The Streamlined Sales Tax Project

Presentation by

Bettye Griggs, Principal Auditor

City of Birmingham Finance Dept

Overview and Impacts

Agenda for Today’s Discussion

• The changing retail business environment– Traditional “brick and mortar” sellers– “Remote” sellers (i.e., Internet, catalog, etc.)– The “Quill” Standard

• The importance of sales and use tax revenue

• The Streamlined Sales Tax Project

• The role of future governmental accountants and auditors

The Changing Business Environment

• “Brick and Mortar” sales transaction vs “Remote” sales transaction

• The “Quill” Standard

• Declining Tax Revenues – – Challenging Economic Times– Budget Deficits – Tax Increases

Importance of Sales Tax Revenue

• In Alabama, sales tax revenue is the primary source of funding for education.

• In the City of Birmingham, sales and use tax revenue accounts for nearly half of the total general fund revenue.

• Significant decreases in sales and use tax revenue can result in the loss of basic services.

Streamlined Sales Tax Project

• What is the Streamlined Sales & Use Tax Project (SSTP)?

• How did it begin? Who is involved?

• What are some key features of the system?

• What is the Streamlined Sales Tax Implementing States Group (SSTIS) and how does it differ from the SSTP?

• The Streamlined Sales and Use Tax Project (SSTP) is an initiative by state governments to “simplify and modernize sales and use tax administration for all types of sellers and all types of commerce.”

• The Project’s effect will not be limited to mail order, internet, or e-commerce businesses. Traditional “brick and mortar” businesses will also be affected by the work of the Project.

What is the Streamlined Project?

What Are the Project’s Goals?

• Reduced complexity of tax structure, especially for multi-state vendors

• Reduced compliance burden for vendors• Increased voluntary compliance • Reduced administration problems• Movement toward level playing field• Voluntary compliance from “remote”

vendors

What are some key features of the Streamlined System?

• Uniform Definitions

• Simplified Exemption Administration

• Rate Simplification

• Base Simplification

• Uniform Sourcing Rules

• Uniform Audit Procedures

• Voluntary Participation

How Did the Project Begin?

• The Project was organized in March, 2000. In December, 2000, the Project approved the “Uniform Sales and Use Tax Administration Act” and the “Streamlined Sales and Use Tax Agreement (the Agreement)”, which were subsequently amended in January, 2001 and again in 2002.

Who is Involved?

• Specific groups involved include:– State Governments– Business and Industry (Manufacturers,

Retailers, Telecoms) – Public– Trade Associations– NGA, NCSL, NaCo, COST and others– Since early 2001, Local Governments

Alabama’s Involvement

• Alabama became a “participating” state through an executive order of the governor.

• Alabama officially represented by the “Revenue Commissioner or his or her designee”, pursuant to Streamlined Project organizational policies.

• Recognizing the potential impact of the SSTP upon local governments, representatives from Alabama local jurisdictions began attending meetings in early 2001.

Alabama’s “Simplification” Legislation - Act 2002-418

• Alabama’s simplification legislation passed during regular session of 2002 legislature.

• Act 2002-418 gave Alabama “Implementing” state status.

• Act established a five-member delegation to attend Project and Implementing States Meetings with a view toward making a recommendation as to whether Alabama should adopt the Streamlined Act and Agreement.

Alabama’s “Simplification” Legislation – Act 2002-418

• Alabama’s Streamlined Delegation includes one representative appointed by the following:– Alabama Department of Revenue– Alabama League of Municipalities– Association of County Commissions of

Alabama– Alabama Retail Association– Alabama Society of Certified Public

Accountants

Areas of Concern for Local Jurisdictions

• State Administration of “ALL” Local Sales and Use Taxes

• State-Level Audits

• One Tax Base

• One Tax Rate Per Local Jurisdiction

• Enforcement, Compliance, and Accountability

Cooperative Efforts of Local Tax Officials

• Five (5) states currently allow local jurisdictions the authority to self-administer local sales and use taxes--Alabama, Alaska, Arizona, Colorado, and Louisiana.

