New sales-tax edict delivering confusion

Johnson County Sun ^ | June 19, 2003 | Jonna Lorenz

[show me state]

[Problems are resulting from Kansas' entry into Streamlined Sales Tax Project agreement. Is your state next?]

A new sales tax law that goes into effect July 1 has some area business owners scratching their heads and shaking their fists.

The legislation requires that businesses begin collecting sales tax for delivered items based on the rate applicable to the location the items are shipped to.

"The retailers that we've been hearing from are confused, concerned and worried that they only have a short time to change to what are perceived as some complicated tax-collection procedures," said Dan Koenig, president of the Overland Park Chamber of Commerce.

Known as "destination-based sourcing," the new requirement will impact all businesses that deliver merchandise, including florists, lumber yards, appliance retailers, furniture stores and mail-order companies.

For example, if a Lawrence resident purchases a dresser from a Lenexa furniture store and requests that it be delivered to Lawrence, the business owner will be required to collect the local sales tax applicable to Lawrence, and the state will send the city portion to Lawrence. Currently, sales tax applicable to Lenexa would be collected, and Lenexa would receive the city portion.

Of concern to some business owners are the logistics and expense of collecting and reporting sales taxes for multiple jurisdictions.

"A standard cash register may not be able to deal with this," said Kevin Jeffries, president and chief executive officer of the Leawood Chamber of Commerce.

The law was implemented as part of the Streamlined Sales Tax Project (SSTP), which aims to make sales tax laws of participating states more uniform and pave the way for future collection of taxes on sales made via the Internet, said Richard Cram, director of policy and research for the Kansas Department of Revenue. Legislation passed in 2000 made Kansas part of that project, which includes 39 states. So far, 11 states have implemented destination-based sourcing, Cram said.

The Department of Revenue mailed notices last week to inform business owners about the new law.

"I can say at this point I don't fully understand yet how it's going to affect us, ..." said Bill Coenen, who does the accounting work for his wife's business, Kathleen's Flowers, 10324 Metcalf. "I read the information, and I can say I didn't understand it. I was just going to check with some other florists and see what they were going to do."

He expressed concern about the potential negative impact on the state's small businesses.

"To me it's just another example of how politicians do very little to help the very small business person, ..." he said. "The amount of paperwork for a company that has sales less than $300,000 is ridiculous."

Bill Dalton, owner of Dalton's Flowers, 8135 Santa Fe Drive, said on Tuesday that he wasn't aware of the legislation. He said the collection of different sales-tax rates depending on the location of delivery would be very costly to implement.

"I don't know how you would do that," he said. "I think that's a bad idea."

Dalton said his computer system isn't equipped to calculate a large number of different tax rates.

"We can do maybe two or three different taxes, but it's not set up to do six or seven different taxes," he said. "We can't just switch that program. It's really a specialized program for florists. I mean really, really specialized, and it's nothing that we can modify."

Cram said the Department of Revenue will allow time for retailers to implement the new procedures before enforcing the law.

"The department's not going to be out there on July 2nd checking to make sure that everybody can implement this thing, ..." he said. "It's a major change. The legislature passed it at the end of May, so we only had a month before the law goes into effect. We realize that it's going to take longer than that for people to get their systems ready to be able to track different local sales-tax rates depending on where the merchandise is shipped or delivered. With a change of this magnitude and in such a short time, we're going to have to be flexible."

He said notices will be sent to retailers within the next week or two to reassure them that the department will be flexible and helpful as they work to implement the changes.

Cram said the Department of Revenue will provide retailers with an electronic database of local tax rates in every zip code in the state.

"We are shooting to have those up and available by July 1," Cram said. "We may not make that. If we don't make it by July 1, it should be ready within a couple of weeks after that."

Cram said the legislation doesn't include funding to help retailers come into compliance. He estimates the cost to the Department of Revenue will be $250,000 to $300,000 for software needed to implement the new system.

"It's a big change for the department and for retailers," he said. "We think the long-run benefit of making our laws more uniform with the other states in the project will outweigh the short-run difficulties that this is going to present."

Rep. Tim Owens, a member of the House Taxation Committee, said the theory behind the law is good, but the practical implication of it could reveal some unintended consequences.

"My gut feel is that anytime there's something new like that and with that far-reaching of ramifications it's going to cause some people some grief," Owens said. "Hopefully by the time the bugs are worked out it will be the right thing, but in the mean time I think it's going to cause some people some real consternation."

Information about destination-based sourcing and examples of how it is to be applied are available via the Internet at www.ksrevenue.org/pdf/Notice2003-04.pdf.

[show me state]

The following is taken from this full document (PDF)

By Bill Owens (R-Co) Governor of Colorado

CENTER FOR THE NEW AMERICAN CENTURY

Nine questions to consider about the Streamlined Sales Tax Project (SSTP)

Is the SSTP revenue neutral?
No. The SSTP's goal of $440 billion in "new revenue" over 10 years would negate one-third of President Bush's federal income tax cut of 2001.

Will the SSTP simplify tax compliance for America's merchants, as its proponents suggest?
No. SSTP would preserve many of the current complexities of calculating and collecting sales taxes and add new ones. A merchant would be subject to up to 7,500 different tax rates on transactions with consumers.

Does the SSTP pose threats to consumer privacy?
Yes. The SSTP proposes one or more third-party tax collection agents, who will gain automatic access to confi dential information about individual consumers and what they purchase.

Will the SSTP require your state and its local jurisdictions to forfeit sovereignty over tax policy in your state?
Yes. The SSTP creates the U.N. of state tax policy. It requires each state to submit its sales tax system to oversight of a "governing board."

Is the SSTP consistent with the Constitutional doctrine of federalism?
No. The SSTP would allow participating states to foist their tax and regulatory burdens upon out-of-state businesses and citizens.

Will the SSTP reduce tax policy competition between states?
Yes. The SSTP rewards the least competitive states by allowing them to "dumb down" the tax code.

Will the SSTP impede the success of the technology revolution?
Yes. Attaching tax burdens to each online transaction will inhibit people's access to and use of Internet content and stifl e technological innovation.

Will the SSTP hurt certain citizens more than others?
Yes. New on-line transaction taxes will disproportionately punish rural, handicapped or even elderly buyers who cannot easily substitute on-line transactions with traditional purchases at brick-and-mortar retailers.

Will the SSTP create equity between brick-and-mortar and on-line retailers?
No. SSTP might create equal tax rates for on-line and brick-and-mortar transactions, but creates new inequities in compliance costs and in the availability of certain benefits.