4 States Launch Streamlined Sales Tax Experiment

Tax officials in four states and several remote sellers launched a pilot program this week that tests the use of third-party service providers and software to help the sellers calculate, collect and remit sales and use taxes from customers in those states.

The states are Kansas, Michigan, North Carolina and Wisconsin. The remote sellers make sales in each of the states.

Though Diane Hardt, director of Wisconsin's Revenue Department, would not say which companies are testing the software, she said two companies are involved in the pilot and “one is a mail-order company.” She also said the pilot would run for one year and more companies will be added as the program progresses.

Because many of the remote sellers are not collecting taxes in those four states, the pilot is designed to make it easier for sellers to collect the taxes and relieve them of the compliance burden of sales and use tax administration.

The pilot is part of the Streamlined Sales and Use Tax Project, a joint effort started last March by the National Governors' Association, the National Conference of State Legislatures and the Multistate Tax Commission. Ultimately, its goal is to reduce substantially or eliminate the costs and burdens of sales tax compliance for businesses through a combination of simplified laws and administrative policies and the implementation of a system that would be paid for by states. It also will rely on third-party providers or software vendors to collect sales and use taxes.

Late last month, tax officials from all states participating in SSUTP voted unanimously to send the proposal to their respective governors, state legislatures and the Multistate Tax Commission, the project's co-sponsor, for consideration in the 2001 legislative session.

The states endorsing the model legislation are: Alabama, Arkansas, Florida, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia, Wisconsin and Wyoming.

Hardt, who is also co-chair of the SSUTP steering committee, said she does not expect all participating states to adopt the proposal this year, but “we believe that six to eight states will adopt it in 2001.”

Project participants say that reforming sales and use tax policies will provide online and other retailers that do business in multiple states with an easier way to calculate, collect and remit use taxes. They said the U.S. sales and use tax system — with thousands of state and local taxing jurisdictions nationwide — is antiquated, complex and cumbersome to businesses.

In addition, project participants said the work of the project evolved largely in response to pleas from the business community to the states to overhaul their sales and use tax laws.

Forty-five states have a sales tax and a use tax. Under current law, retailers that sell to consumers in a state in which they have a physical presence — called a nexus — are required to collect and remit sales taxes. Businesses that sell to consumers in states in which they do not have nexus, the U.S. Supreme Court has ruled, are not required to collect and remit use taxes. In addition, Congress instituted a three-year moratorium on new Internet taxes, which is due to expire in October.

Raymond C. Scheppach, executive director at the NGA, said the approval to send the proposal to be considered “marks another step in the right direction on a long path toward modernizing, simplifying and creating a fair and balanced sales tax system in America. … Reforming the current system is critical to an effective form of governance and commerce in the new economy. Businesses will save millions of dollars by eliminating costs and inefficiencies, retailers and e-tailers will be treated equally and state and local governments will be able to continue counting on sales tax revenue to support schools, roads and police officers.”

Charles D. Collins Jr., a director at the North Carolina Department of Revenue and a co-chair of the project, said the system brings “sales tax administration into the 21st century and addresses many of the concerns that businesses have expressed to us over the past several years. … Multistate businesses face a number of challenges in complying with the existing sales and use tax laws. Our primary focus has been on easing, or eliminating, the tax collection burden for vendors, while promoting a level playing field in the marketplace.”

The Direct Marketing Association, however, has criticized the project. In a recent edition of its Washington Report newsletter, it said that the proposal does not appear to substantially reduce any burdens on out-of-state tax collectors. For example, “There is no requirement for one rate per state, there are no uniform definitions, and there is no provision for one audit, one registration form or one remittance location.”

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