Streamlined Sales Tax Policy Recommendations
Submitted to AML Board of Directors by Patty Ware, Begich Fellow
December 15, 2006
This document serves as the final report of the Begich fellowship and provides
information and recommendations to the AML Board based on three months of research
and analysis on the Streamlined Sales and Use Tax Agreement (SSUTA) and
accompanying sales tax issues in Alaska. Detailed reference information is contained in
several final project documents cited and attached to this report. All documents are also
available on the AML web site, on the Alaska sales tax tab.
Alaska participation in the SSUTA
The determination of whether Alaska should participate in the national streamlined sales
tax (SST) project has broad policy implications for Alaska’s citizens, Alaska’s local
governments and Alaskan businesses. The Alaska Municipal League (AML) sought
answers to the benefits of participation in this project primarily due to the potential for
additional local revenue from previously uncollectible taxes on remote purchases.
Although sales taxes on so-called “remote” purchases made via the internet or catalogue
are, in fact, owed by the consumer, these are routinely not paid. Both state and local
governments have been precluded from collecting sales tax on interstate commerce due to
the 1992 Quill v. North Dakota Supreme Court decision involving catalogue sales. The
national streamlined sales tax (SST) project is the resultant effort to create a more
streamlined and uniform sales and use tax system among all participating states. One goal
of the project is to significantly reduce the complexity and burden of collecting these
taxes such that businesses with no physical presence (or nexus) in the state will
voluntarily collect and remit previously uncollectible taxes on interstate sales. A second
goal is the passage of federal legislation allowing states in compliance with the
Streamlined Sales and Use Tax Agreement (SSUTA) to require businesses to collect and
remit sales and use taxes on remote purchases. The mandatory feature of this legislation
is different from the current process whereby SSUTA participating states receive revenue
only from businesses who have “voluntarily registered” to collect such taxes. The ability
to require businesses to collect and remit these taxes is, for many SSUTA participants, a
critical longer-term goal that has made their ongoing efforts and work on the SST project
worthwhile.
There are a significant number of questions facing any state considering participation in
the SSUTA. For Alaska, the number and complexity of issues is far greater. The SSUTA
is based, in general, on the assumption of a statewide sales tax. Although Alaska can, in
fact, participate in the Agreement absent a state sales tax, there are a number of additional
tasks that would be required prior to acceptance of Alaska’s participation as a full
member state.
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Streamlined Sales Tax Policy Recommendations
Submitted to AML Board of Directors by Patty Ware, Begich Fellow
December 15, 2006
Although strongly supported by NACO, NLC, NGA, NCSL and host of other national
advocacy organizations, the primary question for Alaska should be: “Why is this a good
idea?” Declining municipal revenues, coupled with the belief that Alaskans make more
“remote” purchases (i.e. via either the internet, catalogue, or other means by which goods
are shipped in from outside) than other states’ citizens, would appear, at first glance, to
point to the SSUTA as one solution to the lack of sufficient funds at the local government
level. However, this conclusion is premature based both on the tasks required for
Alaska’s local governments to come into compliance with the Agreement and insufficient
information regarding the accompanying costs that would be incurred.
Reference Document #1- SST Frequently Asked Questions (FAQs): Outlines all of
the primary issues facing Alaska regarding SSUTA participation. It includes information
on potential benefits for Alaska, details on tasks required for Alaska participation in the
SSUTA, general cost information for participating states, and the impact to Alaska were
federal legislation to pass Congress.
Benefits: Enhanced Revenue?
The two primary benefits of the SSUTA of interest to state and local governments are the
promise of increased revenues without levying a “new” tax and the simplification of sales
and use tax administration.
