The DMA Opposes Misguided TAX COLLECTION PROPOSAL -- Proposed Legislation Does Not Achieve Tax Simplification; Number of Tax Rates Could Jump from 7,600 to 15,200 --

NEW YORK, October 1, 2003 – The Direct Marketing Association (The DMA) today released a new analysis of the Streamlined Sales and Use Tax Agreement (SSTA) showing

that the agreement would actually increase complexity for interstate sellers, potentially boosting the number tax rates from the current 7,600 taxing jurisdictions to over 15,200. Accordingly, The DMA expressed its opposition to a bill introduced last week by Congressmen Ernest Istook (R-OK) and William Delahunt (D-MA) in the House that would make much of the currently voluntary SSTA a new federal law. Today, the DMA’s tax counsel, George Isaacson, will testify regarding the issue of mandatory interstate sales tax collection before the House Committee on the Judiciary, Subcommittee on Commercial and Administrative Law.

"The bill will do a whole lot more complicating than streamlining," said Jerry Cerasale, senior vice president, government affairs, The DMA. "The Supreme Court told the states in 1967 that if they want this awesome new power they had to remove the burden placed on retailers by the complexities of having to manage the then more than 2,300 taxing jurisdictions. It has been more than 30 years since that ruling, and in that time the states have gone from bad to worse, from 2,300 to 7,600 and now potentially to an unfathomable 15,200 taxing jurisdictions."

"It is clear that past continues to be prologue in this debate, with states and lawmakers creating more complications to an already flawed system," said Cerasale. "Furthermore, the proposed law is premised entirely on retailers having access to software that has not yet been created – let alone been made available."

The legislation introduced last week is based on the SSTA document, which was intended to create uniformity among the 45 states that have sales taxes. Instead, the various state legislatures have adopted SSTA in a myriad different ways with changes, thereby eluding the stated goal of uniformity.

SSTA creates greater complications without delivering any simplification. For example:

There is no reduction in the number of tax rates, and the number could go even higher. Each state is allowed to have a second state tax rate on certain categories of products in addition to all the local rates. Therefore, the current 7,600 rates could double to 15,200.

The Agreement’s claim of "uniformity" of definitions unfortunately provides considerable "wiggle room" for the states. Specifically, the Agreement only requires that a state adopt definitions which are "in substantially the same language." Thus, states have a grey area to interpret nuanced definitions, potentially opening a Pandora’s Box of non-uniform definitions of products.

Under the proposed legislation, audit exposure for interstate sellers will be enormous. Where an interstate seller may be subject to audit by only one state under current law, the proposed legislation will now make that same seller subject to audit in dozens of states. The result will be significantly increased complexity and added compliance costs.

The DMA is the leading trade association for businesses interested in interactive and database marketing, with nearly 4,700 member companies from the United States and 53 other nations. Founded in 1917, its members include direct marketers from every business segment as well as the nonprofit and electronic marketing sectors. Included are catalogers, Internet retailers and service providers, financial services providers, book and magazine publishers, book and music clubs, retail stores, industrial manufacturers and a host of other vertical segments, including the service industries that support them. According to a DMA-commissioned study, direct and interactive marketing sales in the United States are projected to have surpassed $2 trillion in 2002, including $126 billion in catalog sales and $34 billion in sales generated by the Internet. The DMA's Web site is www.the-dma.org, and its consumer Web site is www.shopthenet.org.

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