Simplifying Wayfair Compliance for Arizona Businesses

1. The AZ Remote Seller Experience

2. 32 Employees • C-corp family-owned business for 46 years • Wholesale precious metal parts to jewelry studio businesses • Arizona is the only state where we have a physical presence, yet only 5% of our sales are in the state of Arizona • Sell to every state and export to 20+ countries • 5,500 items in inventory catalog

3. Wayfair Impact • Registered & filing in 29 states (will be 31 on September 1st), including all 24 SSUTA states • Integrated TaxCloud CSP software with our IT architecture • We do not use a marketplace facilitator. We developed our own proprietary website • We had no legal team, no sales tax software, and no sales tax accounting department (we operated with 1 part-time accountant) • Most nexus definitions cover ALL business models, manufacturers, wholesalers, distributors, and retail using Gross Receipts to determine threshold • States fail to account for mixed model businesses. Of the 6 CSP’s, only 3 can handle exemption certificates, limiting our options

4. Wayfair Costs to Our Business $113,000+ • Includes software integration, fees, & labor for compliance so far • Does NOT include the taxes collected from customers and paid to states

5. Wayfair Costs to Our Business • $113,000+ in software integration, fees, & labor for compliance so far • $2.25 in costs for every $1.00 of sales tax collected • Estimated $61,200+ annual compliance cost moving forward • Raised prices 9.26% in the last year to cover software & labor costs • Constant software & service problems with TaxCloud in the form of a registration glitch that took months to correct and reporting errors • 2 states threatened to seize our property & assets due to TaxCloud errors

6. Halstead Warehouse

7. Halstead Related Wayfair Costs to Arizona Compliance costs and new interstate business tax obligations will reduce or eliminate our corporate income taxes to the state Decrease in Taxable Income $(113,321) Potential changes to staffing Decrease in Corporate Income Tax Liability $ (5,100) Decrease in Personal Income Tax $ (2,487) Loss as a result of Insured Constituents losing coverage $ (27,360) Total Loss to Arizona $ (34,947)

8. Halstead Related Wayfair Costs to the Treasury Compliance costs and new interstate business tax obligations will reduce or eliminate our corporate income taxes to the IRS Decrease in Taxable Income $(113,321) Potential changes to staffing Decrease in Corporate Income Tax Liability $ (24,868) Decrease in Federal Payroll Taxes Tax $ (33,549) Loss as a result of Insured Constituents losing coverage $ (27,360) Total Loss to US Treasury $ (85,777)

9. Why We Choose to Live In Prescott

10. Considerations for AZ Constituent Businesses • How many constituent businesses are there in your district? • Are those constituent businesses economic drivers in your area? • How are your constituent businesses going to manage 44 other states’ Departments of Revenue? • We are now subject to tax laws in 12,000 jurisdictions with audit risk in up to 50 states • Laws are changing every month • States fail to protect their constituent businesses • We are discussing exit plans to close a profitable business to escape the stress & liability

11. Considerations for Arizona Tax Practitioners • Are you familiar with the tax policies and regulations for all 50 states? • What would it take for you to become familiar with those policies and regulations? • Would the cost of becoming familiar with all 50 states be one that you could absorb? If not, how much will you have to increase your price structure to compensate for that cost? Will you remain competitive? • Are you prepared to accept liability for your filings on behalf of your business accounts in all 50 states? • Is there a resource that you can refer clients to for answers to questions regarding sales and income tax in all 50 states? • Will you be able to serve your clients, or will they have to go to a larger national firm?

12. We are NOT asking to reverse Wayfair, only that compliance is simplified and refined • Only Retail Sales should apply towards nexus thresholds, otherwise non-remitting businesses for the DOR are swept into compliance, requiring countless hours of $0 returns review • 1 rate per state eliminates the need for the oversold, inadequate, and burdensomely complex software that routinely fails to perform as promised • Complexity only benefits the software companies • 1 filing point per state • If businesses do need to use sales tax software, it should be the states’ responsibility to ensure that it functions as advertised • Protection of Constituent Businesses by the DOR from aggressive states

13. Historical Significance • 3 events in our 46 year history have made us worry for our survival • Black Tuesday in 1987 • The Great Recession of 2008 • Wayfair The first two were corrected by predictable market forces. We stayed lean and persevered, emerging to grow again We cannot hope for an economic recovery to help us through Wayfair. Only legislative action can solve this

14. We are discussing exit plans to close a profitable business to escape the stress & liability We’ve canceled a necessary software upgrade to reallocate funds to a multistate tax consulting agency that can help us survive the short term and plan an operating budget amid so much uncertainty.