House Bill H0283 2015 Freedom Index Score: (-10) Analyst: Parrish Miller Date of analysis: March 18, 2015 ANALYST'S NOTE: House Bill 283 is known as the "Streamlined Sales Tax Simplification Act" and it makes many changes to Idaho's tax law. Contrary to its advocates' claims that it only sets up the state to implement an online sales tax mandate, this 40-page bill makes numerous other changes to code as well which will serve to increase taxes for most people. The primary purpose of the bill is for the state of Idaho to join the "Streamlined Sales and Use Tax Governing Board" which is the entity working to implement a massive de facto tax increase across the nation. Just to join the Board requires the state to pay a $20,000 application fee and annual dues of $26,000. Additionally, implementing the new software required will cost the state in excess of a quarter million dollars. There is also a significant element of cronyism in this bill whereby the state tax commission certifies certain "service providers" (CSP) and "automated systems" (CAS) and provides these entities a "monetary allowance" to assist in the state's collection of taxes. Most notably, and most problematically, House Bill 283 sets up a de facto tax increase on most Idahoans to the tune of $30 - $50 million annually. While some will gripe that such taxes are already technically required to be paid under Idaho's "use tax" law, the simple fact remains that because they are not routinely paid and because the law is not generally enforced, Idahoans will still suffer all of the normal economic hardships associated with a major tax increase. Instead of working with other states to enforce this tax and to transfer even more money from the productive sector of society to the government, Idaho should instead repeal the use tax for purchases made by Idahoans outside the state of Idaho (whether online or otherwise) and thereby legalize commerce over which the state has no reasonable or logical jurisdiction. Point No. 3 — Does it give government any new, additional, or expanded power to prohibit, restrict, or regulate activities in the free market? Conversely, does it eliminate or reduce government intervention in the market? ANALYSIS: House Bill 283 creates Section 63-3615B, Idaho Code, to define 24 terms. Among these are "certified automated system" and "certified service provider." A "certified automated system" is defined as "software certified under the streamlined sales tax agreement to calculate the tax imposed by each jurisdiction on a transaction, to determine the amount of tax to remit to the appropriate state and to maintain a record of the transaction." A "certified service provider" is defined as "an agent certified under the streamlined sales tax agreement to perform all the seller's sales and use tax functions, other than the seller's obligation to remit tax on its own purchases." Government should not be certifying either software or individuals. [Page 8, lines 38-45] (-1) ANALYSIS: House Bill 283 creates Chapter 46, Title 63, Idaho Code, which it ironically titled the "streamlined sales tax simplification act." This new 20 page chapter of Idaho code does little to 'simplify' anything and instead sets up a highly convoluted tax collection scheme involving a multi-state compact, ostensibly voluntary participation by retailers, claimed 'amnesty' for actions which are not illegal, and a healthy dose of cronyism. (-1) In addition to empowering the state tax commission to "participate in an online sales and use tax registration system in cooperation with the other member states," the bill calls upon the commission to set up a "taxability matrix," presumably to track the taxability of products and services. Joining the "Streamlined Sales and Use Tax Governing Board" will require the state to pay a $20,000 application fee in fiscal year 2016 and dues of $26,000 (less the $20,000 application fee paid in 2016) in fiscal year 2017. It is also estimated that implementing the new software required will cost the state in excess of a quarter million dollars. (-1) The newly created Section 63-4622, Idaho Code, declares that "the commission shall provide an online registration system that will allow sellers to register in all the member states of the streamlined sales tax agreement." It goes on to say that "by registering, the seller agrees to collect and remit sales and use taxes for all taxable sales into the member states, including member states joining after the seller's registration. Withdrawal or revocation of a member state shall not relieve a seller of its responsibility to remit taxes previously or subsequently collected on behalf of the state." While this seller participation is initially voluntary, like all government programs, it will not remain this way. The goal is that when Congress passes the erroneously named "market place fairness act," participation will become mandatory. [Page 37, lines 1-8] (-1) The state's plan to bribe retailers into signing up to collect taxes for the state is twofold. First, Section 63-4623 offers "amnesty" to sellers "for uncollected or unpaid sales or use tax" if they register to collect tax "within twelve (12) months of the effective date of the state's participation in the streamlined sales tax agreement." Despite the use of the word "amnesty," there is no legal obligation for sellers to collect sales and use tax for customers who reside in another state. Presumably this amnesty extends to uncollected taxes for in-state purchasers as well, but the overall goal is to induce retailers into this tax collection program. The amnesty provisions also require that the seller remain registered and collect and remit taxes for at least three years. [Page 37, lines 9-42] (-1) The second part of the bribe is where the worst of the cronyism resides. The "certified automated systems" (CAS) and "certified service providers" (CSP) defined back in Section 633615B, Idaho Code, now come into play. When sellers register to serve as tax collectors for