The Streamlined Sales and Use Tax Agreement takes effect Oct. 1, but how many remote sellers will start voluntarily collecting taxes on sales that occur via the Internet, telephone or catalog is anybody's guess.
Created in 2002 by the Streamlined Sales Tax Project, the SSUTA aims to make it easier for retailers that do business in multiple states to calculate, collect and remit existing use tax.
For the agreement to take effect, 10 states representing 20 percent of the population of states with sales taxes needed to pass legislation. So far, 18 states have done this. Some states are full members of the SSUTA's governing board while others are associate members in partial compliance of the agreement.
Full members are: Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, North Carolina, Oklahoma, South Dakota and West Virginia. Associate members are: Arkansas, Ohio, New Jersey, North Dakota, Tennessee, Utah and Wyoming. New Jersey and North Dakota are expected to become full members Oct. 1, and Nevada is to become an associate member.
Retailers who choose to participate in the SSUTA are required to collect and remit sales tax for full-member states, but can pick from associate members. The agreement becomes mandatory only if federal legislation is enacted to give the states mandatory-collection authority. Such legislation likely will be introduced in Congress soon, but prospects for passage this year are poor.
Currently, online and catalog businesses don't have to collect and remit sales tax to states where they have no physical presence because of a 1992 U.S. Supreme Court ruling. Quill v. North Dakota held that it would be too burdensome if businesses had to collect and remit sales taxes on behalf of the 7,600 state and local taxing jurisdictions nationwide.
On Oct. 1, software vendors that responded to a request for proposal begin providing free tax collection and remittance software to participating retailers. The seller enters a customer's nine-digit ZIP code and receives the amount of the sales tax based on the buyer's address. Any taxes collected would be based on the rates where the buyer lives, and retailers would be compensated for the cost of collecting and remitting that revenue to the states.
Another option is for retailers to collect tax on remote sales themselves and fill in a “simplified electronic return.” Retailers who choose this method get to keep a percentage of the remote sales tax they collect for up to 24 months after registering to help defray compliance costs.
Under the SSUTA, the states promised that businesses that start collecting taxes Oct. 1 will get a yearlong amnesty from states seeking any back taxes for previous purchases. But it's uncertain how many retailers will do this. One reason is that revealing their names would let the states that rejected the deal chase down the companies for back taxes.
Another reason is that some retailers, including Amazon.com, have publicly opted out. Rich Prem, director of global indirect taxes for the Seattle-based company, has said important issues remain before Amazon will volunteer to collect tax and before it thinks Congress should mandate remote sellers to do so.
Mark Micali, vice president of government affairs at the Direct Marketing Association, said the SSUTA hasn't simplified tax collection. As to whether the retail landscape will be different on Oct. 1 versus Sept. 30, Micali said “that's very hard to tell at this point.
“A number of companies have been in a gray area, where they have an online company that is separate from their brick-and-mortar company, and the online company had not been collecting sales tax in other than its home state, but there may have been an integration between the two companies that would create nexus and tax liability for online sellers,” he said. “These companies may volunteer because they may have created nexus and they will have an amnesty from back-tax liability and will agree to collect back taxes going forward.”
But Micali said he doesn't see a vast majority of retailers opting to do so. Others are more optimistic.
“We are seeing a huge amount of interest,” said Rory Rawlings, founder and chief tax automation officer at Avalara, Bainbridge Island, WA, one of the certified vendors providing software in the program. But Rawlings warned that though the agreement takes effect Oct. 1, “I don't believe there will be any contract in place, and I don't believe there will be any [software providers] that will be in operation. That's just an opinion.”
Diane Hardt, co-chairman of the Streamlined Sales Tax Project and tax administrator for the Wisconsin Department of Revenue, said 30 national retailers have signed on to the project, but she declined to name them. Many tax practitioners “have come to us that have clients who are interested in signing up and asking how to go about it after Oct. 1.”
Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters