Michigan Gov. John Engler this week signed legislation allowing Michigan to join a multistate sales tax simplification pact aimed at easing collection from out-of-state and Internet retailers.
The bill specifies that at no time would its provisions create or implement a new tax on interstate electronic commerce.
Engler cited a recent study estimating that state and local government in Michigan will lose more than $500 million in sales tax revenue in 2001 as a result of remote, Internet-based sellers that do not collect and remit such taxes.
Michigan is the 20th state to approve the bill, drafted and distributed to state legislatures by representatives of 33 states as part of the Streamlined Sales Tax Project. Those states whose governors give final approval will help make the decisions about which steps are proposed to legislatures to simplify a host of taxes administered by thousands of local tax jurisdictions.
Last year, the Streamlined Sales Tax Project was proposed by states — with input from local governments and the private sector — to design, test and implement a simplified sales and use tax system. The project's goal is to reduce 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.
Under the system, retailers and states would participate voluntarily. To take part, states would be required to adopt authorizing legislation and enact simplification measures, including adopting uniform product codes and sourcing rules, developing uniform definitions of state tax laws, creating a central, one-stop registration system and limiting the frequency with which local governments can change their tax rates.
Small and midsize multistate retailers would use state-certified, specially designed software to calculate, collect and remit use taxes for transactions in states in which they do not have a physical presence. In this case, retailers would be exempt from any audit — except for deliberate fraud — or costs.
Lawmakers have so far failed to agree on the exact terms of such provisions, which some had hoped to roll into a bill extending a moratorium on Internet-specific taxes which expires on Sunday.
With the deadline for renewal fast approaching and a flurry of other pressing legislation relating to the Sept. 11 terrorist attacks, few expect agreement on sales tax provisions to be reached in time.
Debate in the Senate focuses on how long to extend the moratorium. Supporters of the state and local governments' position are pushing for a shorter extension so the sales tax issue can be considered soon.
A House panel in August approved legislation extending the moratorium for five years and did not include sales tax provisions.