Location: RM 271
Discussion of Other States' Experiences
SALES AND USE TAX SIMPLIFICATION TASK FORCE
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01:50 PM -- Discussion of Other States' Experiences
Nikki Dobay, representing the Council on State Taxation (COST), began by presenting information on her organization. Members of COST include large multistate taxpayers and COST's aim is to promote equitable and nondiscriminatory tax collection across states. Fred Nicely, representing COST, and Jared Walczak, representing the Tax Foundation, also introduced themselves.
A copy of their presentation can be found in Attachment H. Two additional handouts were provided to the task force (Attachments I & J).
Attachment I.pdf Attachment J.pdf
Mr. Nicely explained that COST has its own policy positions that are representative of COST’s 600 member companies. These are selected by the COST board, which consists of about 20 representatives. COST believes that sales and use tax should be easily administered and easily understood and should apply to all sellers equally, including both brick-and-mortar and remote sellers. Mr. Nicely described COST's policy positions, which include advocating for a uniform tax base with uniform definitions.
Mr. Walczak presented on the policy positions of the Tax Foundation regarding sales taxes. The Tax Foundation advocates broad based taxes with low tax rates, and recommends taxation of services which are currently untaxed in Colorado. Mr. Walczak explained that the Tax Foundation also recommends that business inputs be excluded from the tax base in order to avoid tax pyramiding.
Because state tax systems are modeled after one another, virtually every state tax system is modeled after the Mississippi sales tax system, the first enacted in 1930. Because Mississippi did not tax services, most states did not either and now only tax goods despite services comprising 67 percent of consumer spending nationally and 80 percent of consumer spending in Colorado.
Mr. Nicely testified that Colorado, Louisiana, and Alabama are the only states that allow local jurisdictions to collect their own sales taxes. A majority of other states, newly including Arizona, allow local jurisdictions to assess sales taxes, but these are collected by the state government.
The presenters responded to task force questions concerning how Colorado municipalities compare to municipalities in other states in terms of their dependence on sales taxes rather than property taxes.
Mr. Nicely suggested that Arizona could serve as a model for Colorado if it is interested in moving sales tax administration to the state level. Effective January 1, 2017, Arizona’s state government took over the administration of municipal sales taxes that had previously been administered at the local level.
Ms. Dobay presented information on federal legislation that would increase states’ authority to tax out-of-state retailers. Mr. Nicely testified that COST supports equal taxation of remote sellers and brick-and-mortar sellers in the taxing state. Mr. Walczak suggested that federal legislation on taxation of remote sales is possible, and perhaps even likely, within the next two to four years.
Mr. Nicely testified on the Streamline Sales and Use Tax Agreement (SSUTA). The SSUTA proposes applying the same requirements to in-state and out-of-state retailers. It advocates state level administration, uniformity, and simplification (section 102), state administration (section 301) including collection and auditing, and similar state and local tax bases (section 302), with exceptions to uniformity for fuel, motor vehicles, and mobile homes. Among states collecting sales taxes, Colorado is the only fully non-participating state that has not recently considered legislation to join the agreement. Mr. Nicely testified that full member states are allowed full authority for collection of taxes on remote sellers. Discussion ensued regarding the possibility of establishing uniform definitions across states. On this subject, Mr. Walczak posited that uniform definitions across states is a less significant goal than establishing uniform definitions within Colorado, as complying with 45 states is easier for business than complying with unique rules across the country’s 10,000 taxing jurisdictions.
Ms. Dobay provided testimony on the obstacles faced by large taxpayers, including big box stores with locations in multiple home rule jurisdictions. She provided quotes from tax compliance personnel at large retailers, who stated that Colorado was either the most difficult state with which to comply or one of the most difficult states, except perhaps Louisiana. When asked what made Colorado tax administration difficult, retailers complained about overlapping jurisdictions within single zip codes, differing tax bases, public improvement fees, the high number of returns, and filing frequency. In particular, one retailer stated that they file 12 returns per year in Texas and over 2,000 returns per year in Colorado. Mr. Nicely also identified definitional inconsistencies in the areas of construction, food, and others, and conveyed retailer frustration with high audit volumes across individual jurisdictions.
Mr. Nicely presented on states that are making progress in the area of sales and use tax administration. He presented the case of Alabama. Though Alabama has not adopted central administration, local jurisdictions are generally required to use the same tax base and centralized appeals. Out-of-state retailers are allowed to use an 8 percent tax rate remitted to the state, with parcels made to the correct local government(s), so as to preclude the need for reporting by out-of-state retailers to all local governments.
Ms. Dobay presented the case of Arizona, which, effective January 2017, now administers all local sales taxes at the state level. This allows for registration, collections, audit, and appeals at the state Department of Revenue. Arizona still has different tax bases across localities, and state costs increased to add administrative personnel. Mr. Nicely suggested that aggregate government costs decreased, however, as increased costs at the state level were more than offset by reduced administrative costs at the local level.
Mr. Walczak presented recommendations for Colorado sales tax simplification to the task force. First, the Tax Foundation recommends that Colorado taxing jurisdictions adopt common definitions and interpretations. He suggested that this is an area where it might behoove the state to assert its authority over municipal governments.
A second recommendation concerns central administration. Mr. Walczak suggested that local governments may be more willing to voluntarily submit to state administration if they are confident in the state’s capability. Certain deficiencies, for example in the area of address lookups, are likely unacceptable to local governments and aren’t found in other states. He recommended that the state can incentivize local governments to use state collection mechanisms without requiring them to do so. This could enhance simplification further if paired with unified audit authority.
A third recommendation concerns standardized tax forms – either single licensure at the state level or, barring that, the creation of an online registration portal to simplify filing for sales tax licenses. Mr. Walczak suggests that Maryland’s means of aggregating local filing mechanisms in one state web form may be useful to Colorado administrators. Mr. Walczak also suggested that the state should ultimately, at some point, adopt a uniform tax base. The only states that do not currently do so are Alabama, Alaska, Arizona, Colorado, and Louisiana.
Finally, Mr. Nicely recommended a carrot-and-stick approach for tax administration. As a carrot approach for local governments, the state should require all sellers to collect local sales tax revenue even without having nexus in the locality. As a stick, local governments should be required to agree to central administration of the tax.