Streamlined Sales Tax Implications for Alaska

1. Streamlined Sales Tax Implications for Alaska Patty Ware Alaska Municipal League

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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).

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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)

14. 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

15. 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 ?

16. 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

17. 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

18. 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

19. Small Population States with State Sales Tax- Useful Comparisons? PopulationStateLocal Vermont 623,050 6% 1% North Dakota 636,677 5% 2.5% South Dakota 775,933 4% 2%

20. Projected Local Revenue Losses from E-Commerce(University TN 2004 Study) 2008LowHigh Vermont 0 0 North Dakota 4.6 M 7.2 M South Dakota 13.3 M 20.8 M

21. 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 localgovernment revenue loss = $9.2 million

22. Some Alaska Examples…. City Sales Tax RevenueLoss 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.

23. 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

24. 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

25. 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.)

26. 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

27. 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

28. 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)