With regard to state revenues, the picture remains incomplete. In the absence of federal
legislation allowing states to require remote seller to collect taxes, all revenue is based on
voluntary compliance by businesses whose identities remain confidential as part of the
Agreement. One result is a state not knowing whether the additional SSUTA revenue will
be significant or not, in that it depends partly upon whether the business is already
registered in the state to pay taxes. In terms of specific numbers, revenue loss projections
on remote commerce have been done for every state with a sales tax in a frequently cited
paper by the University of Tennessee1. Based on an accompanying general formula
provided by Donald Bruce, one of the paper’s authors, we calculated the potential
revenue loss to Alaska’s local governments as approximately $9.2 million. University of
Tennessee’s Dr. Bruce stated that, while this was a rough “back of the envelope”
calculation for Alaska, the figure appeared to have some face validity in that it is similar
to the loss range provided for other small population states2. However, revenue
projections may, in fact, have been over-estimates. The SST Governing Board reports
1
Bruce, D. & Fox, W. (July 2004). State and Local Sales Tax Revenue Losses From E-Commerce:
Estimates as of July 2004. University of Tennessee, Center for Business and Economic Research,
Knoxville, Tennessee.
2
Bruce, D., University of Tennessee, Center for Business and Economic Research. Personal e-mail
correspondence, November 7, 2006.
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Streamlined Sales Tax Policy Recommendations
Submitted to AML Board of Directors by Patty Ware, Begich Fellow
December 15, 2006
that national revenue collections from voluntary compliance for the first year of the
Agreement (October 1, 2005 through September 30, 2006) totaled $34.6 million for all 19
participating SSUTA states3. Given the significantly smaller realized revenue for two of
the small population states reviewed by this writer and discussed with the cited study’s
author, the estimated figure for Alaska’s local governments is possibly similarly inflated.
For example, the projection for North Dakota’s local government revenue loss cited in
the 2004 article ranged between $4.6-$7.2 million4, although North Dakota’s realized
revenue (both state and local) from voluntary collections during the first year of the
SSUTA totaled only $112,730. South Dakota’s local government projected revenue
losses were estimated to range between $13.3-$20.8 million5, although South Dakota’s
realized revenue (both state and local) from voluntary collections during the first year of
the SSUTA totaled only $587,324.
Although total overall collected revenue is significantly less than projected, it is
noteworthy that the rate of collection for many states was higher in the last three months
of the reporting period than the previous nine -- in fact, two states collected more overall
revenue in these final three months. This may be due, in part, to an increased number of
voluntary businesses registering to collect as the SSUTA became less of an unknown and
the benefits to voluntary businesses more highly publicized. There is some belief that as
states work through the details of SSUTA involvement and more businesses join the
process, more voluntary revenue will be collected.
The incomplete nature of the revenue picture is also due to the lack of any type of
aggregate data regarding state or local government costs to come into compliance with
the Agreement. There is currently no single source of information that lists the costs for
participation in the project. Although cost categories are outlined in the previously
referenced SST FAQs, these are general factors to consider versus summary data based
on participating states’ experiences. Further, Alaska would incur an additional set of costs
unique to our state’s participation. This is due to the need to develop some type of
consortium to serve as the required statewide administrative entity to administer SST
taxes and the administrative and logistical challenges for Alaska to become compliant
with the SSUTA. One additional revenue point for Alaska is that if there were data to
support the contention that our state engages in remote sales more frequently than other
states, it is possible that the earlier cited revenue projections may be more accurate. This
writer has been unable to locate any definitive data on remote sales in Alaska, other than
3
Peterson, Scott. SST Governing Board. Personal e-mail correspondence, December 5, 2006.
Bruce, D. & Fox, W. (July 2004). State and Local Sales Tax Revenue Losses From E-Commerce:
Estimates as of July 2004. University of Tennessee, Center for Business and Economic Research,
Knoxville, Tennessee.
5
Ibid.
4
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Streamlined Sales Tax Policy Recommendations
Submitted to AML Board of Directors by Patty Ware, Begich Fellow
December 15, 2006
rough estimates from a study done for one region of the state for an entirely different
purpose. In summary, costs to Alaska for SSUTA participation are unable to be
calculated, but do not appear to be insignificant.
