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
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 have traditionally been lukewarm or
hostile to the plan, which they argue imposes
burdensome new recording and reporting requirements.
The
states have estimated that 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.
The
states participating in SSTP planned 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 hoped
would 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 of that year to provide free tax collection
and remittance software and services to online
merchants who voluntarily agreed to collect taxes
on all online sales on behalf of the then 18 participating
states.
Internet
retailers that agreed to collect and remit taxes
would do so for online sales originating in any
of the states that have amended their state laws
to fully comply with standards developed by the
sales tax project. In the other states, the internet
sales tax collection would be optional until their
tax codes were 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 at that time.
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 didn't have to collect
California sales taxes because its online division,
which has since been outsourced to Amazon.com,
did 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 were inextricably
linked and could not be defined as separate entities.
In
December 2007, meanwhile, The US Electronic Retailing
Association (ERA), announced that it was "strongly
against" taxation of internet transactions,
and that it intended to fight the Streamlined
Sales Tax Project (SSTP).
According
to the ERA, the only trade association that exclusively
represents electronic retailers, the SSTP would
impede the development of e-commerce and impose
substantial added costs and compliance burdens
on electronic retailers. As an urgent industry
and legislative concern, the groups said that
the collection of taxes on internet transactions
is an issue that must be dealt with "thoroughly
and fairly".
“In
a very short amount of time, the internet has
become an unprecedented marketplace where the
playing field is level for retailers both large
and small,” Barbara Tulipane, ERA President
and CEO, noted in a statement. “The Streamlined
Sales Tax Project and its provisions would create
a cost-prohibitive barrier for smaller retailers
who are the lifeblood of our economy.”
The
ERA believes that while the original Streamlined
Sales Tax Agreement (SSTA) approved by Congress
was created to simplify multiple taxing jurisdictions,
the current plan will make commerce more complicated
for both merchants and consumers. The SSTA now
permits each state to adopt an additional rate,
and with 7,500 sales tax jurisdictions in the
US, the ERA claims that there could be as many
as 15,000 tax rates to administer.
“The
Streamlined Sales Tax Agreement is a moving target.
Its supporters claim that they have a streamlined
collection system. That’s just not true
– in fact their proposal has grown in complexity
over the years due to the many interested parties,”
argued Edwin Garrubbo, CEO of Creative Commerce.
“It would be a nightmare for retailers to
implement this system.”
The
ERA argued that the SSTA would unfairly discriminate
against remote sellers in four ways: first, the
burdens are much greater for remote sellers who
must compute, collect and remit tax for thousands
of jurisdictions, as compared to an in-state retailer
who collects at just one tax rate; second, a direct
marketer must “eat” the difference
if a customer fails to remit the correct tax when
paying by check – a problem that traditional
retailers do not confront; third, in-state retailers
benefit from a wide variety of state and local
government services and programs (including tax
incentives) that are not available to out-of-state
merchants; and fourth, delivery charges on internet
and catalog purchases usually exceed the amount
of sales tax on those same goods – so the
remote seller has no price advantage.
To
date (2009), 22 states have adopted the SSUTA
(Streamllined Sales and Use Tax Agreement, as
it now is), representing 31% of the US population.
Yet without a clear steer from Congress, the SSUTA
remains little more than a brave attempt at harmonization.
Attempts
to persuade Congress to act continue. In April,
2009, the National Conference of State Legislators
(NCSL) sponsored a bill in Congress following
a report commissioned by the Streamlined Sales
Tax Governing Board which estimates that, between
now and 2012, States stand to lose up to USD52bn
in uncollected sales taxes on e-commerce transactions.
This
type of legislation has been tried in every Congress
since 2003, but has never passed either chamber.
The bill would enable States that have complied
with the Streamlined Sales Tax (SST) initiative
to require all online retailers to collect and
remit sales tax from consumers who live in those
States. Neil Osten of the NCSL says the bill will
provide compensation for the cost of complying
with the sales tax legislation.
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