded daily interest at 0.50% APR of 67% of sales tax revenue as 67% percent of all point-of-sales (POS) transactions are done with plastic and the point of sale (POS) retail market makes up 93% of total U.S. retail dollar volume, Javelin Strategy & Research, 2012 and 2013; 3Estimate based on reduced borrowing costs based on calculation from “Collection Days Saved, Thousands Earned”, Inc., November 1, 2000 using 60 days acceleration of 67% of sales tax revenue and borrowing cost of 3.5% APR; 4Applied 5% noncompliance rate to 67% of sales tax revenue based on “Evaluation Report of Tax Compliance”, Office of MN Legislative Auditor, March 2006.

FY2014 Estimated STAC Incremental State Sales Tax Dollars by State1

1,200

1,000

800

600

400

200

0 AK AL AR AZ CA CO CT DE FL GA HI IA ID IL IN KS KY LA MA MD ME MI MN MO MS MT NC ND NE NH NJ NM NV NY OH OK OR PA RI SC SD TN TX UT VA VT WA WI WV WY

60-day Increase in Interest Float 0 1 2 3 17 1 2 0 11 3 1 1 1 4 4 2 2 2 3 2 1 5 3 2 2 0 3 1 1 0 4 1 2 7 5 1 0 5 0 2 0 4 13 1 2 0 6 2 1 1

360-day Accelerated Sales Tax Receivables 0 9 11 24 120 9 14 0 74 20 10 9 5 31 25 11 12 11 19 16 4 34 19 12 12 0 21 4 6 0 31 8 13 46 32 9 0 35 3 11 3 25 94 7 13 1 41 16 5 4

Improved Compliance 4 0 76 94 207 1,04 77 125 0 647 177 90 81 41 268 221 94 102 94 169 136 35 298 165 103 102 0 186 37 52 0 270 66 114 397 276 81 0 306 28 98 28 217 817 62 116 11 354 143 43 33

Implementing STAC methodology would benefit states and localities

Implementing STAC methodology would be another tool in controlling and targeting new borrowing to keep debt service affordable and ensuring that the state abides by the debt limit

Implementing STAC methodology would improve cash flow position by using existing technology to collect sales tax in real time

Implementing STAC methodology would reduce sales tax noncompliance by automating the cash collection process

Implementing STAC methodology would demonstrate leadership in tax innovation and process optimization

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Current Sales Tax Systems Are Not Working And Broken

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Antiquated and costly to administer Imposes staggering and unnecessary burdens on

businesses Structured in a way that essentially encourages

small and midsized retail businesses to become delinquent

After-the-fact enforcement does little to prevent noncompliance and it is often too much and too late

The increasing prevalence of tax amnesties over the past decade has been shown to encourage taxpayers to wait for the next amnesty rather than perpetually engage in voluntary compliance with the revenue system1

Source: 1Mikesell and Ross. September 2012. “Fast Money: The Contribution of State Tax Amnesties to Public Revenue Systems.” The National Tax Journal, September 2012, 65 (3), 529– 562.

Background Overview

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States are focused on continuing to apply discipline and best practices to improve the budget and financial condition of the state and its localities

States and their localities could benefit by gaining significant incremental ongoing revenue without raising tax rates by: Improving sales tax collection efficiency to reduce

borrowing interest payments and to increase float interest earned

Improving sales tax collection effectiveness to reduce sales tax leakage due to underreporting, evasion, errors, and business bankruptcies

Increasing data and reporting capabilities to mitigate better overall revenue collection risk through improved auditing and performance analysis

Sales Tax Automated Collection (STAC) methodology would enable States to maximize these benefits by moving its sales tax collection process into the 21st

century through leveraging existing technology and applying business best practices

two year successful test of STAC methodology

We have not seen any evidence from the 2 years of testing and application of the STAC methodology that it would impose additional burdens on merchants — especially small ones.

In fact, from our experience it appears that the STAC methodology lessens the burden on the small business owners as it reduces the 2-3 days a month spent trying to determine the proper sales tax payments.

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