Reference Document #2- SSUTA Tax Revenue: An excel spreadsheet detailing the
revenue for participating SSUTA states from voluntary business collection for the first
year of the Agreement (October 2005-September 2006).
Simplification and SSUTA Administrative Requirements:
The second primary benefit of SSUTA participation relates to the simplification of sales
and use tax administration. This benefit is one that more states agree may actually be
realized versus the likelihood of increased revenues. Governments and businesses alike
both support the idea of simplifying often complicated and burdensome sale and use tax
systems. The SSUTA sets up uniform rules, definitions and administrative procedures for
sales and use taxes and requires participating states to be in compliance with these.
A listing of the primary elements of the SSUTA designed to promote simplification,
along with the relevant section of the Agreement, are highlighted below:
 State level administration of SST taxes (Section 301)
 Uniform tax base for each state (Sections 302, 308)
 State participation in an online sales and use tax registration system (Section 303,
401)
 Adoption of uniform definitions for taxable products and exemptions (Section
327-328, 330, Appendix C-Library of Definitions, Part I-II))
 Uniform procedures for notification for tax rate changes, sales tax holiday rules,
administration of exemptions, rounding rule for calculating taxes (Sections 304305, 316-317, 322, 324, 329, Appendix C-Library of Definitions, Part III)
 Development of a zip-code based database for each taxing jurisdiction specifying
tax rates (Sections 305, 307)
 Uniform sourcing rules (destination-based) with specific rules for certain items
(telecommunications, direct mail, lease or rental or certain items as specified)
(Sections 309, 311-315)
 Elimination of thresholds or “caps” with the exception of certain large ticket items
specified in the SSUTA (Section 323)
 Agreement to offer tax amnesty for a period of 12 months to all voluntary sellers
registering in the state (Section 402)
 Agreement to offer three different technology models (as specified in the SSUTA)
to all voluntary sellers for collection of the tax (Section 403)
 Agreement for the state entity to provide some amount of monetary allowances
for compensation of some of the costs for each of the three allowable technology
models (Section 601-603)
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Streamlined Sales Tax Policy Recommendations
Submitted to AML Board of Directors by Patty Ware, Begich Fellow
December 15, 2006
SSUTA Alaska Specific Issues:
A detailed analysis of the specific impacts to Alaska of each of the Agreement’s
requirements is beyond the scope of this report. However, were Alaska interested in
becoming a member state of the SSUTA, the following are the minimum tasks that
would need to be completed:
1. Formation of a statewide administrative entity to administer all aspects of SST
taxes. This could either be a consortium of local governments, the Alaska
Municipal League or the Alaska Department of Revenue. This writer recommends
a separate consortium be formed in order to ensure clear focus and mission.
Alaska can be a member state without a state sales tax.
2. Achievement of consensus among all local governments levying sales tax to:
 Adopt a single sales tax base (common exemptions)
 Adopt all of the uniform definitions contained in the SSUTA and
 Delete all existing sales tax caps
 Adopt a range of required uniform procedures for SST tax administration
3. Passage of a use tax ordinance by all of Alaska’s local governments levying a
sales tax in order to apply for member state status.
4. Ensure the technological capacity to participate in an online registration system
5. Develop and maintain the required technology, including: a) a database (either
zip-code or address based) to ensure accurate tax rates and b) the ability to offer
three different models for tax collection that must be made available to registered
voluntary sellers
6. Provide monetary allowances to voluntary registrants for some portion of the
technological costs for each of the three required collection models.
In reality, the above list is a gross oversimplification of what would need to occur in
Alaska prior to initiating an application for SSUTA membership. Since Alaska has no
state sales tax, the work required to enter into the Agreement would be accomplished by
local governments. This would involve considerable administrative organization and
fiscal resources to accomplish the up-front work of changing definitions, making
commensurate local code changes and adopting a uniform Alaska position. Put
differently, one could consider the work done by other states to be potentially multiplied
in its complexity by a factor of 102. This is the number of Alaska’s local governments
levying a sales tax. The challenge is magnified further since the work cannot be done in
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Streamlined Sales Tax Policy Recommendations
Submitted to AML Board of Directors by Patty Ware, Begich Fellow
December 15, 2006
isolation but must be coordinated so that a single “Alaska position” is defined and
adopted to meet SSUTA compliance requirements.
