States came one step closer to being able to collect tax on sales that occur via the Internet, telephone or catalog last week when 18 states were admitted as full or associate members of the Streamlined Sales and Use Tax Agreement's governing board.
The vote took place at a meeting of the Streamlined Sales Tax Project in Chicago on June 30 and July 1.
The SSTP seeks to establish common sales tax rules and collection methods across states. Since it was launched in 2000, more than 40 states have participated in the project and 21 have passed legislation at least partly doing so.
By showing that tax collection represents no substantial burden to businesses, the project hopes to spur federal legislation allowing states that have simplified their methods to mandate tax collection from retailers that have no physical presence in their state.
Currently, online and catalog businesses aren't required to collect and remit sales tax to states where they have no physical presence, according to a 1992 ruling by the U.S. Supreme Court. That ruling, Quill v. North Dakota, held that it would be too burdensome on businesses if they were required to collect and remit sales taxes on behalf of the 7,600 state and local taxing jurisdictions nationwide.
The SSUTA, created in 2002 by the SSTP, represents the framework for an agreement among states for cooperative and joint administration of certain sales and use tax functions. It contains provisions that simplify, increase uniformity and provide for more technology solutions. Participation in the SSUTA is voluntary, and Congress would have to take action to require collection.
“States can't mandate an L.L. Bean to collect if they don't have a physical presence in the state. But Congress can take action to introduce legislation and then approve legislation that would allow the 18 states to require sellers to collect the tax regardless of whether they have a physical presence in the states,” said Diane L. Hardt, tax administrator for the Wisconsin Department of Revenue and co-chairwoman of the Streamlined Sales Tax Project. “The legislation that will be proposed will refer to the [SSUTA] and say that only those states that have enacted that conforming legislation would be allowed to require collection of the tax.”
Bills were introduced in 2000 and 2003 but failed to reach either the House or Senate floors. Streamlined Sales Tax Project officials say supporters in Congress will reintroduce a measure again this year, but it's unclear whether it is a priority.
The states gaining full membership are Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, Oklahoma, South Dakota and West Virginia. Associate members are Arkansas, Ohio, North Dakota, Tennessee, Utah and Wyoming.
Under the SSUTA, the system could not take effect until at least 10 states making up 20 percent of the total population of states with sales tax were in substantial compliance with the agreement. The 18 states on the governing board represent 25.3 percent of the population of states that levy sales taxes.
The interstate agreement takes effect Oct. 1. On this date, retailers would be able to register and begin collecting and remitting taxes on remote transactions using the simplified system, Hardt said. Software vendors contracted by the SSTP will begin providing free tax collection and remittance software and services to these retailers.
Internet retailers that voluntarily agree to collect and remit taxes would do so for online sales originating in any of the 12 states that have amended their state laws to fully comply with standards developed by the project. Any taxes that the retailer collects would be based on the rates in effect where the buyer lives, and the retailers would be compensated for the cost of collecting and remitting that revenue to the states.
As an incentive, the states will offer a one-year amnesty for e-commerce companies that may owe taxes on past online sales to any of the participating states.
