California Edges Toward Streamlined Tax Coalition

The California Assembly passed a bill that would cause the state to join the Streamlined Sales Tax Project, a coalition of about 40 states and the District of Columbia trying to mandate the taxation of remote sales.

The bill passed the legislature's lower house this week and awaits approval of minor amendments by the state Senate, which already had given the bill initial approval, and a signature by Gov. Gray Davis. It would require California to join other states in an effort to reduce the number of varying state and local sales tax laws.

The U.S. Supreme Court has ruled that state and local jurisdictions can collect taxes from remote sales — including Internet, catalog and other direct sales — only when made by businesses with a physical presence, or “nexus,” in the state. Forcing direct marketers to obey thousands of different sales tax rules nationwide would be too burdensome, the court has ruled.

In response, the Streamlined Sales Tax Project launched the Streamlined Sales Tax & Use Agreement, which would try to simplify and set a framework for sales taxes across more than 7,500 tax jurisdictions nationwide — thereby eliminating the Supreme Court's “burdensome” objection. For example, it would restrict when jurisdictions could change their sales tax rates and ban jurisdictions from having more than one sales tax rate.

According to the National Governors Association, 38 states are participating in the project and 20 states have enacted legislation implementing the agreement. Getting California on board would be a victory for the project because of the state's large population.

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