Many states have faced a range of challenges to come into compliance with the SSUTA.
There are ongoing struggles over particular elements of the Agreement, some of which
have become more apparent since adoption of the Agreement in October 2005. Were
AML to determine that further review of the SSUTA is warranted, local government
representation will need to be thought out carefully to encompass the broad range of
issues faced by our state. There are, however, contacts that can be made with state experts
who have gone down this road already.
Reference Document #3- SST Resource Info: Highlights from other states’ experiences
with the SSUTA. Notable are detailed reports from the states of New York and Maine
and documents from the Washington League of Cities. Also includes a few short articles
summarizing less publicized challenges of SSUTA implementation.
Reference Document #4-AML SST Conf Presentation: Power point presentation on
the SST project and implications for Alaska, presented at the November 2006 AML
Conference (view in “notes” format to see some of the explanation of the information
contained in more technical slides). Discusses required steps for Alaska’s participation in
the SSUTA, reviews advantages and disadvantages from other states and provides rough
calculations of Alaska revenue loss estimates (note caveats about these estimates
contained in the body of this report).
Reference Document #5-State Local SST Contact List: State by state list of
representatives to the State and Local Advisory Committee (SLAC) which is the
designated advisory committee for state and local governments to the national SST
Governing Board. This also lists representatives to the SLAC from NLC, NACO, US
Conference of Mayors and Government Finance Officers Association.
Other Alaska sales tax Issues:
During the project period, this writer contacted several different Alaskan communities
regarding the preparatory work required to be in compliance with the SSUTA. A number
of local tax administrators and Alaska finance officers expressed doubts about the
feasibility of adoption of the Agreement based on several of its restrictions. The most
significant concerns related to the ability of local governments to delete all tax caps and
to adopt a single uniform tax base and common exemptions given the important value of
maintaining local autonomy for sales tax. Another significant hurdle cited was the
plausibility of adopting a use tax, given the inability to track such a tax. Although these
complexities are noted earlier in this report, direct feedback from Alaska’s local
governments was primarily linked to doubts about whether the SSUTA supports Alaska’s
local taxing authority and individual community needs.
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Streamlined Sales Tax Policy Recommendations
Submitted to AML Board of Directors by Patty Ware, Begich Fellow
December 15, 2006
Similar concerns have been voiced by states with local taxation authority like Alaska’s,
including Colorado and Alabama.
Beyond discussions regarding SSUTA involvement, there appeared to be general interest
in and support for more detailed sales tax information relevant to Alaska’s communities.
Specifically, local governments face similar challenges in administering sales taxes and
there is currently no forum in which to discuss or address these issues such that each local
government is not re-inventing the wheel. Additionally, communities receive inquiries
from businesses and individuals for a range of information on local sales taxes. Although
the Alaska taxable report published by the Alaska Department of Commerce contains
some sales tax information, it doesn’t contain exemption information by community. In
discussions with the State Assessor, the first difficulty is in obtaining the information for
all 102 taxing communities and the second is in maintaining it once such a list is
established.
As a preparatory step to determining the level of complexity involved in adoption of a
common tax base among local governments for the SSUTA, this writer reviewed several
local sales tax codes and began the process of classifying exemptions into a single Alaska
Municipal Sales Tax document. The completion of this document would require
additional dedicated time and outreach to Alaska’s communities. Moreover, there are a
range of other Alaska sales tax questions and issues that would be better addressed
through the use of a forum dedicated specifically to these topics. Given the importance of
sales tax revenue to Alaska’s local governments, there is potentially significant benefit to
be gained by forming a dedicated group to focus on these concerns.
Reference Document #6-AK Tax Working Group: Suggested process for establishing
a statewide forum for interested local government sales tax administrators and elected
officials to address Alaska sales and use tax issues. Includes suggested participant list
based on contacts made during project period.
