Americans for Tax Reform
Big Seven Internet Taxation Proposal

Their proposal will institute a MASSIVE, UNPRECEDENTED TAX COLLECTION SCHEME ON THE INTERNET.

Here is their PROPOSAL:

"Streamlined Sales Tax System for the 21st Century"

Summary of Key Features

GOALS. The purpose of this proposal is to develop a more simple, uniform and fair system of state sales and use taxation in a manner that preserves state and local sovereignty. The proposal has both short-term and long-term components. Over the short term, the goal is to create a voluntary system for states and vendors to provide remote vendors with a burdenless system of collecting sales taxes that are currently owed by purchasers. It will need to be a simple, streamlined system. At a date certain, the proposal would provide for states to radically simplify sales tax laws to establish more common and uniform classifications and exemption certificate systems. The proposal's key tenet is to achieve significant simplification of sales tax systems to match the rapid evolution of the information economy and global trade. That simplification would incorporate changes in bases (how products are defined, which are exempt, etc.) and filing as ultimate objectives to ensure a more workable system to enable more effective competition in the global marketplace.

The proposal, to help achieve this simplification, would use new software technology that allows states to collect sales and use taxes from mail-order, interstate, and Internet sellers. The system would be completely voluntary to states and remote sellers. The aim is to achieve equity for Main Street merchants, providing them a level playing field. The proposal would remove the unequal application of tax laws so they do not give certain categories of buyers and sellers unfair advantages or subsides relative to other categories of buyers and sellers. Over the long term this system would be extended to all merchants, significantly reducing or eliminating the burdens that have historically been associated with tax collection responsibilities.

General Approach

The proposal would seek to reduce the costs and burden of sales tax compliance for participating sellers to as close as possible to zero by shifting the sales tax administration burden from the vendor to a technology-oriented business model in which the primary responsibility for calculating, collecting, reporting and paying the tax is lodged with "trusted third parties" (TTP's) instead of the seller. This would eliminate burdens and audit liabilities for vendors. It would provide for states to simplify their sales and use tax laws and administrative practices in key areas necessary to enable the technology and new business model to operate properly.

Participation in the System

Participation in the system will be voluntary to sellers, and to participating states. There will be no change in current legal standards regarding the imposition of a use tax collection obligation on interstate sellers. Participating vendors would be free to engage in such business activities in those states as they desire without incurring additional sales tax obligations. The key characteristic is that the remote or interstate seller must be technologically capable of participating in the system by being able to transmit and receive information regarding transactions to a "trusted third party." As the system succeeds and is refined, states will be in a position to expand its use on a phased basis, to all retail stores.

A central element in the proposed new system is the Trusted Third Party. Participating states will enter into contracts with one or more TTP's to operate the tax administration system. The TTP will be responsible for receiving required information on transactions from a seller and operating software for determining the taxability of a transaction, the appropriate state and local tax rate, and the tax due. The TTP will also provide tax information to sellers at the time of the sale, so that information on tax due is available to a customer before completion of the transaction. TTP's will also enter into arrangements with credit card and other electronic payment processors, so that tax owed the state may be remitted directly to the TTP for transmittal at a later point to the state or it may be transmitted directly to the state. The TTP will also be responsible for providing all transaction and return information to the states along with the tax remittance.

A competitive bid and negotiation process will be used to select the TTP's. It is expected that multiple TTP's will be selected. The selection process will include a certification of the software used by the TTP to make taxability determinations and to apply the appropriate state and local tax rate. Transactions sent through the system will be presumed to have had the correct tax calculated and paid.

Privacy Concerns

The proposal is constructed to ensure privacy. A TTP will not be in possession of personal identifying information for an individual buyer paying taxes at the time of sale. Individual names and street addresses will not be transmitted to the TTP. Likewise, credit card information from the buyer will not be transmitted to the TTP. While the tax rate assignment will be made based on an individual street address, the address will be converted to a "Geocode" (taxing district identifyer) at the seller level.

Burdens and Incentives for Sellers and Costs of the System

The only obligation imposed on a participating seller will be to integrate its system with that of the TTP so that information required for tax determinations can be made available to and received from the TTP at the time of the transaction. Costs of this integration will be reimbursed from the TTP through funds made available by the states. The seller will not be responsible for making taxability determinations or handling state tax money. Consequently, the seller will not be subject to tax audits by the states. The vendor will be subject only to a periodic "system check" sufficient to ensure that the appropriate information is passed to and received from the TTP. A single check will be performed for all states.

It is expected that TTP's will provide financial incentives to sellers to enter the system and to sign up with a particular TTP. The fee to the TTP will be structured by participating states in order to provide a bonus incentive in the early months of participation. As an added incentive the proposal would not subject remote sellers to examination or review for any tax liabilities they may have incurred by inadvertent nexus-creating contacts prior to entering the system, provided they have not been contacted by a state for such purposes prior to entering the system. Participation in the system will not, however, be considered in a factor in determining potential liability for any other tax imposed by a participating state.

Through a request for bid process, states would determine payment to be made to TTP's on a "per transaction" basis (either a flat, per-transaction rate, percentage rate, or combination) based on negotiated rates. TTP's will also be required to pay the costs of integrating their system with those of sellers so that the sellers can participate in the system. These costs will also be covered in the transaction fee paid to the TTP. All participating TTP's will be paid at the same per-transaction rate.

Simplifying Sales Tax Systems

At a date certain, the proposal contemplates that states would amend their laws and regulations to provide for the development of uniform product codes. States would reach consensus on determining a common rule on the site where sales and use taxes would be owed. The proposal contemplates that states would develop more uniform procedures for the administration of certain exempt transactions as well as initiate the development of uniform definitions for use in state tax laws.