the state, they do so in one of three categories. These categories are as follows: (1) Model 1, wherein a seller selects a CSP as an agent to perform all the seller's sales or use tax functions, other than the seller's obligation to remit tax on its own purchases. (2) Model 2, wherein a seller selects a CAS to use that calculates the amount of tax due on a transaction. (3) Model 3, wherein a seller utilizes its own proprietary automated sales tax system that has been certified as a CAS. You will notice that all three methods require either certification or the use of certified software or personnel. One major issue with implementing an online sales tax is the burden placed on sellers, but this system is designed to use tax money to bribe retailers to serve as tax collectors. (In case you're wondering who gets the short end of the stick here, it's the customers.) In addition to certifying software and providers under this program, the commission will offer a "monetary allowance" to a CSP under Model 1 and to sellers under Model 2. This allowance could include a base rate and/or a percentage kickback of the taxes collected. The kickback would be limited to two years, but an undefined "vendor discount" will be available after that period. [Page 37, lines 43-48; Pages 38-39; Page 40, lines 1-9] (-1) Point No. 5 — Does it directly or indirectly create or increase any taxes, fees, or other assessments? Conversely, does it eliminate or reduce any taxes, fees, or other assessments? ANALYSIS: House Bill 283 modifies Section 63-3607, Idaho Code, to expand the definition of a "person" for both Chapter 36, Title 63, Idaho Code, and the newly created Chapter 46, Title 63, Idaho Code. Added to the existing definition are "partnership," "fiduciary," "limited liability company," "limited partnership," and "any other legal entity." As this definition relates to the payment of taxes, its expansion serves to bring more entities under the scope and enforcement provisions of these chapters. [Page 2, lines 22-28] (-1) ANALYSIS: House Bill 283 modifies Section 63-3612(2), Idaho Code, to add a new category of taxable sales, namely "the sale, lease or rental of digital products, including specified digital products and digital codes, that provide a purchaser with the right to obtain one (1) or more digital products and regardless of the method by which the title, possession or right to use the digital product is transferred to the user." [Page 5, lines 31-35] (-1) House Bill 283 modifies 63-3608, Idaho Code, to expand the definition of purchase to include "transactions described in section 63-3612(2), Idaho Code." [Page 2, lines31-39] House Bill 283 modifies Section 63-3609, Idaho Code, to declare that "a retail sale also means any sale described in section 63-3612(2), Idaho Code." [Page 3, lines 1-6] House Bill 283 modifies Section 63-3610, Idaho Code, to declare that the term "retailer" will now include every "seller" who makes a "sale or sales as described in section 633612(2), Idaho Code." It also expands the definition of "retailer" to include "every person making more than two ... retail sales as described in section 63-3612(2), Idaho Code, during any twelve (12) month period..." [Page 3, lines 16-31] House Bill 283 modifies Section 63-3611, Idaho Code, to expand the definition of "retailer engaged in business in this state" to include "any retailer who ... has sufficient contact with this state, in accordance with the constitution of the United States, to allow the state to require the seller to collect and remit use tax on sales of tangible personal property or sales as described in section 63-3612(2), Idaho Code, made to customers in this state." [Page 4, lines 1-11] House Bill 283 modifies Section 63-3613, Idaho Code, to expand the definition of the term "sales price" to include "the total amount for which ... a transaction as described in section 63-3612(2), Idaho Code, ... is sold, rented, or leased." [Page 5, lines 41-48; Page 6, lines 1-2] House Bill 283 modifies Section 63-3614, Idaho Code, to expand the definition of the term "seller" to include every person making retail sales as described in section 633612(2), Idaho Code. [Page 8, lines 26-30] House Bill 283 modifies Section 63-3621, Idaho Code, to declare that "an excise tax is hereby imposed on ... any transaction as described in section 63-3612(2), Idaho Code." [Page 14, lines 6-15] House Bill 283 further modifies Section 63-3621, Idaho Code, to declare that "every person storing, using, or otherwise consuming, in this state, tangible personal property or any transaction as described in section 63-3612(2), Idaho Code, is liable for the tax." [Page 14, lines 16-26] House Bill 283 further modifies Section 63-3621, Idaho Code, to require that "every retailer engaged in business in this state, and making ... any transaction as described in section 63-3612(2), Idaho Code, ... shall, at the time of making the sales ... collect the tax from the purchaser." [Page 14, lines 27-36] ANALYSIS: House Bill 283 modifies Section 63-3616, Idaho Code, to expand the definition of the term "tangible personal property" to include "electricity, water, gas, steam and prewritten computer software." [Page 12, lines 31-34] (-1) ANALYSIS: House Bill 283 creates Chapter 46, Title 63, Idaho Code, titled the "streamlined sales tax simplification act." Among other things, this chapter positions Idaho and many other states to begin collecting sales tax on goods purchased from out-of-state sellers via the internet. When fully implemented, this will result in a de facto $30 - $50 million annual tax hike on Idahoans. While it is true that many of these taxes are technically required to be paid under Idaho's "use tax" law, these taxes are not routinely paid and the law is not generally enforced, therefore Idahoans will still suffer all of the normal economic hardships associated with a major tax increase. [Page 20, lines 31-43; Pages 21-39; Page 40, lines 1-9] (-1)
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