Streamlined Sales Tax Implications for Alaska

Patty Ware

Alaska Municipal League

Workshop Goals

Provide broad overview of streamlined sales tax project

Discuss critical areas of the national Agreement as they pertain to Alaska

Get your input and recommendations about issues and questions important to local governments

History of the Streamlined Sales Tax (SST) Project

Response to U.S. Supreme Court ruling limiting states from requiring remote sellers without nexus to collect use tax

Emphasis on simplification and uniformity of sales and use tax systems

Trade-off for local governments is ability to collect sales tax on remote purchases

History of the SST (continued)

Involvement by 42 states

Supported by NACO, NCSL, NGA, NLC

Governing Board established October ’05

Model Agreement adopted by 20 states

Primary Elements of the SSUTA

State level administration & collection Uniform definitions Uniform tax base (exemptions) Uniform sourcing rules (destination-based) with some

exceptions Uniform tax return for SST taxes Single sales and use tax rate for each jurisdiction Prohibition on tax caps

What does the SSUTA cover?

Taxes outside the sales tax code are excluded from the SSUTA

Doesn’t apply to vending machine sales Uniform sales/use tax rate requirement

doesn’t apply to certain items States can specify their own tax base Changes BOTH intrastate and interstate

(“outside”/electronic) sales tax processes

What About Use Tax?

Use tax not levied in Alaska

SSUTA applies to both sales and use taxes

Required in order to apply to the SST Board

SSUTA applies to both local and remote businesses and would require collection of sales and use taxes (including by AK businesses not currently collecting).

Potential Benefits for State/Local Governments

Increased revenue from e-commerce retailers

Improved climate for local businesses by “leveling the playing field” with on-line retailers

Benefits of simplification include improved sales tax administration, although not as clean as for business community

SSUTA Impact on Governments: What are other states saying?

Taxing at point of delivery vs point of sale a problem for some states (TX, KS) or local governments (WA)

Centralized administration means loss of some local authority (AK, CO, AL)

Costs to local governments not yet sufficiently detailed

Problems with existing member states and achievement of “full” compliance

Local Government Concerns (as voiced by other States)

Loss of revenue for local governments Extensive business lobbying to benefit

particular industries at expense of government sector

Winners and losers, based on going from point of sale to point of use (delivery) system

Loss of local government authority for collection and auditing

Benefits of SSUTA: Business Perspective Voluntary Compliance Retailers

Simplification- Uniformity of: definitions, sourcing rules, tax base, auditing requirements, etc.

Use of technology to ensure accurate collection and reporting, paid for by states

Amnesty for uncollected back taxes Vendor compensation from participating

states for collecting sales tax

National Revenue estimates from electronic commerce

Loss of national sales tax revenue from e-commerce estimated between $21.5-33.7 billion

Online commerce growing at 25% a year

Losses dependent upon population, tax base, tax rate

Cost-Benefit Analysis

No information yet from any participating state

Costs for state participation include SST dues (population-based/total sales tax) + travel

Much more significant costs for streamlining work, on-line filing requirements, administration uniformity (depends on state)

Alaska’s interest in the SST… or, are we interested?

One of the early “alliance states”- focusing on local government issues

Given geographic isolation, significant internet use and on-line purchasing

Potential for increased revenues if sales tax collected on e-purchases

How Much Revenue for Alaska?

SW Alaska Municipal League Economic Geography Study ?

University of TN 2004 Study - Revenue loss Comparisons with small population, rural states and Alaska specific estimates ?

Southwest Alaska- An estimate

Southwest: Aleutians East Borough, Aleutians West Census Area; Bristol Bay Borough; Dillingham; Kodiak Borough; Lake & Peninsula Borough

Data sources: Surveys of households and businesses, origin-destination freight movement analysis, and input-output analysis

“Outside” purchases include internet- not 100% internet sales data

What % of SW Alaska sales were made “outside” ?

Total Household purchases 33.6%

Total Business purchases 46.8%

Combined Total 44.5% OR 347 million

Caveats & Cautions

Figures are for very remote region of AK

Internet purchases included in total outside sales, but not solely e-commerce

Must be very careful about applying these percentages to other regions or communities

Small Population States with State Sales Tax- Useful Comparisons?

Population State Local

Vermont 623,050 6% 1%

North Dakota 636,677 5% 2.5%

South Dakota775,933 4% 2%

Projected Local Revenue Losses from E-Commerce (University TN 2004 Study)

2008 Low High

Vermont 0 0

North Dakota 4.6 M 7.2 M

South Dakota13.3 M 20.8 M

Show Me the Money…Alaska E-commerce losses estimated at 6.2% of total

local general sales taxes

Alaska’s local governments local sales tax revenue of $148.5 million (2003-2004)

Rough estimate of Alaska’s local government revenue loss = $9.2 million

Some Alaska Examples….

City Sales Tax Revenue Loss Estimate

Juneau 30,539,500 1,893,449.

Kenai Pen 14,910,977 924,480.

Ktn Bor 4,071,818 252,452.

Bethel 4,880,743 302,606.

Wasilla 7,135,574 442,405.

Unalaska 6,350,610 393,737.

Kodiak 7,130,691 442,102.

More Caveats and Caution

Relies on high growth assumption for electronic sales

Assumes most electronic retailers DON’T have physical nexus in Alaska

Assumes low collection and remittance of taxes in Alaska from e-commerce purchases

Likely fairly good estimate IF Alaskans shop online more frequently than residents of lower 48 states

Recap- What SSUTA would mean

Form a statewide administrative entity to perform required SSUTA tasks

Adopt common tax base and uniform definitions for all local governments

Agree on deletion of all tax caps

More Requirements….. Pass a use tax in order to be able to apply to

the Governing Board for acceptance

Adopt other, more detailed uniformity requirements of the SSUTA (sales tax holidays, reporting forms, etc.)

Possible Next Steps

Obtain more detailed information on revenue loss estimates for Alaska

Compile information on local government sales tax exemptions and definitions

Convene workgroup of Alaskan communities interested in working on SST/tax simplification

Other Suggestions …… ?

Develop list of questions and issues impacting local communities to guide a process

Review information from other states with active local government voices in the process

Discuss issues with State Department of Revenue

Additional SST Information

http://wwwstreamlinedsalestax.org/ (General)

http://www.awcnet.org (WA League of Cities)

http://www.mrsc.org/focus/finadvisor/fina0706.aspx (Article in SST impacts to states)

http://www.sstregister.org (Business info)