Discussion on Overall Cost of Compensation and Part 2

Compensation

9/28/09

Overall Costs of Compensation

• Part 1 (credit card costs) and Part 2 (other costs) combined

• Look at potential cost compared to new money expected with remote collection authority

• Imperative to get Governors and Legislators involved in this issue

• Estimates for FY 2011

Existing Sales Tax Base

– Survey of the states to get ’09 state and local sales and use tax revenue

– Adjusted to ’11- 1.2% for ’10, 4.7% for ‘11– Based on national estimates for Retail and

Food Sales and Personal Consumption Expenditures

Estimate of New Revenue With Remote Collection Authority

• 3 Components– 2011 E commerce loss from Fox Study– 2011 Other remote commerce loss on

Business to Consumer Sales– 2011 Other remote commerce loss on

Business to Business Sales– Adjusted for Different Possibilities for the

Small Seller Exception (still reviewing assumptions for cost of exception)

Existing Vendor Compensation Policies and Payments

• Used FTA data for current policies- updated by some states

• Current vendor compensation payment information provided by states

• Data is not yet complete

Calculated Possible Vendor Compensation Costs

• Calculation is compensation as a percent of expected state and local sales and use tax revenues for FY 2011

– .75%– 1.0%– 1.25%– 1.5%

• Calculations for all states where sufficient data was available

• Separate Totals for Select States• Arkansas, Indiana, Iowa, Kansas, Kentucky,

Michigan, Minnesota, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Dakota, Tennessee, Utah, Vermont, Washington, West Virginia, Wisconsin and Wyoming

New Revenue with Remote Collection Authority (Billions)

Small Seller Except. All States Select States

$5 Million $10.3 $2.8

$1 Million $12.4 $3.4

$500,000 $14.1 $3.9

$250,000 $15.6 $4.3

$100,000 $17.5 $4.8

Current Vendor Compensation Payments

• All States (those that reported)– $869 million– .31% of total state and local sales and use tax

revenue

• Select States (those that reported)– $243.9 million– .25% of total state and local sales and use tax

revenue

• In some states, existing compensation payments can help with any new compensation requirement

Possible Compensation Amounts Compared to New Revenue with Remote Collection Authority

Small SellerException

0.75% 1.00% 1.25% 1.50%

$5 Million 26% 35% 43% 52%

$1 Million 22% 29% 36% 43%

$500,000 19% 25% 32% 38%

$250,000 17% 23% 29% 34%

$100,000 15% 21% 26% 31%

Compensation as % of Revenue

Net Compensation ComparisonIncludes Existing Compensation

Projected AdditionalRevenue from Remote Comp. at 1% of Total Net Comp. at 1% of Total

Collection Authorityw/ Small Seller Excep. % of Additional Current Comp. % of AdditionalException of $500,000 Cost Collections Payments Cost Collections

Arkansas 143.2 39.6 27.6% 35.8 3.75 2.6%Indiana 241.7 65.8 27.2% 0 65.78 27.2%Iowa 109.7 37.2 33.9% 0 37.15 33.9%Kansas 169.0 32.1 19.0% 0 32.09 19.0%Kentucky 136.0 30.2 22.2% 21 9.24 6.8%Michigan 175.1 80.1 45.8% 25.7 54.44 31.1%Minnesota 275.6 48.7 17.7% 0 48.75 17.7%Nebraska 71.5 18.1 25.3% 12.6 5.47 7.7%Nevada 209.0 32.9 15.7% 18.7 14.16 6.8%New Jersey 250.4 77.4 30.9% 0 77.38 30.9%North Carolina 264.5 84.9 32.1% 0 84.93 32.1%North Dakota 18.9 6.6 35.0% 0 6.63 35.0%Ohio 380.9 95.9 25.2% 56.8 39.11 10.3%Oklahoma 179.7 38.9 21.7% 41.8 (2.85) -1.6%Rhode Island 42.8 8.6 20.2% 0 8.63 20.2%South Dakota 36.8 9.8 26.7% 0 9.82 26.7%Tennessee 452.7 87.5 19.3% 0 87.55 19.3%Utah 109.4 26.5 24.2% 0 26.50 24.2%Vermont 27.0 3.5 13.1% 0 3.54 13.1%Washington 327.5 98.4 30.0% 0 98.38 30.0%West Virginia 62.6 12.4 19.8% 0 12.41 19.8%Wisconsin 175.2 42.7 24.4% 31.5 11.21 6.4%Wyoming 37.4 10.4 27.7% 0 10.36 27.7%

Total (all states) 14,093.5 2,822.1 20.0% 869.9 1,952.24 13.9%

Total (select states) 3,896.7 988.3 25.4% 243.9 744.43 19.1%

Part 2 Compensation

• Objectives– Simple for Retailers– As uniform as possible– Can be easily administered by states– Account for complexities of individual states– Account for varying costs by the size of the seller– Can be enacted in states

• relationship of cost to additional revenue• impact on existing compensation systems

Simple for Retailers

• Easy to calculate amount– Can be calculated each reporting period

without having to do additional calculations• Consider the types of sellers that may be collecting

and remitting with remote collection authority

Uniform as Possible

• As much uniformity for each state given the other objectives– Consider a small seller that may be required

to remit in multiple states with remote collection authority

Account for Differences in States

• Reporting for Local Jurisdictions

• 2nd rate on Food or Drugs

• Clothing Threshold

• Origin Sourcing?

• Consider requiring states to provide additional compensation only to impacted sellers

Account for Cost Differences by the Size of the Seller

$150,000 to $1 Million to Greater Weighted$1 Million $10 Million than $10 Million Average

Gross Compliance Costs 13.47% 5.20% 2.17% 3.09%

Debit/Credit Card Fees 0.76% 0.76% 0.64% 0.66%

Net Cost 12.71% 4.44% 1.53% 2.43%

Cost Indexed to Small Sellers 1.00 0.35 0.12

Cost Figures from Cost of Collection Study

Options for Providing Additional Compensation to Small Sellers

• x% up to first $x remitted each reporting period– number of tiers?

• Size of Seller in Gross Sales– Prior Reporting Period– Concerns over fast growing companies, companies

restructuring– Complexities in determining appropriate caps

Can Be Enacted by the States

• Relationship to New Revenue• Impact on Existing Compensation Systems

– Current provisions vary in structure and amount– Difficult to fit uniform system into existing state vendor

compensation provisions without creating “winners” and “losers”

• Other Political Considerations