Loading...
HomeMy WebLinkAboutCOW 2005-09-12 Item 2C - Special Presenrtation - Streamlined Sales Tax ~... From: To: Committee of the Whole Councilmember Pam Carter , Jf} , Kevin A. Fuhrer, Finance Director Ibt:-- Date: September 7, 2005 Subject: Streamlined Sales Tax (SST) - Elements of a Compromise Bill . BaclQ!round Currently, states may not impose sales tax on "remote sales" (internet or catalogue transactions), but Congress has the ability to change that. Two considerations have prevented Congress from doing so: political and practical. Politically many companies argue imposing a tax on Internet purchases could have a negative effect on this new, young enterprise. From a practical standpoint, it would be difficult for a seller to charge the proper tax when there are so many rates and categories of taxable goods across the county. To address these issues, 41 states have been developing a Streamlined Sales Tax Agreement (SSTA) so that "brick and mortar" stores can have a level playing field with remote sales. The SST A participants have worked to develop model, unifonn methods and definitions with the long-range goal of persuading Congress to authorize imposition of sales tax on remote sales. Those states that sign onto and comply with the SST A will be able to contract with multi-state retailers to remit sales taxes to the state in exchange for amnesty and vendor-fee provisions. Our state Department of Revenue (DOR) estimates that such "voluntary compliance" could benefit our state in the amount of$34M this biennium, $64M in 07-09, and $77M in 09-11. This, and the opportunity to be on the SSTA Governing Board, is a very large carrot for Washington State. However, to fully comply with the SSTA, Washington needs to change its sourcing rules. Currently, sales involving the delivery of goods are credited to the point of origin (store or warehouse). SSTA requires crediting the sales tax to the point of delivery. DOR estimates this would cause nearly 140 cities, counties, transit agencies, and public facilities districts to lose revenue. Others would stand to gain money. As you are aware, this long-standing topic has been a matter of contention between the negatively impacted cities (NICs, of which Tukwila is a ~"'- member) and the positively impacted cities (PICs). DOR estimates PICs would gain $8.7M while NICs would lose $24.9M. In 2004 an Association of Washington Cities (A WC) ad hoc committee of 6 NICs and 6 PICs were unable to reach a consensus on this issue. Effect on Tukwila Because we have some major warehouse and distribution centers, Tukwila stands to lose a significant amount of money if the sourcing rules are changed. DOR estimates Tukwila would lose $2.6M a year, based on 2002 taxable retail sales. NIC Coalition A coalition of NICs has been meeting for several years in order to work this issue. Councilmember Carter, Alan Doerschel and Kevin Fuhrer have been very active in this group. For the 2005 legislative session, the coalition hired two lobbyists. While we were unable to secure passage of a favorable bill, we were successful in stopping a harmful bill. Recent Events Both the Governor and Senator Margarita Prentice have said they will not support any bill unless the cities reach agreement, however both acknowledge that SST can not be held back forever. Recently, Kent City Administrator Mike Martin and NIC Coalition Facilitator, was contacted by David Mosely, Federal Way City Manager and PIC Coalition Facilitator, who has indicated the PIC Coalition's willingness to strike a compromise. Meetings have been ongoing with the goal of forming the elements of a compromise bill to put forward in the upcoming legislative session. Our NIC group has come to an agreement that includes full and ongoing mitigation for the estimated NIC losses. This permanent mitigation is extremely important to Tukwila, as it is unlikely, given our population size and demographics that we will ever offset the sourcing losses through tax revenues derived from Internet and catalogue sales. On September 22, 2005, the A WC ad hoc committee will meet again to formalize our agreement on a set of principles. The underlying bill is Senate Bill 5622. We will also continue to work this issue with the DOR. After the ad hoc committee agreement, the issue will go to the A WC Legislative Committee in October, then to the A WC Board in December, when, hopefully, it will become part of the A WC legislative agenda. In January 2006, Awe will also meet with the counties' two associations ~ (W ASC and WACO) and will ask that SST becomes part of the Tri- Association legislative agenda. Closin2 Attached to this memorandum is a summary of the compromise elements for review and discussion at the Committee of the Whole meeting on Monday, September 12,2005. ... ........ Compromise SST Proposal 1. NIC citIes agree to drop the sourcing reversion clause in SB 5622. 2. PIC cities agree to accept the mitigation proposal contained in SB 5622. 3. PIC cities agree to accept supplemental reporting requirements proposed by NIC cities (see attached). 4. Both sides agree the role of the Oversight Committee will remain unchanged from that proposed in SB5622 and there will not be an expansion ofthe powers of the Committee. 5 Both sides agree there needs to be a simple and accessible appeal process for those jurisdictions that disagree with their mitigation allocation. Billlanguage needs to be developed for this purpose. 6 Both sides agree that the bIll needs to clearly reflect that additional sales tax generated from future annexations is excluded for mitigation determmation purposes. SB 5908 has language to this effect which may be satisfactory. 7 Both sides agree to work together toward the goal of producing an SST bill this session that will provide for full nntigation to the NIC's and all of the sourcing gains to the PIC's. Both sides also recognize that the legislative process may render something different than our joint proposal in the end. We are all committed to achieving our joint proposal achieving full sourcing gains to the PIC's and fill mitigation to the NIC's within the reality of the legislative process and with the goal of successfully passing a bill during the 2006 session.