• Tax officials in these five states (known as the “Alliance of Local Sales Tax Collectors”) are committed to protecting the interests of local self-administered jurisdictions in their respective states.

Efforts of “The Alliance”

• Working within the framework of the SSTP and the SSTIS to draw the attention of the Project to local concerns.

• Hosting the “Local Government Issues Study Group” sessions

• Working together to obtain an amendment to Section 301 (formerly Section 302) of the SSTP Agreement

Section 301 of the Agreement

• 301 – STATE LEVEL ADMINISTRATION“Each member state shall provide state level administration of sales and use taxes. The state level administration may be performed by a member state’s Tax Commission, Department of Revenue, or any other single entity designated by state law. Sellers are only required to register with, file returns with, and remit funds to the state level authority. Each member state shall provide for collection of any local taxes and distribution of them to the appropriate taxing jurisdictions. . .”

Section 301 of the Agreement (cont’d)

• “Each member state shall conduct, or authorize others to conduct on its behalf, all audits of the sellers registered under this Agreement for that state’s tax and the tax of its local jurisdictions, and local jurisdictions shall not conduct independent sales and use tax audits of sellers registered under this Agreement.”

Features of “New” Section 301

• Provides for a viable alternative to true “state administration”.

• Allows “centralized” administration that does not exclude local government participation.

• Allows for a “technology” solution.• Provides opportunity for cooperative effort

between states and local jurisdictions with respect to audits.

Features of “New” Section 301

• Provides some degree of flexibility but is still consistent with the purposes and goals of the SSTP.

• Allows taxpayers to have a single point of registration, reporting and remittance.

• Provides a single source of tax information.

Features of “New” Section 301

• Demonstrates that “Substantial compliance” can be achieved without removing the authority of self-administered local governments to collect their own sales and use taxes.

• Assures that a state taxing authority is not precluded from performing all functions of sales and use tax administration if that is either its desire or current practice.

Features of “New” Section 301

• Provides a mechanism through which concerns of local jurisdictions relating to the potential for loss of revenue under state administration can be addressed.

• Demonstrates that a quasi-centralized administrative system can be successfully implemented while allowing local jurisdictions to continue their current enforcement activities.

• Forces state and locals to work together.

Why Should You Care?

• The Streamlined System will affect you.– Purchaser– Seller or Business Owner– Governmental Accountant or Auditor– Administrator– Consultant– Advisor/Expert/Policy Maker

Why Should You Care?

• The Streamlined System will affect you.

• Some of you will become governmental auditors or accountants.

• The “real world” work

experience is challenging

and diverse (very

different from classroom).

Have You Prepared Well?

• Analytical Skills– Problem Solving– Keeping Abreast of New Trends

• Communication Skills– Oral Communication– Written Communication– Presentation Skills

• Interpersonal Skills– Do you work and play well with others?– Are you responsible, diligent, creative?

Consider a Career in Government

• Examples of positions available in a local governmental setting:– Accountant (Entry, Senior, Principal, Chief)– Auditor (Entry, Senior, Principal)– Payroll Manager– Budget Director– Cash Management and Investments Manager– Tax and License Administrator– Director of Finance

My Job Responsibilities

• Manager, Special Projects Team, Revenue Division of the City of Birmingham Finance Department

• Delegate to Streamlined Project and Implementing States Group

• Member Mayor’s Economic Development Incentives Team

• Tax Abatement Analyst

• Special Revenue Projects Coordinator

Questions???

Thank you for your attention and participation!

Bettye Griggs, Principal Auditor

City of Birmingham

Finance Department

710 North 20th Street

Room TL-100

Birmingham, AL 35203

bgriggs@ci.birmingham.al.us

(205) 254-2833 Phone

(205) 254-2963 Fax