Towards a Uniform National Sales Tax System
The nationwide effort to create a uniform sales tax system is under way and gaining steam, as 13 states, so far are cooperating to create a streamlined collection process.
The Streamlined Sales and Use Tax Agreement is a multi-state initiative meant to simplify the varying sales tax laws for businesses that sell their products in multiple states.
Forty-four states agreed, in November 2002, to participate in the program. The agreement officially took effect last October, when the 13 states became full members. They are: Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, New Jersey, North Carolina, North Dakota, Oklahoma, South Dakota and West Virginia.
Utah is set to join the consortium this summer, while Arkansas, Nevada, Ohio, Tennessee and Wyoming should jump on board sometime next year.
“The states basically got together to try to standardize their sales tax laws and rules to make collection of sales tax not as onerous on business,” said Matt Walsh, director of tax research for Massachusetts-based TaxWare.
TaxWare, which offers transaction tax software solutions for businesses, is one of four companies the Streamlined Sales Tax Governing Board is evaluating to direct and remit the taxes for states. The board is overseeing the project.
Mail-order based retailers have, for many years, been able to sell to customers out of state without having to apply sales tax to the transactions. That is because there has never been an efficient way to distribute the tax collected to the state in which the products are delivered, Walsh said.
But due to the growing popularity of Internet shopping, states want to close the long-overlooked loophole. Under the agreement, when a consumer from one state buys goods from a company located in another state, the retailer will collect a sales and use tax, which will be distributed to the state in which the product was delivered.
Wal-Mart, JCPenney and Target are among the biggest supporters of the effort, said Scott Peterson, executive director of the governing board.
“They’re trying to reduce the unnecessary differences between the states and how they administer sales taxes,” Peterson said. “It costs them money.”
While the sales tax amount might be the same in numerous states, exemptions add to the difficulties in collecting the taxes. Some states tax groceries and others don’t. In states that exempt them, there are six different definitions for what is considered food, Peterson said. One of the first things the agreement did was to actually define food, to further streamline the process.
Businesses that previously did not collect sales tax can register with the state and receive amnesty for previously uncollected taxes for up to a year after the state becomes a member of the agreement.
Of the 45 states that collect sales tax, Colorado is the only one that is not participating, Peterson said, because “the governor does not support what we’re trying to do.” The District of Columbia also has committed to the agreement.
Alaska, Delaware, Montana, New Hampshire and Oregon do not collect sales tax.
As sales from online purchases skyrocket, states are getting serious about collect taxes from the companies.
A California appeals court ruled last June that Borders Group Inc., the second-largest U.S. bookstore chain, owed taxes on online sales made to residents of the state.
The ruling means companies selling goods over the Internet to California customers may have to add taxes of as much as 8.75 percent, even if they don’t have stores in the state. California loses out on about $1.3 billion a year in uncollected taxes on online and mail-order sales, said Anita Gore, a spokeswoman for the California Board of Equalization, in a Bloomberg News story.
Borders discontinued its online unit, Borders Online LLC, in 2001 and now lets customers order books through an alliance with Amazon.com Inc., keeping a percentage of the sales.
Seattle-based Amazon, the largest Internet retailer, doesn’t collect taxes on sales in California. The ruling won’t affect the company because it lacks a physical presence in the state.
The First Appellate Court of Appeals said Borders’ return policy and cross selling between its online unit and stores established that the Borders stores were “representatives” of Borders Online, according to Bloomberg.
Conversely, some states are again offering sales tax holidays, in which consumers can purchases items without paying the tax. The holidays were most popular in August, when students were returning to class. But they fell out of favor in the early part of the decade, when the economy turned sluggish, Walsh said.
But states are beginning to offer the specials again. Georgia, Louisiana and Massachusetts were among those that did last year. Louisiana’s holiday was meant to spur the state’s economy following the hurricanes.