The
Streamlined Sales Tax Program
The
response of the states to losses of sales tax
revenue on Internet commerce was to band together
in the Streamlined Sales Tax Project (SSTP), which
resulted in the Streamlined Sales and Use Tax
Agreement (SSUTA). The agreement is available
at via the Streamlinedsalestax.org
website.
Under
the SSUTA, states are required to establish uniform
definitions for taxable goods and services, and
maintain a single statewide tax rate for each
type of product. The project also seeks to simplify
tax reporting requirements for online sellers.
But while some retailers support the SSTP, businesses
in general are lukewarm or hostile to the plan,
which they argue imposes burdensome new recording
and reporting requirements.
Currently
the states estimate they are losing over $15bn
a year from Internet sales, although much of this
relates to uncollectable inter-state sales. The
Supreme Court ruled in 1992 that states could
not force businesses outside their borders to
collect their sales taxes unless the companies
have stores or headquarters (nexus) in those states.
With
21 US states having passed legislation to join
the SSTP (Streamlined Sales Tax Program) by March
2005, a further ten states well ahead in the legislative
process, and virtually all states having announced
their agreement in principle, it was thought to
be only a matter of time before Congress legislates
to make the SSTP's principles compulsory. Currently
the states estimate they are losing over $15bn
a year from Internet sales, although much of this
relates to uncollectable inter-state sales. Collection
by sellers of sales and use taxes on anything
other than cigarettes remains voluntary under
the Agreement until either Congress or the Supreme
Court acts to make this collection mandatory.
The
states participating in SSTP plan to entice online
merchants to collect sales taxes voluntarily by
sharing with them a portion of the tax revenues
that they remit, but it's far from clear that
this will be enough to persuade a multi-state
retailer to keep 45 sets of records. Online sellers
would be required to purchase approved tax-calculation
software or to certify with the states any in-house
calculation systems already in place; or they
could choose to outsource tax collection to a
certified third-party.
In
July, 2005, the SSTP made further progress when
tax officials, state lawmakers and industry representatives
agreed to establish an 18-state network for collecting
taxes on internet sales in a deal that they hope
will encourage online retailers and Congress to
adopt a national online sales tax framework.
"The
vote is a culmination of over five years of hard
work by states, local governments and businesses
interested in seeing the complexity in sales tax
[reduced]," noted Stephen Kranz, tax counsel for
industry trade association the Council on State
Taxation.
As
a result of the agreement, software vendors contracted
by the Streamlined Sales Tax Project began on
October 1 to provide free tax collection and remittance
software and services to online merchants who
voluntarily agree to collect taxes on all online
sales on behalf of the 18 participating states.
Internet
retailers that agree to collect and remit taxes
will do so for online sales originating in any
of 11 states that have amended their state laws
to fully comply with standards developed by the
sales tax project. In the other seven states,
the internet sales tax collection is optional
until their tax codes are brought into full compliance.
In both these cases, any taxes the retailer collected
would be based on the rates in effect where the
buyer lives, and the retailers would be compensated
for the cost of collecting and remitting that
revenue to the states. More than 30 retailers
were said to have agreed to participate in the
program.
The
agreement came soon after a three-judge panel
at the California 1st District Court of Appeal
in San Francisco ordered Borders.com, the online
division of the bookseller Borders Group, to pay
$167,000 in back taxes to the state because the
company allowed customers who bought books online
to return them at the company's brick-and-mortar
stores.
Borders had argued that it doesn't have to collect
California sales taxes because its online division,
which has since been outsourced to Amazon.com,
does not own or lease property in the state, and
all internet orders were received and processed
outside the state. However, the judges felt that
the firm's web site and retail stores are inextricably
linked and could not be defined as separate entities.
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