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Click here to return to this month's Article Index The Cutting Edge™ August 2005Public PolicyComing Attractions - A Uniform Simplified State Sales and Use Tax SystemBy John Satagaj, WMMA Legislative Counsel, email@jsatlaw.com While Congress and the President have focused on tax relief rather than tax reform, the states have taken the opposite path with respect to sales and use taxes. Over the last several years, the states have embarked on a journey to create a uniform, simplified sales and use tax system. If everything goes according to plan, the new system will be up and running on October 1, 2005. Eighteen states have been ratified as "good to go" or "soon to go" participants in the new system. This number exceeds the threshold set by the states themselves as the minimum necessary to put the system into effect. The states ready to go now are Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Nebraska, North Carolina, Oklahoma, South Dakota, and West Virginia. New Jersey, North Dakota, Ohio, Tennessee, and Utah have approved the necessary legislation but the effective dates are in the future. This project came about because in the early 2000s, a number of states decided they had to eliminate one of the fundamental objections to expanding the definition of "nexus" to allow states to force remote sellers to collect and remit use taxes. The fundamental objection was that sales and use tax regimes varied greatly from state to state and local jurisdiction sales taxes further complicated collection and remittance. On November 12, 2002, representatives of 33 states and the District of Columbia voted to approve a multi-state agreement to simplify the nation's sales tax laws by establishing one uniform system to administer and collect sales taxes. The effort is known as the Streamlined Sales Tax Project (SSTP). Under the agreement, a certain number of states with a certain percentage of the population must be in compliance in order for the system to go into effect. The goal of the SSTP is to provide states with a Streamlined Sales Tax System (SSTS) that includes the following key features: Uniform definitions within tax laws. Legislatures still choose what is taxable or exempt in their state. However, participating states will agree to use the common definitions for key items in the tax base and will not deviate from these definitions. As states move from their current definitions to the Project's definitions, a certain amount of impact on state revenues is inevitable. However, it is the intent of the Project to provide states with the ability to closely mirror their existing tax bases through common definitions. Rate simplification. States will be allowed one state rate and a second state rate in limited circumstances (the second rate would cover food and drugs). Each local jurisdiction will be allowed one local rate. A state or local government may not choose to tax telecommunications services, for example, at one rate and all other items of tangible personal property or taxable services at another rate. State and local governments will accept responsibility for notice of rate and boundary changes at restricted times. State-level tax administration of all state and local sales and use taxes. Businesses will no longer file tax returns with each local government within which it conducts business in a state. Each state will provide a central point of administration for all state and local sales and use taxes and will distribute the local taxes to the local governments. A state and its local governments will use common tax bases. Uniform sourcing rules. The states will have uniform and simple rules for how they will source transactions to state and local governments. The uniform rules will be destination/delivery based and uniform for tangible personal property, digital property, and services. Simplified exemption administration for use- and entity-based exemptions. Sellers are relieved of the "good faith" requirements that exist in current law and will not be liable for uncollected tax. Purchasers will be responsible for paying the tax, interest, and penalties for claiming incorrect exemptions. States will have a uniform exemption certificate in paper and electronic form. Uniform audit procedures. Sellers who participate in one of the certified SSTS technology models will either not be audited or will have limited scope audits, depending on the technology model used. The states may conduct joint audits of large, multi-state businesses. State funding of the system. To reduce the financial burdens on sellers, states will assume responsibility for funding some of the technology models. The states are also participating in a joint business-government study of the costs of collection on sellers. What I do not know, and perhaps you can help WMMA and me with this, is whether this would have a particular impact on your business and our industry. On first blush, I don't think it has a unique impact, but please let us know if you see an angle here that we do not. If you need more information on what is happening, there is a website: www.streamlinedsalestax.org. Thanks. Table of Contents
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