Use Tax Reciprocity
Bottom Line Up Front
This method provides a mechanism to collect use tax
already owed on internet purchases that was
previously uncollectable.
Use Tax Reciprocity
Use Tax Laws
 States should address Main Street Fairness via extant
authority to collect use tax and regulate commerce
within the state.
 Requires no federal action and no streamlining of
laws, therefore states may begin immediately.
 Creating a single sales data facility used by all use tax
states provides the mechanism to collect use tax on
internet transactions.
Use Tax Reciprocity
Tax Collection Technique
Vendor
Sales
Data
States
Tax
Invoice
SSTGB
States
Bill
Consumer
Payment
Use Tax Reciprocity
Regulation-Reporting Requirement
 Each state requires companies with a nexus to
periodically report sales data.
 Companies report sales data annually (or certify that it
had no transactions in which it did not collect sales
tax).
 How to create the requirement depends on the state:
 Regulatory change made by Dept. of Revenue and
approved by Ways and Means, or
 Legislation.
Use Tax Reciprocity
Regulation - Summarized
 Require companies with a nexus to report sales data.
 Require those companies to post on their sale confirmation
page that untaxed sales may be subject to use tax.
 Designate the SSTGB an agent of the State Dept. of
Revenue for this purpose, allowing them to collate
information on sellers and buyers on a national level.
 Authorize collection of unpaid use tax on income tax
filings.
 States protect tax revenues by barring the data from being
used for any other purpose not related to sales and use tax
collection.
Use Tax Reciprocity
Information Needed
 Billing name and address - used to identify the
purchaser.
 Shipping address - used to identify the tax jurisdiction.
 Brief description of goods, usually 1 or 2 words each to determine taxability.
 Cost of goods - to determine tax owed.
Use Tax Reciprocity
The Technique – Data Reporting
 Data Extraction – Companies use their sales database
to extract a sales summary into a file (.txt or .csv)
Upload - Data files will be uploaded to a secure server
and pass to the SSTGB.
 SSTGB uses a CSP or CAS to determine tax liability.
Use Tax Reciprocity
Follow the Sales Data
Vendor
CSP
Sales
Data
State Dept.
of Revenue
Website
Passes
through
SSTGB
Consumer
Total Tax
Liability
States
Use Tax Reciprocity
Paying Use Tax - Consumer
 Internet transactions shall continue as normal,
without taxation at the point of sale.
 Consumers will receive a notification of use tax owed
concurrent to income tax filing.
 Consumers’ use tax liability is incorporated into the
state income tax form.
Benefits - States
 Requires no streamlining or federal action.
 Levels the playing field.
 States collect based on authority to collect use tax and
regulate/audit its corporations and businesses.
 Each state enforces compliance of its own businesses,
for the benefit of every other state.
 By working together, each state ensures maximum
collections for itself.
 Removes the need for a small business exemption.
 No reliance on consumer self-reporting.
Use Tax Reciprocity
Benefits - Vendors
 No implementation costs for vendors.
 Almost no administrative time for vendors (less time
than it takes to collect and remit sales tax).
 Much easier for a business to implement than using
CSPs.
 Must relieve vendor from the liability of incorrectly
collecting taxes across many jurisdictions.
Use Tax Reciprocity
Potential Criticisms
 Security and Privacy-Protecting consumers shopping
habit info
 These are the same issues that are extant under the
current Point of Sale model.
Use Tax Reciprocity
More on Privacy
 No agent of any state should ever view the purchases of any




individual.
All tax calculations should be automated in such a way that
no one sees the name of any consumer.
Tax information remitted to states should only include
identifying information and total use tax owed (no
information on shopping habits).
If a consumer contests his use tax liability, any audit should
be performed by an outside agency, and individuals
performing the audit should certify that they do not know
the person contesting the bill.
These rules will protect the states and the SSTGB from
invasion of privacy lawsuits.
Use Tax Reciprocity
Amazon Laws
 Amazon and similar sites will not report sales data if
items were sold through an affiliate.
 All affiliates of Amazon and similar sites will report
sales in their respective states.
Use Tax Reciprocity
What it is not
 This project does not completely replace the need for a
national solution
 Non-use tax states have little incentive to participate.
 it creates the ability to collect almost all of the use tax
owed.
Use Tax Reciprocity
Implementation Structure
Technique
SSTGB
License
use of the
technique
States
States
States
Contract to
perform
calculations
CSP
Join the agreement
as regulations are
implemented
Use Tax Reciprocity
More on Reporting Regulation
 States should only require companies to report
transactions in which the purchaser’s state is also a
party to the reciprocity agreement, i.e. both the seller
and buyer are regulated by their respective state.
Use Tax Reciprocity
More on implementation
 SSTGB will require few additional resources, primarily
the ability to monitor state implementation and CSP
contractors.
 States will require few additional resources, primarily
the ability receive/forward data and mail invoices to
consumers once yearly.
 Collection becomes more efficient as more states join.
Use Tax Reciprocity
Summary & Next Actions
 Investigate creating a reporting regulation in your
state.
 Explore partnerships with a CSP.
 Follow up at the next meeting.
Use Tax Reciprocity
Questions?