Streamlined Sales Tax Advisory Council

April 2, 2007, Meeting Minutes

Hoover State Office Building

Present: Kristi Magill, Mark Schuling, Dave Casey, Jim Henter, Ann Stocker, Jim Miller, Andy Warren, Ross Larson, Jay Turner, Dick Koberg, Larry Paxton, Darwin Clupper, Dave Krutzfeldt, Marc Michaelson, Jeff Aten, Ed Wallace, Steve Robert and Warren Townsend via conference call.

I. Welcome, Introductions & Opening Comments

Mark Schuling and Kristi Magill opened the meeting at 10:00 a.m. by welcoming everyone and thanked them for taking the time to participate. Ed Wallace, President of the Iowa Taxpayers Association, was introduced to the Council.

II. National Meetings in Charlotte , NC (March 14-17, 2007)

A. Business Advisory Council (BAC) – see section B for additional comments.

  • Digital products – ongoing discussions
  • Direct Mail Sourcing – ongoing discussions
  • Replacement Taxes – ongoing discussions
  • Sourcing Issues – Other ways to approach this other than destination sourcing
  • Filled Board member positions

BAC/NCLS – Meeting in two weeks in DC. There is a BAC planning committee meeting to prioritize BAC initiatives and focus.

B. State & Local Advisory Council (SLAC)

The State of Washington is becoming a full member. Three Associate member states, Ohio, Utah and Nevada, have destination sourcing issues that are keeping them from becoming full member states.

Four topics were discussed and none were resolved.

  • Direct mail sourcing

Dave explained the big issue occurring right now is that some states are taxing postage. For Iowa purposes, postage is exempt from tax. A lot of issues regarding postage being taxed or not taxed, plus mailing services issues remain.

Kristi added that she attended a work group meeting in Chicago. The proposals were all withdrawn at the Charlotte meeting, but they will continue to work on issues for the Detroit meeting.

It was explained how direct mail sourcing is taxed in Iowa. If property is mailed by the printer, then tax is at the printer's location. If property is delivered by the printer to the purchaser's location, then tax is at the purchaser's location.

Streamline Governing Board doesn't have the authority to tell states what tax to charge on postage. (I don't understand this sentence. As currently worded, the SSTP is telling states that postage is taxed)

Another question concerns whether the printer has mailing information and is there sufficient knowledge of where it's sourced. The BAC/SLAC working group is coming up with definitions.

  • Digital Products

A couple of proposals how to handle digital products. Three major areas are identified: digital visual works, digital audio works and digital books (videos, music and books).

In Iowa , the Department has proposed to tax these items if downloaded to create equity with in state retailers. These items will be taxed only if sold to individuals.

Streamline is trying to define digital products so no state has to change their current law. Dave thought they were close to resolution then it fell apart at the end. He didn't know if an agreement will be ready for Detroit.

Our language has been out for a while and Dave hasn't received any comments. Kristi likes what Iowa has done historically and thought it serves as a model. It's not a big problem for Iowa.

  • Replacement Taxes

Iowa has had two separate excise taxes with hotel/motel and special equipment tax. These taxes were carved out of the sales tax to create separate excise taxes.

The controversy was over the definition of clothing in the SSUTA, and then Minnesota and New Jersey created a separate excise tax for fur. The agreement has now created a new definition of fur, and these two states can toggle on or off regarding the tax.

BAC argues that creating replacement taxes solely to circumvent the agreement is a violation of the intent of the project. Kristi commented that businesses and states need to find some middle ground.

  • Tax Rate Increases

A petition for 30 days notice to sellers for tax increases was voted on and failed.

Dave Krutzfeldt proposed a 45 day minimum time frame for a notice to sellers of a tax rate increase.

Dick Koberg stressed a timeframe is definitely needed. He's concerned about the cigarette increase setting precedence.

Jim Henter doesn't want to see this dropped. He'd like to see a 60 day timeframe to allow for testing to be done.

There were few legislators in Charlotte so states were reluctant to vote on this issue. Senator Dotzler and Representative Rants will be made aware of the issue by Dave and Kristi.

C. Governing Board

Besides discussing the four topics above, the Governing Board discussed the following:

  • Associate Member States – Set to expire on 1/1/08. An extension needs to be voted on.
  • Florist issue – On 1/1/08 , the sourcing then becomes destination.
  • Health care issues – Updated the list of items included in the health care list.
  • Audit Committee – Looking at how audits will be performed.
  • Matrix – Expanding taxability matrix or creating a supplemental matrix.
  • Webinars – CSPs are working with some states to host webinars to educate sellers.
  • A committee was formed within streamline to make it easier to deal with all states.

III. Update on Legislation & Rules

Dave Casey had e-mailed the Council the proposed draft for Streamlined Sales Tax legislation for 2007 that incorporates amendments to the SSUTA that were passed in calendar year 2006 for comments and didn't receive any feedback. Dave asked for the Council's approval to take it to Representative Rants today. Dave Krutzfeldt moved to approve the Bill and Steve Roberts seconded. The Council unanimously approved the Bill.

IV. Update on Registration & Revenue Tracking

Larry Paxton updated the Council. There are 1,123 companies registered. Contact is being made with model 1 sellers and making them select a CSP, change to model 4 sellers or unregistering them. Of 153 model 1 sellers, we need to contact 88 for decision on a CSP. There are 67 model 2 sellers and the rest are model 4 sellers. Total collected year-to-date is $4 million (that's half the fiscal year). The department projected $6 million for the year; we're now estimating $8 million.

Taxware is having problems getting loaded to some people's systems. Most CSP activity is Avalara. Most of the money is coming from other filings.

V. Analysis Required by Iowa State Legislature Regarding Impact on Iowa Businesses.

On March 6, 2007, Dave Casey provided to the Council for comments a write up on the issue of the impact on retailers affected by the streamlined destination sourcing provision. There are two options listed: one is a direct payout to the retailers in the form of a rebate and two is discount on the taxes paid with a quarterly return. The discount is 1.5% of the calculated tax with a maximum per quarter discount of $150.00 and a maximum time period of 24 months.

Dave received comments back from Kristi. The Council engaged in a lengthy discussion regarding the two options. The Council will make final recommendations for Senator Dotzler and Representative Rants within the next two weeks. Kristi will work with the Department of Revenue on revising the draft for Council approval.

VI. Future Streamlined Sales Tax National Meetings.

A. Detroit, MI (June 20-23, 2007)

Dave mentioned Mark Schuling and Representative Rants might be going to this one in Detroit.

B. Kansas City, KS (September 17-20, 2007)

VII. Set Next Advisory Council Meeting

The next Advisory Council meeting will be in July.

VIII. Adjournment

Meeting was adjourned at 12:16 PM.