The Streamlined Sales Tax Project came one step closer to its goal of developing model tax legislation by early 2001 after interested parties presented several proposals to project members at a hearing in Washington yesterday.
The 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. In order to take part, states would be required to adopt authorizing legislation and to 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 medium-sized multistate retailers would be able to use state-certified, specially designed software at no expense to calculate, collect and remit use taxes for transactions in states in which they do not have a physical presence. In this case, the retailer would be exempt from any audit — except for deliberate fraud — or costs. Larger businesses such as Sears and Wal-Mart would probably ask states to certify their existing tax software and thereby reduce their audit exposure.
Twenty-seven states have formally acted to participate in the project, either by executive order of the governor or by authorizing legislation; 13 are participating in an observer capacity. Officially participating states include Alabama, Arkansas, Florida, Illinois, Iowa, Kansas, Kentucky, Louisiana, Maryland, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Jersey, North Carolina, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, West Virginia, Wisconsin and Wyoming.
Project participants believe 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 across the country — is antiquated, complex and cumbersome to businesses.
Currently, 45 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 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 this case, though, consumers still have the legal responsibility to calculate and pay the use tax directly to their own state. Under the streamlined approach, businesses would assume that responsibility.
The National Governors’ Association is a proponent. The association said in a statement that “one of the problems with so many taxing jurisdictions is that they often have different laws or definitions of what is taxable. For example, a marshmallow might be defined as a food in one state, but as a candy — and therefore not taxed — in the next.
“That arrangement makes it very difficult for online sellers and other remote retailers, such as mail-order companies, to know, calculate, collect and remit sales taxes at varying rates, based on a customer’s location, to different state and local governments.”
Project participants began their efforts in February and have been holding monthly meetings since March.
In September, participants approved a pilot project to test specially designed software — provided by Pitney Bowes, Taxware International, Hewlett-Packard and esalestax.com — for determining, collecting and remitting the use tax owed on a transaction. Four states — Kansas, Michigan, North Carolina and Wisconsin — launched the project Oct. 1. The pilot project will run for one year.
Due to the complexity and number of issues involved, the project conducted a second hearing today that covered details related to the larger proposal, including coming up with definitions of what is taxable and principles for developing a privacy policy to protect consumers.
Hearing participants included Illinois state Sen. Steven Rauschenberger, on behalf of the National Conference of State Legislatures; the National Association of Counties; the National Confectioners Association and Chocolate Manufacturers Association of America; the Midwest Hardware Association; Chevron; National Retail Federation; National Automatic Merchandising Association; Albertson’s Inc.; JCPenney; Illinois Retail Merchants Association; and the Equipment Leasing Association.
This month, project participants — based on comments from interested parties and the public — hope to come to an agreement on model tax simplification legislation. By December, the project hopes to unveil legislation that states can use to implement and participate in a new, simplified sales and use tax system. The project hopes the system will be implemented in 2001.
