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Archive for Wednesday, June 25, 2003

Retailers bemoan sales tax changes

Businesses fear expenses, paper work

June 25, 2003

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Furniture store owner James Hill doesn't like the new math that state tax officials will require him to do come July 1.

Retailers who make deliveries of their products - everybody from furniture stores to lumberyards - will have to begin using the sales tax rate in the city they're delivering a purchase to rather than the rate used in the city in which the item was sold.

It's the first major change in how the state collects sales taxes since it began collecting them in the 1930s.

For Hill, who owns Sleepy Sheep Mattress Co. in Lawrence and Oak Classics in Perry, the change likely will add time, expense and stress to his monthly chore of figuring out how much sales tax he owes the state.

That's because his businesses deliver to roughly 100 different cities in the eastern part of the state during a year. Under the soon-to-be law, Hill will have to know and figure the tax rate for each of those cities. He'll then have to fill out a monthly report to the state showing how many sales he made in each city.

"It really is unfeasible for a company our size to do that," Hill said. "It's going to be a big, major time effort on our part."

Legislators approved the change during the last legislative session, and the Kansas Department of Revenue began notifying retailers about the new requirements two weeks ago.

Hundreds of complaints

The changes basically will affect only businesses that deliver their products. For example, if a woman from Baldwin buys groceries at a Lawrence supermarket, she would pay the Lawrence sales tax rate. But if a Baldwin woman buys a couch at a Lawrence furniture store and has it delivered to her home, she would pay the Baldwin sales tax rate.

James Hill, owner of Sleepy Sheep Mattress Co. , 2223 La., worries
his small store won't be able to financially deal with changes in
how the state is requiring businesses like his to collect sales
taxes. The new law, which will affect companies that deliver their
products, begins July 1.

James Hill, owner of Sleepy Sheep Mattress Co. , 2223 La., worries his small store won't be able to financially deal with changes in how the state is requiring businesses like his to collect sales taxes. The new law, which will affect companies that deliver their products, begins July 1.

The changes are being made to pave the way for requiring Internet companies to charge sales tax to their Kansas customers.

Hill is among "several hundred" Kansas retailers who have called the Department of Revenue to complain, said Richard Cram, the department's director of policy and research.

"We're hoping that once people actually get it implemented it won't be as onerous as it first appears," Cram said. "But it definitely is a major change in the way sales taxes are collected."

The department is working to create an electronic database that retailers will be able to access. The database will list all the different sales tax rates in the state. Cram said a basic version should be ready around July 1 and a more advanced version that allows retailers to search by address will be available by the first of the year.

Cram, though, conceded if retailers want to fully take advantage of the software it may require some to do upgrades to their store's computer systems. Hill estimated that he may have to spend $4,000 to $5,000 to update his store's computers.

Mick Ranney, owner of Lawrence's Footprints store, is expecting the worst for his company, which does a large part of its sales via mail order.

"It is a huge pain in the butt, and I'm just not sure we can physically do it," Ranney said.

For his business to fully comply with the law, Ranney said he would have to print every sales tax rate in the state in his catalog, which he said would add at least five pages to his order form. It's something he's not willing to do, and, even if he did it, he doubts customers would take the time to find the right rate to use.

Cram admits that the state doesn't have all the answers to businesses' concerns.

"We're probably going to have to think about that situation," Cram said about Ranney's mail-order concerns.

Internet taxes

Ranney said the state clearly hasn't thought through the major issues, and said it was "rude" to give businesses only a half month to prepare for the changes.

"We basically function as their tax collectors, and they don't pay us to do that and they don't even say 'thank you'" Ranney said. "They just don't seem to care how much it costs us to do their job."

The changes originally were scheduled to begin in July 2004, but legislators moved the date up a year to gain early entry into the national Streamlined Sales Tax project a collection of states trying to convince Congress to allow taxation of Internet sales. The goal of the group is to make state sales tax codes similar enough that sales taxes could be charged nationwide on Internet and catalog purchases.

The project won't allow a state to enter until it has adopted sales tax regulations, like the ones Kansas adopted. Cram said the state wanted to be among the first to join the project because those initial states will have a seat on the organization's governing board.

"They'll be the ones that will determine any changes that need to be made and who does and doesn't comply, so you are much better served if you are in the first group that joins," Cram said.

The project hopes to ask early next year for congressional approval to begin taxing Internet sales. Until Congress approves the plan, which Cram said was still in doubt, Internet companies outside the state of Kansas won't be required to collect the sales taxes.

Cram said the state has a big incentive to pursue the issue. He said a 2001 University of Tennessee study estimated the state was losing $70 million a year in untaxed Internet sales.

Some support

The state recognizes it will take time for businesses to adjust to the new system, Cram said. Secretary of Revenue Joan Wagnon said she has instructed her staff between now and the end of the year to "be very relaxed in their dealings with retailers and focus on service, not sanctions."

"We're basically saying that they can't ignore the changes, but we're not going to penalize them as long as they're trying," Cram said.

Not all businesses are complaining about the changes. Roy Lewis, manager of Whelan's Contractor's Supply in Lawrence, said his business delivers building supplies to dozens of small towns.

But Lewis said he was confident the state would come up with a system that would make it feasible. He said he liked the changes because it meant a competitor based in another city with a sales tax rate less than Lawrence's no longer would be able to deliver to Lawrence and charge the lesser rate.

"We think it might help out competition wise," Lewis said. "We think it might help level the playing field."

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