A Blueprint for Streamlining Sales Taxes: An Agreement on How to Simplify Sales Taxes across State Lines Has Been Reached. Now It's Up to Legislatures to Concur
Tubbesing, Carl, State Legislatures
We'd been in so many hotels over the past two or three years," remembers Oklahoma Senator Angela Monson. "The same people, the same hollow square table, the same milling around, the same hallway conversations.
"Then, that morning last November, we took the vote and it was over. For me, at least, it took a few minutes to sink in. All of these people, from all of these states had just agreed to reform their sales tax systems. No one had ever done that before. wholesale tax reform even in one state is rare. Doing it in 10 or 20 or more states at the same time is absolutely unprecedented. But we had done it--or, at least, had taken a gigantic step in that direction," she says.
What Monson and 99 other state legislators, legislative staff, state revenue officials and representatives of the private sector did was to vote to approve the Streamlined Sales and Use Tax Agreement. This action of the group known as the Streamlined Sales Tax Implementing States culminated a critical phase in a three-year project to allow states to collect taxes on remote sales--for example, Internet sales. Their decision sets the stage for consideration of the streamlined sales tax agreement during the 2003 legislative sessions.
"I was rushing through the Chicago airport following the meeting," continues Senator Monson, who now co-chairs the implementing states group, "and the enormity of what we had accomplished hit me. State officials had just approved a drastic reform of state sales tax systems.
"After a few seconds of euphoria, though, I realized that the first three years were easy. Now comes the really hard part-actually implementing the agreement in state legislatures," she says.
Forty-five states and the District of Columbia use sales taxes. No two systems, though, are exactly alike. They are, in fact, quite complex. The most obvious variation is in rates. The sales tax rate in Hawaii and several other states is 4.0 percent. In Missouri, though, the state rate is 4.225 percent. Rhode Island and Mississippi have a 7 percent rate. In a dozen states, there is only one rate. In the others, there are local sales taxes in addition to the state rate.
Some states tax food and drugs; others don't. In some states, snacks--like pretzels and potato chips--are not considered food, so they are taxed. In others, snacks are defined as food, so they are exempt. Some states have used sales tax holidays, for example, on children's clothing for a week or two before school begins in the fall. States also use many different sales tax return forms and employ various audit procedures for retailers.
SUPREME COURT CASES
It is this complexity that caused the U.S. Supreme Court, in two important cases, to rule that a state cannot require an out-of-state retailer to collect the sales tax on an item sold to one of its residents. Utah cannot force L.L. Bean, a catalogue and Internet seller based in Maine, to collect the Utah sales tax when a Utah resident buys a pair of boots online. The consumer owes the tax, according to the Court, but the Utah revenue department cannot force L.L. Bean to collect it and send it to the state. University of Tennessee economist Bill Fox estimates that, by 2006, states will lose $45 billion a year in uncollected taxes on Internet sales.
The National Conference of State Legislatures and other state and local organizations have worked since the late 1980s to reverse or mitigate the effects of the two Supreme Court decisions--first, National Bellas Hess vs. Illinois and later Quill vs. North Dakota.
These joint efforts initially, but unsuccessfully, sought relief in Congress. More recently, they have focused on interstate cooperation in simplifying state sales taxes.
NCSL formed a task force on taxation of electronic commerce in November 1998. Co-chaired by Illinois Senator Steve Rauschenberger and Tennessee Representative Matt Kisber, the task force developed the model legislation in January 2000 that led to creation of the Streamlined Sales Tax Implementing States. …