NewsNotes

Lesli S. Laffie, J.D., LL.M.

New Blue Book • Streamlined Sales Tax Project • Tax Freedom Day (Chart)

Miscellaneous

New Blue Book

The Joint Committee on Taxation released a General Explanation of Tax Legislation Enacted in the 106th Congress (JCS-2-01). The "Blue Book" is prepared so lawmakers, tax practitioners and other interested parties have explanations in one volume of the final tax legislation enacted.

The Blue Book is divided into nine parts, with each part addressing a specific piece of legislation. Part One explains the provisions of the Availability of Certain Tax Benefits for Services for Part of Operation Allied Force Act (P.L. 106-21), on the tax treatment of certain military personnel and civilian employees in the Federal Republic of Yugoslavia, Albania, the Adriatic Sea and the northern Ionian Sea above the 39th parallel. Part Two explains the revenue provisions of the Miscellaneous Trade and Technical Corrections Act of 1999 (P.L. 106-36), on the treatment of certain property subject to a liability. Part Three explains Title V of the Ticket to Work and Work Incentives Improvement Act of 1999 (P.L. 106-170), entitled the Tax Relief Extension Act of 1999.

The revenue provisions of the Trade and Development Act of 2000 (P.L. 106-200), on the foreign tax credit rules and overpayments to Puerto Rico and the Virgin Islands, are explained in Part Four. Part Five addresses the provisions of the Act Amending the Internal Revenue Code to Require 527 Organizations to Disclose Their Political Activities (P.L. 106-230). Part Six explains the revenue provisions of the Miscellaneous Trade and Technical Corrections Act of 2000 (P.L. 106-476), on imported cigarette compliance. An explanation of the FSC Repeal and Extraterritorial Income Exclusion Act of 2000 (P.L. 106-519) comprises Part Seven. Part Eight explains the revenue provisions of the Community Renewal Tax Relief Act of 2000 (P.L. 106-554). Finally, Part Nine provides an explanation of the Installment Tax Correction Act of 2000 (P.L. 106-573). An appendix offers the enacted legislation's estimated budget effects.

Streamlined Sales Tax Project

The Streamlined Sales Tax Project (Project) was created by state governments (with input from local governments and the private sector) to simplify and modernize sales and use tax collection and administration.

The Project's proposals will incorporate uniform definitions within tax bases, simplified audit and administrative procedures and emerging technologies to substantially reduce tax collection burdens. The Streamlined Sales Tax System (System) focuses on improving sales and use tax administration systems for both mainstream and remote sellers for all types of commerce.

Currently, 38 states are involved in the Project; thirty-two states are voting participants because their legislatures have enacted enabling legislation or their governors have issued executive orders or a similar authorization. Six states are nonvoting participants, because they do not have the formal commitment of the state executive or legislative branch.

The Project has addressed its issues through a steering committee and the following four work groups:

• Tax base and exemption administration.
• Tax rates, registration and returns.
• Remittances, technology, audit, privacy and paying for the System.
• Sourcing and other simplifications.

Businesses—including national retailers, trade associations, manufacturers, technology companies and others—have actively participated in Project meetings by reviewing proposals and providing feedback to the states on key elements. The System's key features include:

• Uniform definitions within tax bases. Legislatures still choose what is taxable and exempt, but will use the common definitions for key items in the tax base.
• Simplified exemption administration for use- and entity-based exemptions. Sellers are relieved of the "good faith" requirements under current law and will not be liable for uncollected tax. Purchasers will be responsible for incorrect exemptions claimed.
• Rate simplification. States will be responsible for the administration of all state and local taxes and the distribution of local taxes to local governments. State and local governments will use common tax bases and accept responsibility for notice of rate and boundary changes. States will be encouraged to simplify their own state and local tax rates.
• Uniform sourcing rules. The states will have uniform sourcing rules for all property and services.
• Uniform audit procedures. Sellers who participate in one of the certified System technology models either will not be audited or have a limited-scope audit, depending on the technology model used.
• Paying for the System. To reduce the financial burdens on sellers, states will assume the responsibility for implementing the System.

Participation in the System by both vendors and states is voluntary. Also, registration by vendors in the System does not infer nexus for business activity or income tax purposes. The System will allow sellers to use one of three technology models. A seller may select Model 1, under which a Certified Service Provider performs all of the seller's sales tax functions. A seller may select Model 2, a Certified Automated System, to perform only the tax calculation function. A large seller with nationwide sales that has developed its own proprietary sales tax software may select Model 3 and have its own system certified by the states. However, some sellers may choose to continue to use their current systems and still enjoy the benefits of simplification.

In late 2000, state representatives to the Project voted to approve a Uniform Sales and Use Tax Administration Act and Streamlined Sales and Use Tax Agreement, which state legislatures began considering in January 2001.

The approval of the Act and Agreement provides the basis for states to enact legislation to provide the benefits of simplification to vendors in their state. However, the Project will continue its work throughout 2001 to incorporate additional elements into the System. These elements may include additional uniform definitions, a uniform tax return and revisions to the technology models based on information gained through the testing of tax collection software.

For more information, see www.geocities.com/streamlined2000 .