The first meeting of the interim Streamlined Sales Tax Project Task Force was called to order by Co-Chair Dick Hainje, Chair of the Senate Taxation Committee; and Co-Chair Richard "Dick" E. Brown, Chair of the House Taxation Committee; at 10:05 a.m., July 19, 2001, in LCR 1 and 2 of the State Capitol, Pierre, South Dakota.

A quorum was determined with the following members answering the roll call: Mr. Stan Anderson, representing business and commerce, Wall; Representative Richard "Dick" E. Brown, Sioux Falls; Mr. Henry Carlson, Jr., representing Business and Commerce, Sioux Falls; Senator H. Paul Dennert, Columbia; Mr. Brad A. Drake, representing business and commerce, Watertown; Mr. Gary Drewes, Pierre Mayor, representing municipalities; Representative Mary Glenski, Sioux Falls; Senator Dick Hainje, Sioux Falls; Mr. Gene Lebrun, Rapid City, Member-at-Large; Senator Royal "Mac" McCracken, Rapid City; Mr. Don C. Peterson, representing business and commerce, Yankton; Representative Jim Peterson, Revillo; Senator John J. Reedy, Vermillion; Representative Orville B. Smidt, Brookings; and Ms. Yvonne Vik, Pierre, representing municipalities, Pierre.

Staff members present included Fred Baatz, Senior Fiscal Analyst; and Teri Retrum, Senior Legislative Secretary.

(NOTE: For sake of continuity, the following minutes are not necessarily in chronological order. Also, all referenced documents are on file with the Master Minutes.)

Mr. Harley Duncan, Commissioner, Advisory Commission on Electronic Commerce, distributed and discussed copies of a PowerPoint presentation on "E-Commerce and State Taxes: Where Are We and How Did We Get Here?" (Document #1).

Regarding electronic commerce, Mr. Duncan said that the issues surrounding remote sales are very important and stated the question: "What must states do to collect taxes on remote sales?" He said that the sales tax can be burdensome and is a complex revenue source and that there is a need for uniformity and standardization among the states in the collection of revenue from remote sales. Mr. Duncan said that the estimated revenue impact of collecting taxes on all forms of Internet sales for the year 2003 is twenty-one billion dollars. Beyond the money, Mr. Duncan said that a uniform and streamlined sales tax among the states will result in equity among retailers and across transactions and the ultimate long-term survival of the sales tax. However, Mr. Duncan noted that, if the states adopt a uniform and standard sales tax, state governments, and particularly local governments, will lose some autonomy.

In conclusion, Mr. Duncan said that it is very important that states get serious about simplifying the sales tax. He said that the focus should be on the commonalties among the states. Mr. Duncan urged that states keep an open mind as they review the recommendations concerning collecting revenue from remote sales.

The committee recessed at 11:40 a.m. and reconvened at 1:05 p.m.

Mr. Gene Lebrun, Commissioner, Advisory Commission on Electronic Commerce, presented a PowerPoint overview of the commission's work. He discussed the composition and duties of the commission and outlined the history of the commission's meetings. Mr. Lebrun said that all groups want a level playing field; however, due to a disagreement on whether action required a majority vote or a two-thirds vote, the commission's meeting on March 20 and 21, 2000, ended without a final vote. Mr. Lebrun said that the majority report would, in part, provide special new tax breaks to each majority member represented on the commission, permit fewer and fewer people to pay more and more taxes, and preempt the tax authority of state and local governments by the federal government. He said that the minority report would, in part, create a level playing field, radically streamline state and local sales taxes; recognize service demands of state and local governments, preserve federalism, and not target only Internet sales for new taxes. Mr. Lebrun said that if the states do not "get together" on this issue, they will be preempted by the federal government.

Mr. Fred Baatz, LRC, distributed copies of "National Conference of State Legislatures, In Search of a Simple Sales Tax" (Document #2) and copies of a PowerPoint demonstration titled "NCSL State and Local Sales Tax Simplification" (Document #3).

Mr. Neal Osten, NCSL Senior Committee Director, Commerce and Communications Committee; State Representative Matt Kisber, Tennessee; State Senator Steve Rauschenberger, Illinois; addressed the task force via teleconference. Mr. Osten said that NCSL formed a task force to study uniform sales tax collection due to concerns that states were not being represented in the process. He said that the task force drafted and adopted model legislation to participate in multi-state discussions regarding a streamlined sales tax. Mr. Osten said that the efforts of the Streamlined Sales Tax Project and NCSL are not necessarily in conflict with each other.

Senator Rauschenberger stated that states needed to take a proactive position. He said that the states need to work cooperatively to come to agreement on definitions of goals and services.

Representative Kisber said that sixteen states have enacted either the NCSL or the Streamlined Sales Tax version of tax simplification. He said that states have the opportunity to prove that they can "get together" and work cooperatively.

Mr. Gary Viken, Secretary, Department of Revenue, and Mr. Scott Peterson, Director, Division of Business Tax, distributed copies of "Save Us From The States!" from the June 2001 issue of Governing (Document #4); "Sales Tax Simplification Requirements" (Document #5); and "Key Issues and Decision Points for Sales Tax Simplification" (Document #6); "City Tax Simplification Effect of Change by Tax Type Calendar Year 2000 (Document #7); and July 2001 Municipal Tax Information Bulletin (Document #8).

Mr. Viken said that South Dakota has been very involved in the Streamlined Sales Tax Project. He said that the sales tax is still the primary revenue source for states.

Mr. Peterson discussed sales tax simplification requirements. He said that the following requirements are among some of big issues for South Dakota:

1. Local governments must all have the same tax base;
2. By January 1, 2006, the tax base to which local option sales and use taxes apply is the same as the base to which the state tax applies?a state can have only one state sales tax rate;
3. Local governments are allowed only one tax rate?cities can have only one tax rate, which can vary from city to city, but each city can have just one rate; for example, this affects those cities in South Dakota that tax food at one percent and all other items at two percent and will affect all cities with the "bed and booze" tax?also, after December 31, 2005, the city tax base must be identical to the state tax base;
4. Compensation to be paid to certified software companies and businesses;
5. Except where a paper exemption certificate is used, buyers are not required to provide a signature to claim an exemption from tax?exemptions are very expensive; South Dakota would like this all to be done electronically;
6. No good faith or reasonable care requirements imposed on sellers when accepting a purchaser's claim of exemption?the department wants direction from the Legislature on whether it wants to completely shift responsibility to the buyer;
7. Uniform sourcing rules for state and local taxes;
8. Uniform definitions; and
9. Compensation to the service providers that will collect the sales tax.

Co-Chair Richard E. "Dick" Brown said that South Dakota must determine what it wants to be identified in the uniform definitions and in the other aspects of the streamlined sales tax project. He also requested that staff provide draft legislation to address issues that South Dakota needs to change regarding uniform and streamlined sales tax.

Co-Chair Dick Hainje agreed with Co-Chair Brown's request and stated that it would be a good document to have for discussion purposes at the next meeting.

Mr. Viken agreed that there has to be a starting point for discussion and that draft legislation to that end would be beneficial.

SENATOR ROYAL "MAC" MC CRACKEN MOVED, SECONDED BY SENATOR JOHN REEDY, THAT THE COMMITTEE BE ADJOURNED. The motion prevailed on a voice vote.

The committee adjourned at 4:30 p.m.