TaxWare's Charles Collins Discusses Internet Sales Tax
Charles Collins manages Taxware’s relationships with taxing authorities and legislative bodies and is a frequent speaker on state and local tax issues. He was employed by the North Carolina Department of Revenue for 32 years before coming to his current post, serving as the Director of the Sales and Use Tax Division for his last ten years there. While there, he also served as the Assistant Director of the Audit and Collection Division. Collins served as Co-Chairman of the Streamlined Sales Tax Project (SSTP) for two-and-a-half years. He was also a delegate to the Streamlined Sales Tax Implementing States.
His current company, Taxware, was named a Certified Service Provider (CSP) last week by the Streamlined Sales Tax Governing Board (the Board). Taxware is a leading provider of global transaction tax calculation and compliance software. With his background, Collins was a knowledgeable person to speak with AccountingWEB concerning their current achievement, as well as other issues facing the Board and Internet taxation. Collins started talking about the Board itself, as well as its organization and membership.
Collins said, “The Board is a nonprofit entity organized in the state of Indiana and is not a government entity. Representatives from each member state make up the membership of the Board where both full and associate members are members of the Board. The difference in full and associate members is that associate members are barred from voting on certain items, such as amendments to the agreement that the Board has with the member states."
Collins continued, “Another example is when the Board is trying to get a volunteer taxpayer to start collecting taxes for the full member states, a volunteer state has to agree to collect in all of the full member states if they collect in a single full member state but have the option to collect in associate member states." Collection in associate member states is voluntary for associate members, according to Collins.
The Board is currently made up of 19 members, including 13 full and six associate members. Collins said that if a state has completed all the necessary requirements, they come onto the Board as a full member state. Associate member states have passed the provisions but have a delayed effective date on their legislation.
Although there is no exact timetable, Collins said that Vermont may be on the verge of becoming a member state. At the last meeting of the Board, the Vermont representative was asking questions about the procedures and process for submitting their application to the Board.
Collins spoke about the certification process that has resulted in Taxware being named a CSP. Collins said, “Initially the states issued a request for proposal (RFP) for CSB services in December 2004, and Taxware was one of the companies that responded to that RFP. A majority of 2005, into early 2006, was spent providing them with information about our products, completing test decks, and training the states on how to use our system so they would know how to do the testing themselves.” Test decks were sample transactions used to emulate actual transactions.
Concerning three phases of the certification process, Collins said the first major phase was to determine taxability decisions, to determine if taxes were collected correctly, and if all special state rules were observed. The second major phase was visiting the hosting center where the software resides and the transaction information is maintained. The third phase involved getting a contract in place that would accommodate not only the CSPs and the Board but satisfy all the requirements for the 19 current member states.
The testing and certification was completed by individual state government auditors or internal auditors, and IT professionals who also made site visits, as well as reviewing transaction results. On the issue of third party certification of software or testing results, Collins said, “I think … the states will want to keep that process themselves.”
AccountingWEB asked Collins about possible conflicts with the Internet Sales Tax Moratorium. Collins reminded me that the moratorium covers taxes on Internet access and services only. It doesn’t impact Internet sales or use taxes, so there is no conflict.
Collins continued, “I understand a bill has been introduced, or about to be introduced in Congress this year, that would mirror the SSTP and make a SSTP tax collection system mandatory across all 50 states and territories instead of just voluntary as it is now. In that regard, all the bills that have been introduced in the past have had de minimus levels as a provision and in most cases, pertaining to eBay sellers, for example, some protection should be provided. In the past, a $5 million de minimus level was provided where you were not required to start collecting sales taxes on Internet sales unless your remote taxable transactions exceeded $5 million. While this may affect much larger businesses, the smaller businesses are protected up to that limit.”
AccountingWEB asked Collins if there was any federal oversight in the certification process. He said, “There is no federal oversight into the certification process. You’re still dealing with state laws and taxation and the feds don’t have much experience with transaction taxes, for the most part. If and when Congress were to mandate the collection of Internet sales tax for remote vendors generating over the $5 million threshold, then there would be federal responsibilities for oversight, especially to ensure the states stay in compliance with the provisions in place. There would also be a need for a clearinghouse for companies seeking clarification on a state’s interpretation of a provision, for example. I believe that the Federal Court of Claims is listed in the current legislation before Congress.”
In the event of federal legislation being passed, AccountingWEB asked Collins to tell us about the future of the Board. He said, “If Congress did pass this legislation, the Board would just function largely as it does now without being federalized, although it would have a broader audience. The new states and companies that would be forced to comply with the passage of the federal legislation would not automatically become members of the Board.”
Collins continued, “The current Board agreement with the current member states would become the model for other states that are not current full or associate members of the Board already and those states would have to comply. Only then would businesses be required to collect sales taxes on Internet transactions. Associate members of the Board would have to move their effective dates up to comply with federal provisions and come before the Board to convince the business community and full members sitting on the Board, that they are in full compliance.”
Challenges are a part of every organization, especially the Streamlined Sales Tax Governing Board. Collins told AccountingWEB about two challenges he sees in the immediate future of the Board. He started, “In some states, one of the provisions in the current agreement is uniform sourcing for in-state and local sales taxes, so if you’re in a state such as Tennessee, Ohio, Utah, or North Carolina, in-state transactions used to be sourced based on origin on shipments only, not everything. If the sale was across a counter and you leave, you pay the local and state tax in county A, but if you buy in county A and have it shipped to county B, some states sourced based on origin in county A and other states sourced based on the destination in county B.”
Collins continued, “The rules that the Board has established have designated ‘destination’ as their tax sourcing. Some states have been able to change their laws, but there are a few states, like Ohio, which is an ‘origin’ state. They have been unable to change their laws to ‘destination’ sourcing. That provision creates additional complexity on smaller businesses that ship products in-state. It doesn’t affect small businesses that don’t ship because they’re collecting at the same rate, but shipping inside a state makes taxation more complex in ‘origin’ states. The Board and the CSPs are working with the affected businesses to help them make the change as painless as possible, compliance wise.”
Collins told AccountingWEB about another challenge facing the Board. He said, “As you go from 19 states to 38 states, for example, you have more issues of keeping every one together and ensuring prompt communication to ensure all the members are on the same page. A tremendous amount of progress has been done in that regard already. The Board has set up two counsels. One is the Business Advisory Council, made of members of the business community and the other is the State and Local Advisory Council that is made up of all the states, except one. These councils are learning as time goes on. These are growing pains by any other name.”
There has been some speculation whether Internet taxation will be discussed in this election year, to which Collins responded, “The Internet taxation bill is not expected to be brought up in this election year.”