During an October 26 hearing in Chicago on a proposal to reform state and local sales tax systems, Dearborn Mayor Michael A. Guido urged a panel of state officials to maintain local option sales taxes and to find a way to hold local revenues harmless as states transfer to a uniform tax base. This was the second hearing conducted by the Streamline Sales Tax Project (SSTP) on a plan jointly developed by participants from 39 states to streamline and simplify the current sales tax system. A key purpose of the Project is to make sales tax collection simple and easy for all merchants, particularly out-of-state merchants who primarily use the Internet to sell goods and services.

Testifying on behalf of the U.S. Conference of Mayors at the Ramada Plaza O'Hare near Chicago, Mayor Guido told the panel that no issue was more important to Mayors than maintaining the local option sales tax because it would "allow states to continue to work with their local governments to choose the mix and the level of taxes that best suit their preferences, tradition and needs." He told panel members to ignore proposals introduced in Congress earlier this year that would impose a single rate per state on all remote sales as a condition for requiring out-of-state merchants to collect state and local taxes. Mayor Guido said "This simply is not necessary" since software is being developed that will provide merchants a breakout of state and local tax rates based on the zip code of the buyer. He also said he was "delighted that the Streamlined Sales Tax Project plans to use such software and is currently in the process of testing it in four states."

Support for SSTP

While voicing strong support for the goals of the SSTP, Mayor Guido raised concerns about provisions in the proposal that call for a uniform tax base, and giving states responsibility for the administration of all state and local taxes. He explained that in cases where there is a huge difference between the state tax base and the local tax base (items that are taxable in the city versus items that are taxable by the state), local governments could lose a significant amount in revenues.

As an example he cited the city of Denver which depends on the sales tax for over 50 percent of its total revenues. The city has a broader tax base than the state of Colorado. If a uniform tax base had been in place in 1998, the city would have lost an estimated 27 percent of its total sales and use tax revenues because the state exempts more items from the sales tax; the city uses different audit standards which allow it to recover more of its projected revenue losses; and the city has a use tax which the state does not have.

Mayor Guido told members of the panel that "Unless a solution is found, transferring to a uniform tax base could be catastrophic to such cities." He urged the SSTP and state legislators to include mayors and other local elected officials in the decision making process and to find a way to hold cities harmless or revenue neutral in transferring to a uniform tax base.