The County Line - Spring Issue 2002

Streamline Sales Tax Project Moving Forward

Back in Journalism School, oh so many years ago, we were advised not to embark on the discussion of complicated subjects in a short newspaper story. For a long time, I followed those academic guidelines. But it's been a long time since those college days and here goes an attempt to explain what is a very important -- and complicated -- issue relating to taxation.

Just a week or so ago, a rather significant piece of legislation became law. Passed during the last two weeks of the regular legislative session, this new law has the potential to impact the financial condition of the state of Alabama, local schools and almost every county and city in the state.

In Alabama, we finance our governmental functions almost exclusively with taxes that are driven by consumer activities -- sales and use taxes, business license taxes, gasoline and motor fuel taxes, just to name a few. When times are good, this is a very fine approach. But when economic conditions aren't so good, state and local governments can find themselves short on cash.

Such has been the case in the last several months. This decline in economic activity has been compounded by the growth of what are commonly known as "remote" sales transactions -- that is, those sales that are made either via the Internet or through merchandise catalogs. More and more people are relying on these purchasing sources for a variety of reasons.

And such a change in our purchasing habits is not necessarily bad, except for one little problem. Now, the problem is not whether or not these transactions are subject to Alabama taxes -- they are -- the problem lies in compelling the remote seller (who may be in Montana or Delaware) to collect the Alabama state and local taxes and remit it to the proper place.

And because we can't require the collection, these transactions are going untaxed.

We are not alone in this swamp. Most every state in the country is struggling with the collection of this revenue. But for Alabama, saddled with a century-old constitution that effectively blocks the taxation of property and income, the problem is magnified in a way that is unlike any other state.

About three years ago a national effect began to crack the tax collection egg by getting states to blindly agree to support some national compact for the collection of remote taxes. The thinking was that if enough states agreed to abide by the same tax rules and definitions, it might be possible to convince the U.S. Congress to pass legislation requiring remote sellers to collect sales taxes from the purchasers.

During the last two years, a host of states enacted model legislation -- known as Streamline Sales Tax collection. Honestly, most of the states passed the legislation without having any real input into the text of the legislation. So many states approved this idea that folks in Alabama -- primarily the retail businesses -- were fearful that we would be left behind and that Alabama would not get any taxation from these remote sales. So for the last two legislative regular sessions there has been considerable conflict over business-supported legislation that would have allowed Alabama to participate in the national effort.

Alabama counties and cities actively opposed the legislation because the passage of the model national legislation would put an end to the local collection of local taxes. And this local collection has been the saving grace of most county budgets throughout Alabama.

But this year, after much wringing of hands, legislation was introduced that allows Alabama to participate in the national work, but that does not bind our state to the terms of that national effort. The legislation, supported by the ACCA, establishes a delegation of five people to represent Alabama at these sessions. But the new law states clearly that any participation in a national tax collection effort can happen in Alabama ONLY through the passage of another statewide act.

Those of you in attendance at the Legislative Conference of the National Association of Counties (NACo) heard praise for this legislation because it includes a provision for both a county and city representative to be a part of Alabama's voting delegation at these national meetings. No other state has seen fit to include local government representatives in its delegation.

As outlined in the new act, Alabama's delegation will include the city and county representatives, the Commissioner of the Alabama Department of Revenue, a representative of the Alabama Retail Association and a representative of the certified public accountants. This group will begin attending the national meetings in May.

The new law also contains a provision that divides any sales tax revenue that may come to Alabama as a result of this national effort. Counties are given at least 25 percent of any such revenue, with the cities receiving an equal share and the state retaining half of the tax for the state education budget.

Now, this action and national comment comes on the heels of a defeat suffered by the ACCA during the 2001 NACo Conference last July. At that time, the ACCA staff appealed to the NACo Finance and Taxation Steering Committee to remove its blanket endorsement of the Streamline Project in favor of an approach similar to the one adopted by the Alabama Legislature. The committee turned a deaf ear to those appeals.

Today, the Alabama approach is being praised throughout the country.

In the coming months a complete recommendation on the collection of taxes from remote transactions will come from this national effort. This recommendation will then be dropped in the lap of the U.S. Congress. At that point, the real lobbying will begin.

It is safe to assume that this national compact will not be supported by all states -- Alabama may in the end oppose the approach that is submitted. But the important item is the passage of this new law has ensured Alabama a seat at the national table, a way for us to voice our concerns BEFORE the national report is completed.

And that is an accomplishment even the old journalism professors would have recognized as newsworthy.