Streamlined sales tax might be the answer to state budgetary woes

The Streamlined Sales Tax Project is moving back into the spotlight with some states visibly hurting for tax dollars and a Congress that seems friendlier toward raising taxes.

The project began in 2000 with a group of people who were dedicated to reducing complexity in multi-state tax issues and harnessing the potential of online sales as a source of tax revenue. The current law, established by the U.S. Supreme Court in Quill Corp. v. North Dakota stated that a state cannot require a seller to collect sales tax on sales made to buyers in that state unless that seller has a physical presence in the state.

This case was decided in 1992, long before many people had even heard of the Internet, and three years before Amazon.com sold its first book (which, for you trivia buffs, was Fluid Concepts & Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought).

Today, times have changed, online retail businesses are thriving, and states that once collected sales tax on purchases made in stores with locations you could touch and see, are claiming they are suffering as a direct result of the revenue lost to online sales that produce little or no sales tax.

Last year, New York took a giant step forward and asserted the claim that an online retailer (Amazon.com) didn't have to have a physical presence in the state to be liable for collecting and paying sales tax if it had affiliates located within the state that provided their customers with access (usually in the form of Web site links) to the out-of-state retailer in exchange for a portion of the revenue on the sale. Amazon fought the ruling, lost, and is now appealing.

Meanwhile, the New York experience has emboldened other states, and suddenly the Streamlined Sales Tax effort which seemed like it might be stalled, is picking up steam and heading for a showdown in Congress.

One of the difficulties in executing a sales tax program is that there are more than 7,500 taxing jurisdictions in the country. Companies doing online business nationally would be responsible for collecting and filing income tax returns in all jurisdictions where they have sales. To deal with the problem, the Streamlined Sales Tax Project has contracted with and certified four companies to provide software assistance: Avalara, ADP Taxware, Exactor, and SpeedTax.

According to Kent Chadwick, Avalara's director of compliance, "Limited audit liability protection is one of the many benefits of the Streamlined Sales Tax project, provided the seller uses a Certified Service Provider (CSP). Additionally, SST states hold harmless any sellers' miscalculations in sales tax, granted they were a direct result of errors provided by an SST state’s rate and boundary file. If an audit is required, the SST states have pledged to limit audits to a two year cycle, beginning with an analysis of transactional data provided by the CSP. Avalara works with state auditors to resolve audit issues before the customer is involved. AvaTax provides customers with the most up-to-date and reliable taxability rules, jurisdictional assignments, and sales tax rates. And because the AvaTax service is completely web-based, the service is capturing transactions in real-time and therefore providing completely accurate sales tax calculations. To prevent errors from occurring, the AvaTax system does not permit overrides or edits on SST transactions."

While it's possible that consumers might consider the SST a new tax and might balk at paying sales tax for online purchases shipped from out of state, Chadwick suggested that, "Clear evidence has shown that larger, more established businesses have had few issues explaining the voluntary collection of sales tax to their customers at the point of initial sale. However, smaller businesses have reported customers' objections."

There is a clear move toward finding ways to provide additional revenue to state governments, and there is a definite possibility that the SSTP will find support in Congress.

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