howardnlby Howard Stephenson
Governor Olene Walker has called the Legislature into special session to postpone implementation of the Streamlined Sales Tax (SST) law. She made this decision against the wishes of some advisors who felt the law should be allowed to go into effect on July 1, 2004. Her call for a special session shows her support of retailers who say they are not prepared to comply with the changes required by the new law and taxpayers who were surprised by new taxes which were not disclosed when the bill passed.

The Legislature will meet today, Monday, June 28th at noon. Senator Curtis Bramble, chair of the Senate Revenue and Taxation Committee, will sponsor SB 3001, which will delay SST implementation until July 1, 2005. There will be a public hearing on the bill at 9:00 a.m. at the Capitol in room W135 to receive public reaction to the proposal.

What is SST?

SST is a project of a majority of states designed to make it possible for states to encourage out of state vendors to remit sales taxes on purchases shipped into a state. Ultimately, it is hoped that Congress will enable states to require out of state retailers to collect sales taxes. Currently residents within Utah and other states are required to remit a “use” tax equal to the sales tax rate for their out-of-state purchases but compliance is almost non-existant. The SST system requires vendors to impose a sales tax rate of each community to which they ship their products.

The Utah Taxpayers Association, Utah Retail Merchants, chambers of commerce and other groups have supported SST because they support tax equity between “bricks and clicks,” or in other words, between in-state retailers and out-of-state vendors which sell through telemarketing, infomercials, catalogues, and the Internet. The Taxpayers Association did not support SST unless the new funds are placed in a restricted account to cut taxes taxes rather than grow government. Utah’s SST law now places the funds in a restricted account.

Red Flags Were Raised

The problems with SST came to light recently as the Tax Commission published new rules which made clear that new taxes were associated with the Utah SST law. Problems also became more visible as the Tax Commission held SST training seminars in recent weeks around the state to help businesses and retailers gear up for the July 1, 2004 effective date of the new law. As a result of the training, many retailers realized that their companies were simply not ready to implement the law because of the inavailability of inexpensive certified software which was promised to be ready prior to the implementation of SST. This software was supposed to simplify the process of calculating sales tax rates of the community to which each purchase was to be delivered. Businesses were also supposed to be able utilize the services of certified service providers. As it happens, no certified service providers are available.

Jim Olsen, President of the Utah Retail Merchants Association explains that the service providers and computer software are needed to help retailers properly collect and remit the sales tax once the law changes from establishing the proper sales tax rate from point-of-sale to point-of-delivery. To our knowledge, neither the providers or software are currently available. Olsen says that without these necessary tools the SST burden placed on retailers who do a lot of delivery business will be an unreasonable burden to place on businesses, especially small businesses.

Some of Utah’s largest businesses spent considerable money to be ready for the changes on July 1, 2004. However, since most small retailers are not prepared, representative of the large businesses have supported the one year delay.
Even Supporters of SST were Surprised by New Taxes on Businesses

Although Utah’s adoption of the Streamlined Sales Tax Project (SST) was supposed to be revenue neutral for in-state purchases by Utah businesses and consumers, some taxpayers may be paying new taxes while others see taxes cut.

The Utah State Tax Commission proposed rules would impose three new sales taxes on businesses and consumers: (1) Repair charges for tangible personal property attached to real property, (2) Installation charges for tangible personal property attached to real property, and (3) Freight charges for FOB origin shipments. Some taxpayers have stated that these new taxes would have a significant impact on their bottom line. Other states involved with SST are not imposing these new taxes. The Tax Commission has stated that these new taxes are mandated by the Streamlined Sales Tax Agreement and legislation passed by the Utah Legislature.

Governor Sides with Taxpayers

Some supporters of SST were calling for the Governor to forgo a one-year delay and simply allow the Tax Commission to waive penalties and interest for those unable to comply with the new lae. These advocates for no delay also claimed that the surprise tax increases contained in SST were not important because they were offset in part by tax exemptions on some other sales such as prosthetic devices.

However Governor Walker listened to taxpayers who said they needed more time to ramp up their preparations to get necessary software in place, and to provide time enough that a general session of the legislature could thoroughly examine the tax increases contained in Utah’s SST.

Majority and minority leadership in both houses have agreed with Governor Walker to support delaying SST implementation until July 1, 2005.

Public Hearing Prior to Special Session

The Legislature’s Interim Revenue and Taxation Committee will hold a public hearing for Monday, June 28th at 9:00 a.m., the same day as the special session. This will be an opportunity for business owners to explain why SST implementation needs to be delayed.

The Utah State Tax Commission has scheduled a hearing regarding rules to implement SST for Tuesday, June 29th at 9:00 a.m, the day following the special session. The impact of the June 29th meeting will be lessened if the legislature delays implementation of SST.

Although nobody knows for sure what will happen in the special session of the legislature, kudos go to Governor Walker and her staff, the Utah State Tax Commission, and legislative leaders for their willingness to listen to taxpayer concerns and for their significant efforts to address this issue in the best interests of Utah’s taxpayers, businesses and economy.