Representatives from 30 of 34 states that are members of the Streamlined Sales Tax Project voted to simplify tax rates and enter into a voluntary pact at a meeting in Chicago yesterday.
Maryland abstained from the vote, while Arizona, Nevada and North Dakota were absent from the meeting. The District of Columbia also voted in favor of the plan.
The states plan to ask Congress to make their proposed tax system mandatory nationwide when at least 10 states representing one-fifth of the U.S. population implement the program. States could begin drafting conforming legislation immediately.
The plan also was a bid to win congressional approval of mandatory online sales tax collection. It remains unclear, however, whether Congress would support such a plan. Congress last year extended a moratorium on Internet taxes until November 2003.
The Streamlined Sales Tax Project began in early 2000 as an initiative by state governments to simplify and modernize sales and use tax administration for all types of commerce. Its goal is a uniform tax-collection mechanism for Internet and mail-order retailers.
The vote is a welcome development for the nation's largest retailers, who have argued for years that the current system gives online vendors an edge over bricks-and-mortar stores, but direct marketers are concerned about it. Currently, they are not required to collect taxes on many purchases because they lack “nexus” — a physical presence or a close tie with the state where the recipient lives — which the U.S. Supreme Court has said is necessary for tax collection to be mandatory.
The Direct Marketing Association said yesterday that the vote by the states did not achieve a true measure of simplification. The DMA said that though this proposal is strictly voluntary with both states and companies having the option to participate, if a similar measure were passed by Congress, it would represent a burden on interstate marketers.
“If this proposal were enacted by Congress, it would effectively turn every cataloger and e-tailer into unpaid tax collectors for the states,” DMA president/CEO H. Robert Wientzen said.
The Supreme Court has ruled twice that the burdens associated with collecting and remitting sales taxes on interstate purchases for the thousands of taxing jurisdictions in the United States would impede interstate commerce. The plan unveiled yesterday would not significantly reduce or eliminate those burdens, the DMA said.
“The states should be given credit for tackling the messy sales tax system, but this proposal fails in a number of ways,” said Jerry Cerasale, senior vice president, government affairs, the DMA.
Even the most fundamental step toward simplification is flawed in the plan, according to the DMA. For example, adopting one sales tax rate per state, regardless of whether goods are purchased online, by catalog or over the counter, continues to be elusive. In the current proposal, the states could continue not only to have 7,600 tax rates across the country, but worse still, each state could have a second statewide rate.
“We recognize and appreciate the hard work of the state and local government officials as well as many representatives of business on this effort,” said Frank G. Julian, operating vice president and tax counsel of Federated Department Stores Inc. and chairman of the DMA sales and use tax committee. “But much more work needs to be done before the states can claim that they have achieved a true measure of simplification.”