The State of Washington is the latest to join the Streamlined Sales Tax Project (SSTP), a coalition of now 22 states that have agreed to work together to modify sales tax rules in their respective states for purposes of allowing retailers to collect sales tax on Internet sales made to out-of-state purchasers.
Washington's membership in the SSTP will go into effect on July 1, 2008, but retailers in the state can begin collecting sales tax under the program immediately. Retailer participation in the program is voluntary at this time.
To get widespread participation among retailers, state officials are striving to enact federal legislation mandating the SST. A 1992 U.S. Supreme Court ruling prohibits states from forcing businesses to collect the states' sales taxes unless the purchasing company has a physical presence in the affected state.
States have argued that when businesses don't collect sales tax it creates an unfair competition for local retailers, since customers can check out merchandise locally and then buy online to avoid the sales tax. The states claim they lose out on the revenue from that tax.
The U.S. Supreme Court has concluded that mandating the collection of sales tax imposed an unfair burden on remote retailers and other businesses. The states have used this explanation as a catalyst for simplifying sales tax so that anyone can collect it easily across state lines.
The SSTP, an outgrowth of the National Governors Association, the Multistate Tax Commission, and the Federal Tax Administrators, is developing a sales tax simplification and uniformity plan under which states would agree to levy a single in-state general sales tax for all but exempted products such as food and drugs, which would carry a separate rate or no rate at all, depending on the state.