Experts speaking at the Federation of Tax Administrators Annual Meeting in Washington, D.C. this week emphasized the need for greater uniformity in state tax administration if state sales tax is ever to keep pace with the rapidly changing world of retailing. With pending federal legislation to provide states complying with simplification requirements the authority to require remote sellers to collect sales tax, the time to begin establishing centralized registration systems and clear guidance as to "what is and is not taxable," has clearly come.
State tax administrative solutions must scale, said Rich Prem, vice president of indirect taxes and tax reporting at Amazon.com. “I think some states are greatly underestimating the level of new sellers that might come into their systems. People are thinking a couple of hundred, . . . what if it's 20,000 new people . . . Can your system handle that?” he cautioned. “You don't want to have a political problem and a press problem if all of a sudden all of the new money shows up, and your system blows up.”
To help tax administrators prepare for the influx of remote sellers, Rich Prem shared his top 10 list:
Remote Seller's Top 10 List of Sales Tax Issues
1. Shipping and handling:Some states exempt these charges from tax. Some states treat shipping differently from handling charges.
2. Taxabililty of gift sales or send sales: Which tax applies when a customer in one state sends a gift to another state?
3. Product returns: Some states allow a sales tax credit if a product is returned within 30 to 60 days of purchase. Other states will not give credit for sales tax paid if an amount is held for shipping and handling.
4. Origin versus destination sourcing: If a retailer has three warehouses and two items ship from an out-of-state warehouse and one ships from an in-state warehouse, different rates could apply. A local tax could apply to the item shipped from in state, while no local tax is imposed on the items shipped from out of state.
5. Restocking fees: Some websites charge a restocking fee to cover the costs of repackaging returned items. Are these fees taxable?
7. Time zones: Tax rate changes typically go into effect on a specific date at midnight. How does the change affect a remote seller in different time zones?
8. Using multiple systems to calculate tax: If a remote vendor is selling items on eBay, Froogle, and Amazon's platforms, tax calculations will be performed on three different systems. How should that data be managed for audit purposes?
9. Exemptions: Remote sellers frequently grant exemptions without being presented with an exemption certificate. How will the state educate people about exemptions?
10. Other types of taxes and fees: Remote sellers may need to collect fees such as California's electronic waste fee, which is paid by the consumer at the time of purchase. Sometimes fees also apply to purchases of tires, batteries, cell phones, and automotive oil.
Have McIntyre and Goodyearbreathed new life into taxpayers’ ability to resist assessment of state income taxes?
Alston & Bird State & Local Tax Advisory.
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