Four states are considering bills to simplify their state sales tax laws in a bid to require the collection of taxes on Internet, catalog and other remote purchases — and that number could swell to 25 by the end of the year, insiders say.
Indiana, Nebraska, North Dakota and South Dakota introduced bills in late January based on the Streamlined Sales and Use Tax Agreement, which was approved in November by members of the Streamlined Sales Tax Project, made up of about 40 states.
Currently, only sellers with a physical presence, or “nexus,” in the same state as the buyer are required to collect taxes, according to a 1992 Supreme Court ruling, because the thousands of tax jurisdictions nationwide are too burdensome to keep track of.
The states say the agreement would make collection of sales tax manageable and greatly reduce the thousands of state and local sales tax rates. For example, it restricts how and when states and municipalities can change their tax rates and requires states to maintain a database that would assign five-digit and nine-digit ZIP codes to each of the state's tax rates and jurisdictions. In addition, local jurisdictions could not have more than one local sales tax rate.
The SSTP's goal is for at least 10 states representing 20 percent of the population of all states with a sales tax to comply with the SSUTA. Once that happens, the SSTP plans to ask Congress to craft legislation on the collection of remote sales taxes that would not be in violation of the 1992 Supreme Court decision.
Harley Duncan, executive director of the Federation of Tax Administrators, whose members are participating in the SSTP, said that achieving the 10 state/20 percent goal “is going to be aggressive … But I'm hopeful it will happen. There is a good chance.
“Whether Congress will take it up this year, that's still in question,” he said. “As long as we can demonstrate that [the agreement] works, and as long as we can get good, solid support from the retail community that indeed it is simpler, then we have a good shot.”
According to published reports, Sen. Byron Dorgan, D-ND, plans to propose legislation that would mandate sales tax collections from out-of-state Internet retailers. Still, most insiders think that passage by Congress of remote-sales-tax legislation is unlikely this year.
Some states aren't waiting for congressional action. Last fall, the California Board of Equalization, which administers state sales and property taxes, ruled that online bookseller BarnesandNoble.com must collect taxes on sales to customers in California.
The board argued that the online merchant has a physical presence in the state through the bricks-and-mortar stores of Barnes & Noble Inc. Even though the two companies are incorporated separately, the board said a link existed because the stores gave shoppers coupons for a $5 discount at the Web site. Barnes & Noble is contesting the ruling and currently does not collect sales tax from California residents.
Similarly, Arkansas and Minnesota have enacted laws requiring online retailers to collect taxes if they have local affiliates that accept exchanges or returns for online purchases.