1. Interim Report Small Seller/Vendor Compensation Task Force Streamlined Sales Tax Governing Board December 6, 2008

2. Task Force Mission Assist Governing Board with two issues –Small Seller Threshold –Vendor Compensation Intent –Gather information on topics –Identify issues relevant to GB duties –Provide principles and framework to allow Governing Board to develop consensus Not intended to answer specifically, e.g., specific threshold or compensation requirements

3. Task Force Approach Identify information needs Gather information through meetings, teleconferences and presentations Develop issue list Answer and refine principles and report through in-person meetings and teleconferences

4. Cross Cutting Thoughts Must be considered in tandem –Movement in one area can cause movement in the other Must be considered in relation also to technology and simplifications –Board should focus on additional simplifications and technology that reduce costs and foster participation Both require continuing review

5. Small Seller Threshold Legislation should contain a small seller threshold Over time, threshold should gravitate toward an occasional seller/sales threshold Achieving this level will require improved technology that is proven and readily available and additional simplifications

6. Small Seller [Cont.] Should be plain, simple and straightforward –Seller should not be in doubt as to position Based on “gross remote sales” –Differs from current legislation 12-month period At least one calendar quarter to ‘ramp up’ for collection

7. Small Seller [Cont.] Determined on basis of seller and affiliates –Not a separate company threshold as in current legislation Phased-in to allow Streamlined to accommodate participants and to allow further simplifications/technology Question on ‘certification’ Board should review periodically

8. Vendor Compensation Joint Cost of Collection Study provides a reasonable benchmark –Identifies drivers of cost –Indicates relative levels and differentiation by size Still information that is necessary/desirable –Greater differentiation of large sellers –Effect of Streamlined simplifications –Econometrics as in Phase II –Relationship of various types of costs to amount of tax collected

9. Vendor Compensation [Cont.] Definition –Bear relationship to actual costs incurred solely as result of collecting and administering state and local sales tax Need to consider those incurred only because of sales tax and mixed costs that serve other business purpose Need also to consider types of costs and relationship to amount of tax collected, e.g., credit card fees v. cash registers v. exemption certificate management

10. Vendor Compensation [Cont.] Compensation should reflect: –Differences in size of retailers and economies of scale that are present Best achieved through differentiation of rates –Complexity of different state tax structures Number of local governments Variability of local rates Sourcing rules

11. Difference of Opinion Can a system that has an across-the- board limit on total compensation be considered “reasonable” Retailer Position –Some costs (e.g., credit card fees) are not capped; increase in direct proportion to tax collected –Violates relationship to actual costs

12. Compensation Limits State Position –Limits should not be per se unreasonable –Flexibility necessary to accommodate different types of costs and variability across sellers –Necessary to mitigate over and under- compensation Need is to examine types of costs, effect of Streamlined and further work

13. Vendor Compensation Within a state, compensation system should be the same for state or local taxes Board should establish standards Board should identify drivers of costs and adopt simplifications to drive them down Consider using compensation to offset ‘technology implementation costs’ Not important to differentiate on basis of nexus v. non-nexus sellers or in proportion of remote sales

14. Additional Simplifications and Technology Simplifications –Centralized location of rate and boundary data bases –Enhanced taxability matrix –Clearinghouse for filing of returns and remittances Technology –Procedures for private sector certification –Tax credit for implementation of technology

15. Additional Information Needs Small Seller Threshold –Revenue impact of various thresholds Vendor Compensation –Impact of Streamlined on costs –Differentiation of large seller category –Impact of additional simplifications –Relationship of various costs to amount of tax collected –Impact of various structures on costs –Variations in proportion of credit card transactions