WORK SESSION ON WORK SESSION ON COMPENSATIONCOMPENSATION

WORK SESSION ON WORK SESSION ON COMPENSATIONCOMPENSATION

WHAT’S IN AM9003 WHAT’S IN AM9003 AND THE FEDERAL AND THE FEDERAL

BILL?BILL?

Purpose of AM9003 Amendment

• Define standards for reasonable compensation

• Conform to the expected language of the federal bill, the Mainstreet Fairness Act

REQUIREMENT FOR COLLECTION AUTHORITY

• PROVIDE VENDOR COMPENSATION TO ALL SELLERS

• STATES THAT DON’T COMPENSATE CAN STILL BE MEMBERS

• MUST HAVE 10 STATES, 20% OF POPULATION TO KEEP COLLECTION AUTHORITY

Why all sellers?Why all sellers?Why all sellers?Why all sellers?

Why not just remote Why not just remote sellers?sellers?

How Collection Authority Granted after Congress

Acts• Six month waiting period for all• Create Compensation Review Board

– 11 members from SLAC, BAC, Gov. Bd.– CRIC chair ex officio– Review each state’s compensation petition;

recommend certification– Perform annual reviews of state plans

• Governing Board Certifies Annually

If Compensation is Challenged

• Any person may petition the Governing Board for a review of a state’s compliance

• Handled under Section 1002 of the Agreement

• Use rules and procedures in Section 1001 for Issue Resolution

• After a final determination, the petitioner has 60 days to appeal to Court of Claims

……the penalty for non-compliance with the penalty for non-compliance with compensation mandatescompensation mandates

……the penalty for non-compliance with the penalty for non-compliance with compensation mandatescompensation mandates

Loss of Collection Loss of Collection Authority!Authority!

Part I Compensation • All sellers receive compensation for the

credit and debit card fees paid to unrelated entities on the sales tax portion of the sale.– Can be a credit on the monthly return– Can be a formula that approximates the

amount due– Cannot be capped– JCCS said its about 0.64% of tax remitted

Should this language be Should this language be broadened in the SSUTA broadened in the SSUTA to include other forms to include other forms of electronic payment of electronic payment

charges or fees?charges or fees?

Should this language be Should this language be broadened in the SSUTA broadened in the SSUTA to include other forms to include other forms of electronic payment of electronic payment

charges or fees?charges or fees?

Paypal, e-checks, etc.Paypal, e-checks, etc.

How would formulas work?

State A State B State C Total

Total Sales $100,000 $100,000 $100,000 $300,000

Total Tax $7,942 0 $2,000 $9,942

Total $107,942 $100,000 $102,000 $309,942

Apportion 34.83% 32.26% 33.91% 100%

Total card Fees/state

$697 $645 $658 $2,000

compensation

$51 0 $13 $64

Part II Compensation• Reasonable compensation for other

related costs of collecting taxes.– Can vary by state, size of seller,

complexity of state laws– Can be capped– Can be adjusted in relation to

size of small business exemption

Some issues for States to discuss…• Should compensation be uniform

for all states?

• How difficult is it for CSP’s & Retailers if there are differences between states?

Some issues for States to discuss• Should smaller sellers be paid more if

their costs are higher?– How much extra? How defined?

• Should remote sellers be paid more than instate sellers?

• Should remote sellers receive 100% of their costs?

Some issues for States to discuss

• What is a reasonable cap?• How do you avoid “winners and

losers” if the state’s compensation is changed?

• What is a reasonable amount of the new money to spend on compensation?

Some issues for States to discuss

• How do you structure compensation to reflect the complexities of states?– Local jurisdictions (few or many?)– 2nd rate on groceries/drugs?– Origin sourcing?– Caps/threshholds?

• Do you provide additional compensation only to sellers that are affected?

Some issues for states to discuss….• States must accept a SER to get

collection authority (not all do this now)

• Should we compensate a late-filed return?

• Should sellers using CSP’s also get compensation?

Some issues for states to discuss…

• Compensation for remote sellers begins immediately; but until collections grow to equal the amount due in compensation, in-state compensation may be delayed. (This is the “trigger”—will it work?)

• States will have to track collections.

Small Seller Exemption

• Total gross annual dollar volume of remote sales nationwide of the remote seller and its affiliates

• Calculate for Oct. 1 to Sept. 30; start collecting on Jan. 1

Small Seller Exemption• Any seller utilizing a 3rd party for

hosting its sales and processing payments shall not be entitled to the small seller exemption if the dollar volume of sales for all sellers using the host exceeds the threshhold.

How Big or Small?Exemption

Revenue

Foregone

Average Economy

Fox

$25,000 n/a 20.1% n/a

$100,000 17.5% 31.9% 3.1%

$250,000 26.1% 39.7% 12.3%

$500,000 33.1% 45.6% 20.6%

$1 million 40.8% 51.6% 30.0%

$5 million 51.1% 65.3% 36.9%

What is Cost of Compliance for small

retailers?• One estimate placed the breakeven

sales level (at 6.5% sales taxes) at about $53,077 for a state.

• This means it is not cost effective to collect their taxes if they remit less than this “breakeven” amount.

• Can you estimate for your state?

And the Small Seller And the Small Seller Exemption is…Exemption is…

And the Small Seller And the Small Seller Exemption is…Exemption is…

$xxx, 000$xxx, 000

Thinking ahead…• What if we paid remote sellers

who volunteer the same as CSP’s if they would collect for us?

• And, we gave them amnesty for the first year when they joined?

• What if we developed a single point of collection for the SER’s so small retailers file returns in one place?

Thinking ahead…• What if states could pay voluntary

remote sellers now at state option• What if we develop technology to

include our rates and boundaries data bases in online shoping carts and make it FREE to retailers?

• What if we adopt a single rate/state for volunteer remote sellers to use?

Future Directions?Future Directions?Future Directions?Future Directions?•More, cheaper technologyMore, cheaper technology

•More focused compensationMore focused compensation•Work on federal legislation Work on federal legislation

while paying volunteer sellers to while paying volunteer sellers to collectcollect