Progress in Voluntary Internet Sales Tax Program

The Streamlined Sales Tax Project (SSTP) is moving toward a milestone. SSTP is an effort to merge all the differing methods of assessing and collecting taxes from sales made via the Internet into one certified national program. Toward that goal, the voluntary program should begin certifying the first states as members by the end of June.

Twelve or thirteen states are expected to become full project members by the June 30th. Another six or seven are expected to join the program soon after that.

“They need to show Congress that there’s been some progress,” Charles Collins, Taxware's VP of Government
Affairs, told InformationWeek.

Forty-two states are working on tax provisions to collect Web taxes. Not participating in the program are: Alaska, Delaware, Montana, New Hampshire, and Oregon because they don’t levy sales taxes. Colorado and Idaho do have state sales taxes and are not participating.

At issue are the $15 billion states and other taxing authorities estimate they are losing each year in uncollected Internet sales taxes. The SSTP effort has been ongoing for several years to determine a system to recover these uncollected sales taxes on Internet purchases shipped across state lines.

According to InformationWeek, the project’s mission statement is to “develop measures to design, test, and implement a sales and use tax system that radically simplifies sales and use taxes.”

Combining the efforts of more than 8,000 taxing jurisdictions has been difficult at best. With so many different plans under development, several states have requested clarification of an issue largely avoided by politicians because it is unpopular with voters.

Two requests for proposal are currently being endorsed by the STTP. One is a sales tax tracking system where the STTP would certify software companies to perform various sales and use tax functions. The other is a registration system that would canvas online retailers to determine their willingness to collect taxes.

Some states have instituted their own laws to recover state and local sales taxes on certain Web sales such as cigarettes. The federal Jenkins Act requires interstate sellers of cigarettes to provide information to state tax authorities regarding sales of interstate cigarettes. North Dakota, Michigan, Minnesota, and New York are cracking down on those using the Internet to avoid paying state taxes on cigarette purchases. Online purchasers in North Dakota and Minnesota are sent notices requesting payment of the use taxes attached to their cigarette purchases, mostly without penalties. Moderate to severe penalties are being finalized to improve the low rate of compliance.

“The advent of Internet purchasing is tied to your tax rate,” John Quinlan, compliance officer in the sales and special taxes for North Dakota’s Tax Department told the Grand Folks Herald. North Dakota is ranked 36th or 38th (in the nation) in tax rate, so we don’t see the Internet activity that some of the high tax states do.”

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