Tax News

CCH (cch.taxgroup.com) reports:

  A Streamlined Sales Tax (SST) panel rejected an interpretation sought by seven states that would have held the January 1, 2010, effective date in the SST Agreement for an origin-sourcing option is a "trigger," rather than a "sunset." (TAXDAY, 2009/08/04, S. 1) By a vote of 3-2, with one member absent, the Compliance Review and Interpretations Committee (CRIC) rejected the interpretation sought by Arizona, New Mexico, Ohio, Tennessee, Texas, Utah, Virginia, and the Virginia Association of Counties. SST Executive Director Scott Peterson told the CRIC members that, having rejected the requested interpretation, they must now explain in writing how they think the relevant provision should be interpreted and hold another vote on that alternative interpretation. The CRIC deferred any further action until their next meeting.

  Background: In an attempt to resolve a long-running controversy, the SST Governing Board amended the Agreement in December 2007 to allow states to qualify for full membership under an origin-sourcing option, effective "on or after January 1, 2010, provided that at least five states which are not full member states on December 31, 2007" make the election to use origin sourcing and are otherwise in substantial compliance with the Agreement. It is now apparent there will not be five states in that position on January 1, 2010.

  In response to questions about how to interpret the effective-date language, the seven states and the Virginia Association of Counties sought an interpretation holding that January 1, 2010, is the earliest date on which qualifying states can become full members (i.e. a "trigger") and not a deadline. Opponents of this interpretation, from the Business Advisory Council (BAC) and, apparently, among some existing member states, take the position that January 1, 2010, was intended as a deadline (i.e. a "sunset"), and that the origin-sourcing option will not be available after that date unless the board further amends the Agreement.

  During a sometimes heated debate, BAC representatives argued that it was inappropriate for the CRIC to take this matter up now, given the expectation that the board will be debating this issue at its annual meeting in September in Oklahoma City. Supporters of hearing the matter responded that the CRIC is supposed to vet such interpretations and that any action it takes does not bind the board. Ultimately, although the CRIC did hold a vote, the requested interpretation was rejected.

  Other action: The CRIC took three other votes during their conference call.

  -- The CRIC voted 4-2 to approve an interpretation sought by Loren Chumley, KPMG, that the value of points, awarded employees as sales incentives and redeemable for merchandise at a reduced price, should be treated as a discount and excluded from the sales price of the merchandise.

  -- The CRIC voted 5-0 not to accept a request to issue an interpretation sought by Denton Childs, Tyson Foods, Inc., related to how Arkansas amended its laws to impose use tax on services in order to conform to the Agreement's destination-based sourcing requirements. The CRIC members had reservations about how the request was drafted, and questions about exactly what they were being asked to determine.

  -- The CRIC voted 5-0 to accept a request to issue an interpretation sought by James Tilton, Alex Lee, Inc., on whether Lucky Charms cereal should be taxed as "candy" because it "bundles" marshmallows (which fit the Agreement's definition of "candy") with oat pieces that contain flour (the presence of which excludes these pieces from the "candy" definition).

  Peterson told the CRIC that his office has begun the process for the annual recertification of member states. He hopes to have completed the process for some states in time for the CRIC to begin its review at its next meeting in two weeks. At that time, Peterson also hopes to have prepared a schedule for the annual review process.

Meeting, Compliance Review and Interpretations Committee, August 13, 2009