Reference Document #7- Muni Tax Exemptions: List of local sales tax exemptions and
contact information for 14 Alaskan communities and web links for those with sales tax
codes on line.
Reference Document #8-Unique Muni Exemptions: List of sales tax exemptions that
are unique to a single community, based on information as of this writing and based on
review of 14 local sales tax codes.
Conclusion: The streamlined sales tax (SST) project has made considerable gains in
achieving uniformity in sales tax processes through the development and implementation
of the streamlined sales and use tax agreement (SSUTA). Voluntary compliance by the
business community in collecting and remitting taxes on remote purchases began on
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Streamlined Sales Tax Policy Recommendations
Submitted to AML Board of Directors by Patty Ware, Begich Fellow
December 15, 2006
October 1, 2005 and has resulted in $34.6 million in voluntary revenue for SSUTA
participating states. The Agreement is still relatively new-- member states, associate
states and observer states are all continuing to work through the myriad of details and
challenges presented by the immense task of bringing clarity to the patchwork of sales
and use tax systems across the country. The pending federal legislation that would
authorize SSUTA compliant states to require businesses to collect and remit taxes on
remote sales does not appear likely to pass this coming Congressional session. Work is
continuing by NACO, NLC and other advocacy organizations to ensure that the federal
legislation accomplishes the objectives of increased revenues for SSUTA compliant
states by staying focused on taxes on remote sales versus becoming legislation that is tied
into other tax issues for specific industries.
It is likely far too early to draw any conclusions regarding the success of the SSUTA,
either in terms of its goal of simplification and uniformity or obtaining additional revenue
for state and local governments. However, it is this writer’s belief that given the
significant investment of time and resources expended by over 44 states since the
project’s start, the SSUTA may be of significant importance for governments in the
coming years. Alaska’s local governments potentially stand to gain by participating in the
project, although the benefits have yet to be quantified. Given the competing high
priorities of revenue sharing, PERS/TRS unfunded liabilities and many others, the
SSUTA is not likely a project that should be at the forefront of Alaska Municipal
League’s efforts. That said, it is this writer’s belief that the potential for both sales tax
streamlining improvements and garnering additional local revenue should not be ignored.
Formal participation in the SSUTA would likely be a multi-year, phased process, as it has
been for other states. Alaska’s local governments, however, may wish to explore the
feasibility through a series of steps and processes. In this way, the benefits of focused
dialogue on sales and use tax issues could be achieved without necessarily committing
extensive resources prior to a determination of real benefits. Specific recommendations
resulting from this project and aimed at this goal follow:
1. Form a statewide sales/use tax working group for interested local
government sales tax staff and local elected officials. The working group would
support the discussion of sales and use tax operational and policy issues. It could
also serve as an exploratory group to discuss the required tasks that would face
local Alaska governments if a decision were made to pursue active participation
in the Streamlined sales and use tax agreement (SSUTA). See Reference
Document #5.
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Streamlined Sales Tax Policy Recommendations
Submitted to AML Board of Directors by Patty Ware, Begich Fellow
December 15, 2006
2. Develop and maintain a tab on the AML web site focused on sales and use
tax issues in Alaska. One of the resources that should be completed and
maintained on this tab is the list of municipal sales tax exemptions for all Alaskan
communities. Update the information regularly in consultation with the Alaska
tax working group recommended above and the Alaska Department of Commerce
State Assessor’s office.
3. Designate a point person within AML or within the suggested Alaska tax
working group to stay tuned in to the streamlined sales tax project and the
status of the Agreement, with particular attention to voluntary revenue collections
and to recommendations made by the State and Local Advisory Committee
(SLAC) to the project’s governing board.
4. Based on this writer’s review of the cost-benefit data available, discussions with
other states and the number and complexity of required tasks for local
governments to be SSUTA compliant, obtain firm revenue projections from a
respected entity prior to undertaking the significant amount of work
involved in becoming a SSUTA member state.
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